Agree Realty's Defensive Edge in a High-Rate Environment

In an era marked by rising interest rates, inflationary pressures, and economic uncertainty, income-focused investors are increasingly seeking defensive assets that can weather macroeconomic volatility. One such asset is Agree Realty (ADC), a retail real estate investment trust (REIT) that has built a compelling case as a core holding for conservative investors. With a fortress balance sheet, disciplined capital allocation, and a recession-resistant tenant base, ADC is uniquely positioned to generate stable cash flows and preserve capital in today's challenging environment.

The Fortress Balance Sheet: A Foundation for Stability

Agree Realty's balance sheet is one of its most compelling strengths, particularly in a high-rate environment where liquidity and leverage management are critical. As of Q2 2025, the company has a pro forma net debt to recurring EBITDA ratio of 3.3x, significantly below the industry average of over 6x for retail REITs. This conservative leverage, combined with a fixed charge coverage ratio of 4.4x, demonstrates its ability to service debt obligations even amid economic headwinds.

The company's liquidity position is equally impressive, with over $2.0 billion in total liquidity as of December 31, 2024. This includes $1.1 billion in availability under its expanded $1.25 billion senior unsecured revolving credit facility. With no material debt maturities until 2028, ADC is well-positioned to execute its growth strategy without the immediate pressure of refinancing, a critical advantage as the commercial real estate sector faces a projected $500 billion in U.S. loan maturities in 2025.

Disciplined Capital Allocation: Building for the Long Term

Agree Realty's capital allocation strategy is another key driver of its defensive profile. In 2024, the company invested $951 million in 282 retail net-lease properties, achieving a weighted-average capitalization rate of 7.5%. These investments are characterized by long-term leases (10.4 years on average) and a focus on necessity-based retail tenants, which provides a stable and predictable cash flow stream.

The company's disciplined approach to capital raising has also strengthened its balance sheet. In 2024, ADC raised $1.1 billion in forward equity via its ATM program and an overnight offering, while issuing $450 million in senior unsecured notes at a 5.65% coupon. These actions have fortified its liquidity position and enabled it to maintain a sustainable 73% dividend payout ratio, ensuring that dividends remain well-supported by cash flow.

Looking ahead, ADC has set an investment outlook of $1.1 billion to $1.3 billion for 2025, representing a 26% year-over-year increase in investment volume at the midpoint. This growth is supported by a 99.6% leased portfolio with a weighted-average remaining lease term of 7.9 years, providing a strong foundation for future cash flow generation.

Recession-Resistant Tenant Base: A Shield Against Downturns

One of the most compelling aspects of Agree Realty's business model is its focus on necessity-based retail tenants. These include grocery stores, auto parts retailers, and logistics operators—sectors that tend to perform well even during economic downturns. As of December 31, 2024, 68.2% of the company's annualized base rents come from investment-grade retail tenants, further insulating it from tenant-specific risks.

ADC's tenant diversification extends beyond traditional retail, with strategic investments in logistics and industrial sectors. For example, the company has developed properties for CarMax and AutoZone, which benefit from the ongoing shift toward e-commerce and domestic manufacturing. This diversification not only broadens ADC's revenue streams but also aligns with macroeconomic trends that favor supply chain resilience.

Recent tenant activity further reinforces the company's defensive characteristics. In Q1 2025, ADC successfully re-leased former Big Lots locations to Aldi, achieving a 50% net effective rent increase while maintaining a 99.2% occupancy rate. This ability to adapt to changing retail dynamics and secure premium rents is a testament to the company's operational expertise and the desirability of its properties.

A Compelling Investment Case

Agree Realty's defensive characteristics are further supported by its strong financial performance and positive investor sentiment. In 2024, the company's Core FFO per share increased 3.7% to $4.08, and AFFO per share rose 4.6% to $4.14. These results reflect the company's ability to generate consistent cash flow even in a challenging macroeconomic environment.

The company's 2025 AFFO guidance of $4.26 to $4.30 per share indicates confidence in its ability to maintain strong cash flow generation. With a 2.4% dividend yield and a track record of sustainable dividend growth, ADC offers income-focused investors a compelling combination of yield and capital preservation.

Analysts have taken notice of ADC's strong fundamentals, with eight of the past quarter's 12-month price targets averaging $81.06, a 3.26% increase from previous estimates. The company's recent credit rating upgrade to BBB+ by S&P Global Ratings also underscores its financial strength and conservative capital structure.

Conclusion: A Core Holding for Income Investors

In a high-rate environment where many REITs face refinancing risks and declining valuations, Agree Realty stands out as a rare defensive play. Its fortress balance sheet, with conservative leverage and strong liquidity, provides a solid foundation for long-term growth. Disciplined capital allocation ensures that the company continues to build a high-quality portfolio of income-generating assets, while its focus on necessity-based retail and logistics tenants insulates it from many of the risks facing the broader real estate sector.

For income-focused investors seeking stability and predictable cash flows, Agree Realty offers an attractive combination of defensive characteristics and growth potential. With its strong financial position, strategic tenant mix, and disciplined approach to capital management, ADC is well-positioned to deliver consistent returns in a challenging macroeconomic climate. As the company continues to execute on its growth strategy and maintain its conservative financial policies, it remains a compelling core holding for investors seeking to preserve and grow their income portfolios.