Agree Realty: A Fortress in the Retail Storm – Why Ground Leases Anchor This REIT's Resilience

In an era of relentless retail disruption—where e-commerce giants redraw the map of consumer behavior and traditional brick-and-mortar stores falter—Agree Realty (ADC) emerges as a paradoxically stable force. The company's focus on ground leases, net lease models, and portfolios anchored in essential retailers has positioned it as a defensive stalwart in a sector rife with volatility. Let's unpack how Agree Realty is leveraging these strategies to shield investors from retail's growing pains while delivering dividend certainty and growth.

The Ground Lease Advantage: Anchoring Cash Flow in Stability

Ground leases are Agree Realty's secret weapon. As of Q1 2025, its portfolio of 231 ground leases across 37 states (6.4 million square feet) represents 10.6% of annualized base rents—a segment that's 100% occupied with a weighted-average lease term of 9.5 years. Crucially, 88% of these rents come from investment-grade tenants, such as Walmart, Tractor Supply, and Dollar General, which are insulated from economic downturns.

The model's brilliance lies in its zero-vacancy risk: tenants own the buildings but lease the land, creating a symbiotic relationship where both parties have a vested interest in maintaining the asset. This structure also allows Agree Realty to avoid costly capital expenditures for building maintenance, focusing instead on steady rental income.

Essential Retailers: The Bedrock of Recurring Cash Flow

Agree Realty's portfolio is laser-focused on sectors that thrive even when the broader economy sputters. Grocery stores, home improvement, and auto-related services collectively account for 34.8% of annualized base rents, with Walmart alone contributing $38.5 million annually. These are not discretionary luxuries but daily necessities, ensuring demand remains inelastic.

The diversification is deliberate: the top 15 tenants account for just 37.3% of total rents, while smaller “Other” tenants (none exceeding 1.5% individually) make up 46.6%. This structure minimizes exposure to any single tenant's missteps while spreading risk across 50 states—no region exceeds 7.1% of rents (Texas is the largest).

A Fortress Balance Sheet: Liquidity, Leverage, and Optionality

Agree Realty's financial discipline is its unsung hero. As of March 2025, the company boasts $1.9 billion in total liquidity, including a $625 million unsecured commercial paper program—a rarity among mid-cap REITs. Its pro forma net debt to EBITDA ratio is a conservative 3.4x (excluding unsettled forward equity), and total debt to enterprise value is 25.5%, signaling ample capacity to weather rising interest rates or tenant payment delays.

This strength allows Agree to act opportunistically. In Q1 2025 alone, it acquired $13.5 million in ground leases and raised its full-year investment guidance to $1.3–$1.5 billion, signaling confidence in deploying capital wisely.

Omnichannel Resilience: Properties That Adapt, Not Die

While physical retail faces existential threats, Agree Realty's properties are designed for omnichannel relevance. For instance, its development pipeline includes projects for TJX Companies, 7-Eleven, and AutoZone—all of which blend physical convenience with digital integration (e.g., click-and-collect, mobile ordering).

Moreover, the portfolio's minimal lease expirations (just 0.9% in 2025 and 4.4% cumulative through 2027) ensure steady cash flow visibility. Tenants with long-term leases have skin in the game to adapt their businesses to evolving consumer habits, reducing turnover risks.

Risks? Yes, but Mitigated by Design

No investment is risk-free. Agree's reliance on ground leases means it profits only from land appreciation, not building value—a potential headwind if property values slump. However, its investment-grade tenant base and short-term lease reset mechanisms provide a buffer. Additionally, the diversified geographic and sector exposure limits regional or industry-specific shocks.

Investment Thesis: A Core Holding for Dividend Seekers

Agree Realty's 73% AFFO payout ratio leaves ample room for dividend growth, and its 2.4% dividend increase in 2025 underscores its commitment to shareholder returns. With $4.27–$4.30 AFFO per share guidance, the stock offers a 3.1% dividend yield—a compelling spread over short-term rates.

The company's $917 million in forward equity proceeds and $928 million undrawn credit line further insulate it from liquidity squeezes. For investors prioritizing capital preservation and income, Agree Realty checks all boxes:

• Defensive sector exposure (essential retail)
• Low leverage and high liquidity
• Long-dated leases with creditworthy tenants
• Proven dividend growth track record

Final Verdict: Buy and Hold

Agree Realty isn't a high-beta play for chasing growth; it's a core portfolio anchor for investors seeking stability. Its ground lease model, essential tenant focus, and fortress balance sheet make it uniquely equipped to navigate retail's evolution. While the sector faces headwinds, Agree's strategy ensures it will remain a dividend stalwart—ideal for long-term holders.

Consider Agree Realty as a buy at current levels, with a long-term horizon to capture its steady dividend growth and capital appreciation in a resilient niche.