ADC

Agree Realty ($ADC) Insiders Buy $6.6M+ at $70-74 - But $750M Dilution Clouds Picture

12/29/2025 21:40

Agree Realty ($ADC) director John Rakolta Jr has invested $6.6 million in company stock over the past year. Between December 2024 and October 2025, he made five concentrated purchases totaling 93,509 shares at an average price around $71. CEO Joey Agree also added 10,478 shares (approximately $750,000) during the same period. With the stock trading near 52-week lows, this large-scale insider buying represents a powerful signal that management believes the shares are undervalued relative to intrinsic value. Agree Realty is a mid-cap REIT operating a retail net lease business across the United States. It owns 2,603 properties in all 50 states with total leasable area of approximately 54 million square feet. A key strength is that 67% of the portfolio consists of investment-grade tenants, ensuring high lease payment stability. The net lease model, where tenants bear all property taxes, insurance, and maintenance costs, provides the REIT with predictable cash flows. Major tenants include large retail chains like Walmart, Home Depot, and Lowe's—companies that require physical locations even in the e-commerce era, supporting long-term lease stability. Third quarter 2025 results showed Core FFO of $1.09 per share, up 8.4% year-over-year, while net income rose 18.2% to $50.3 million. The company acquired 110 net lease properties worth $451 million in aggressive portfolio expansion. Management raised 2025 investment guidance to $1.5-1.65 billion and increased adjusted FFO per share guidance to $4.31-4.33. The quarterly dividend was raised 2.3% in October to $0.262 per share, bringing the forward yield to 4.26%. However, significant dilution pressure lurks beneath this growth story. Over the past year, the company raised over $750 million in capital. It issued 4 million shares in October 2024 and 5.175 million shares in April 2025, both at discounts to market price. In May, it issued $400 million of 5.600% senior unsecured notes. In November, it secured a $350 million 5.5-year term loan. This aggressive capital raising has pressured per-share metrics, causing EPS to miss analyst estimates for two consecutive quarters. Q2 actual EPS was $0.43 vs. $0.45 expected; Q4 was $0.41 vs. $0.43 expected. At the current price of $72, the stock trades just 6% above the 52-week low of $67.58 and about 10% below the high of $79.65. Annual returns of +3.0% YTD and +3.21% over one year significantly underperformed the S&P 500. From a valuation perspective, the P/E ratio of 42.43x is elevated for a REIT, but the forward P/E of 35.97x and 4.26% dividend yield appear reasonable for a growth-oriented REIT. The debt-to-equity ratio of 57.69% falls within the REIT sector average, and levered free cash flow of $432.46 million annually indicates solid financial stability. Analyzing the timing of management purchases reveals an interesting pattern. Director Rakolta concentrated his buying when the stock dropped to the $70-71 range: early December 2024 around $70, April 2025 at $71, June at $74, and October when it fell back to $70. CEO Agree's purchases concentrated in August and October—timing that coincided with price weakness following the Q2 earnings miss. Importantly, these purchases weren't merely automatic dividend reinvestment (DRIP). Substantial new cash investments were involved, and the multiple tranches suggest either dollar-cost averaging strategy or compliance with internal trading restrictions. From an investor perspective, how should this signal be interpreted? The positive case is clear. Directors and the CEO who have the best insight into the company's financial condition and growth outlook invested tens of millions of their own money, signaling strong conviction that current prices undervalue the company. Particularly with the Fed's rate-cutting cycle underway, the REIT sector may enter a structural valuation re-rating phase. With 10-year Treasury yields around 4.2% and Agree Realty's dividend yield at 4.26%, the relative attractiveness could increase if rates decline further. Negative aspects cannot be overlooked. The company's aggressive dilution through continuous equity raises is the primary concern. Two large offerings occurred in 2025 alone, diluting existing shareholders. This makes near-term per-share metric improvement difficult and constrains price appreciation. Indeed, consecutive Q2 and Q4 EPS misses stemmed from this dilution effect. While the analyst consensus price target is $82, Mizuho recently cut its target from $77 to $75 with a Neutral rating, indicating the market remains skeptical of the growth strategy. Key investment criteria include: First, whether the Fed delivers additional rate cuts. An expected 50bp cut in 2026 could trigger sector-wide REIT revaluation. Second, the pace of equity issuance. Continued large offerings in 2026 would delay per-share metric improvement. Third, whether quarterly EPS begins exceeding analyst estimates, signaling that dilution effects are being absorbed. In a bullish scenario, rate cuts combined with sector re-rating and $1.5+ billion investments contributing to FFO could drive the stock above $80. The base case envisions gradual appreciation to $75-78 while providing a mid-4% dividend yield. The bearish scenario involves risk of re-testing $65-68 if rate cuts are delayed or negative events hit retail real estate. Near-term (1-6 months), the next earnings release will be a critical inflection point. If EPS exceeds estimates while investments are executed without new equity raises, it would be a positive signal. As the Fed's 2026 rate-cutting path becomes clearer in Q1, the REIT sector may rebound, making current levels an attractive entry point. However, further decline to $67-68—below insiders' $70 purchase price—could offer an even more compelling entry. Long-term (6+ months), success of the growth strategy is key. With a 2,603-property portfolio expanding by $1.5+ billion annually, if this translates to meaningful FFO and dividend growth in 3-4 years, current prices would represent an attractive entry opportunity. Since REITs fundamentally offer dividend income plus asset appreciation, earning a 4.26% yield while awaiting portfolio expansion gains is a viable strategy. However, structural pressure on retail real estate from e-commerce growth remains a long-term risk. In conclusion, Agree Realty presents a complex situation where insider purchases exceeding $6.6 million send a strong undervaluation signal, yet aggressive dilution constrains near-term price appreciation. The insider buying reflects conviction in long-term intrinsic value, but realizing that value in the stock price requires completion of the dilution cycle and earnings improvement. For dividend-focused long-term investors who can earn a 4%+ yield while awaiting the rate-cutting cycle, this warrants consideration. For traders seeking near-term price appreciation, catalysts remain unclear. A decline below $70 would offer entry at insiders' purchase prices, while a breakout above $80 would signal a genuine uptrend reversal.