AGREE REALTY CORP (ADC) stock intrinsic value fair value estimate & owner earnings analysis

Agree Realty owns free-standing retail buildings and leases them to national retailers on net leases, meaning the tenant pays property taxes, insurance and most upkeep. At the end of 2025 it owned 2,674 properties in all 50 states, 99.7% leased, with $733 million of annualized base rent. Tenant concentration is low: Walmart 5.6% of rent, Tractor Supply 4.9%, Dollar General 3.9%, then O'Reilly, TJX, Best Buy, CVS, Kroger, Lowe's and Hobby Lobby at roughly 3% each; about two-thirds of rent comes from investment-grade tenants. One correction to our earlier write-up: the average remaining lease term on the whole portfolio is about 7.8 years, not 11.5 years (11.5 years is the term on the properties bought in 2025). Roughly 39% of rent comes up for renewal between 2027 and 2031, so re-leasing matters more than we previously described. How we measure the cash. We start from cash from operations, strip out working-capital swings, and deduct stock compensation and the capitalized building improvements the company spends on properties it already owns (about $12-13 million a year). Purchases of new properties are treated as optional growth investment, not a cost of staying in business. On that basis, owner earnings were $4.31 per share in 2025. Because this company carries meaningful debt, we now value the business before its lenders are paid and then subtract what it owes. Adding back cash interest paid ($129 million in 2025, using the company's corrected 2023 and 2024 interest-paid figures), the cash the properties produce before lenders was $4.60 per share in 2023, $5.03 in 2024 and $5.47 in 2025. We anchor on the median of 2023-2025 ($5.03), the period that reflects today's much larger portfolio and today's interest-rate environment. That figure rose 8.6% in 2025 (6.7% after interest); our base case assumes 8.6% for the first year, which simply brings it back to the $5.47 level the portfolio already earned in 2025 on leases already signed. The first half of 2026 shows cash from operations up 12% but the diluted share count up 10.5%, so per-share cash before interest grew only about 2%. That is why we give no credit beyond the first year to growth that depends on buying more properties with newly issued shares and new debt. What growth we credit. The company has grown for years mostly by acquiring properties funded with new stock and new borrowing. That has worked, but it depends on capital markets staying open at good prices, which is not something the business controls, so it is left out of all three cases. We credit only what is locked in: rent increases already written into leases (about 1% a year on average) and, in the bull case, the company's own retained cash (roughly a quarter of its cash flow, which it has reinvested in more properties every year for more than a decade). Base case: cash before interest of $5.47 per share in year one (about $680 million), growing 1% a year through year ten, then held flat indefinitely. The flat long tail rests on real estate that has stayed 99%-plus leased through the pandemic and several retail bankruptcies, with land that keeps its value; we give it no growth beyond year ten because most of today's leases will have rolled by then. The business is worth about $12.1 billion, or $97.53 per share. It owes about $3.74 billion, or $30.10 per share, leaving $67.43 per share for shareholders. Bear case: rent losses of about 4% in the first year from closures in pharmacy (3.6% of rent) and dollar stores (6.4% of rent), sectors where tenants are already shrinking their store counts. No growth for the rest of the decade, as rent increases are offset by vacancies and lower rents on the 39% of rent expiring from 2027 to 2031. After year ten, cash flow shrinks 1% a year as buildings age. The business is worth about $10.0 billion ($80.06 per share); less $30.10 of debt leaves $49.96 per share. Even here, cash before interest of about $650 million covers today's roughly $140 million interest bill more than four times, and more than twice even if all the debt were refinanced at 6%. Bull case: year one at the level shown by the first two quarters of 2026 ($5.50 per share), growth of 2% a year through year ten from lease escalators plus reinvested retained cash, 1% a year for the following twenty years, then flat. The business is worth about $14.1 billion ($113.11 per share); less $30.10 of debt leaves $83.01 per share. What it owes. At June 30, 2026, borrowings were $3.85 billion: $2.61 billion of senior notes maturing from 2027 to 2035, $700 million of term loans fixed by interest-rate swaps at about 4.0-4.4% (due January 2029 and May 2031), $42 million of mortgages, and about $500 million of commercial paper and credit-line borrowing. Cash was only $12.5 million. Most of the fixed-rate debt costs well below 6%. The 2028 public notes carry 2.0%, the 2030 notes 2.9% and the 2033 notes 2.6%. We credit that cheap funding until each bond matures, which reduces the debt figure by about $217 million. The $175 million of 4.25% preferred stock ranks ahead of common shareholders and is counted at about $124 million, the present value of its dividend. Nothing in the filings points to refinancing trouble. The next sizeable maturities are $410 million of notes in 2028 and the $350 million term loan in January 2029. Why our estimate changed. Our previous figures were roughly $75 bear, $96 base and $106 bull. That work valued the cash left after today's interest bill and never subtracted the debt. In effect it assumed $3.85 billion of borrowing, much of it at 2-3%, would roll forever on today's terms. It also credited 4% annual growth fading to 2%, which relied on continued share and debt issuance. Subtracting the debt, counting the preferred stock and crediting only locked-in growth lowers every case. Our estimate would prove too low if the company keeps doing what it has done for years: issuing shares at prices above what the properties are worth and buying new properties at yields well above its cost of money. It would prove too high if store closures spread among dollar-store, pharmacy or other retail tenants.