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AGREEK NOWLE DG EBA SEWHY NET LEASEIS SUPERIOR IN ANOMNI-CHANNEL WORLD
CONTACTLESS CURBSIDEIS NOW AVAILABLE IN ALLTRACTOR SUPPLY CO STORESContents03EXECUTIVE SUMMARY04A VISUAL COMPARISON OF FREE-STANDING RETAIL AND TRADITIONAL SHOPPING CENTERS05 FREE-STANDING REAL ESTATE IS THE FUTURE FOR RETAILERS06THE DAYS OF GETTING CUSTOMERS IN THE DOOR ARE WANING; VEHICULAR CIRCULATION IS CRUCIAL10ABOUT USA G R E EK N O W L E D G EB A S EWHY NET LEASE IS SUPERIOR IN AN OMNI-CHANNEL WORLD0 2
Executive SummaryWHAT DO COSTCO, WALMART, TARGET, HOME DEPOT, McDONALD’S, STARBUCKS,TRACTOR SUPPLY AND CHICK-FIL-A HAVE IN COMMON?They are ALL free-standing (net lease) retailers that control their entire premises, or in common real estateparlance, from “curb-to-curb”. Parking configurations, drive-through windows, designated pickup spacesfor buy online pick up in store (BOPIS), drive aisles and traffic patterns around their buildings all fall withintheir leased premises. Compare that to a typical inline tenant in a shopping center or a mall whose premisessolely consists of the space within the four walls of their structure. Flexibility is paramount in a dynamicallychanging world whether a retailer is adding a second drive-through, pickup only spaces, or an additionaltruck dock for micro-fulfillment. As such, the free-standing format provides the greatest level of efficiencyand effectiveness for retailers to transform to meet the changing demands of consumers.A G R E EK N O W L E D G EB A S EWHY NET LEASE IS SUPERIOR IN AN OMNI-CHANNEL WORLD0 3
RetailExperienceCLICKBELOW FOR MORE DETAILSFREE-STANDING REAL ESTATEAs the retail experience continues to evolve, free-standing real estate allows retailers the flexibility needed to adapt and thrive. The Covid-19 pandemic was an accelerant for change andretail real estate was not immune. Retailers who control their real estate from “curb-to-curb” are able to quickly implement things such as contactless pickup, drive-thru/pick-up lanes, andbuy online pick up in store (BOPIS). In the early days of the pandemic, the ability to adapt quickly gave retailers a distinct advantage by providing customers the shopping experience of thecustomer’s choosing. Conversely, the traditional shopping center does not provide the flexibility or infrastructure required to support the needs of today’s customer.TRADITIONAL SHOPPING CENTERSFREE-STANDING RETAILERSARE BEST POSITIONED TO CAPITALIZE IN AN OMNI-CHANNEL RETAIL WORLDA G R E EK N O W L E D G EB A S EWHY NET LEASE IS SUPERIOR IN AN OMNI-CHANNEL WORLD0 4
SOURCE: WALMART STORES INC.Free-standing Real Estate Is the Future for RetailersAs the needs of retailers continue to evolve, the free-standing format provides retailers an unparalleled opportunity for multi-node customeraccess. With control of their entire premises, retailers can provide the full suite of omni-channel capabilities. This includes same-daydelivery, BOPIS, pickup lanes, micro-fulfilment, and other modes of distribution. Net lease real estate provides retailers with full control oftheir respective parcel, enabling them to evolve their strategy as consumers continue to change their preferences. Case in point: Walmart’saddition of online pickup lanes located in their parking lots, which has served to expedite purchasing times1.A free-standing format permits a retailerfull use of their parking lot, which providesadditional access points, enhanced customerconvenience and better control of the overallconsumer experience. Separately, and to bediscussed at length in future white papers,this format also allows for integrated supplychain and logistics innovation with propertyaccess supporting further flexibility. As such,free-standing retailers are best positionedto capitalize on the continued evolutionof retail.SOURCE: WALMART STORES INC.A G R E EK N O W L E D G EB A S EWHY NET LEASE IS SUPERIOR IN AN OMNI-CHANNEL WORLD0 5
The Days of Getting Customers in the Door are Waning;Vehicular Circulation is CrucialOmni-channel modalities of sale are best exercised through free-standing formats given theSOURCE: PENNLIVE.COMefficient vehicular circulation around the store. The ability of customers to gain access to theparking lot via convenient curb cuts, complete transactions (whether in-store or while remainingvehicle bound) and quickly proceed to exit the parking lot is of ever-increasing importance ina 21st century omni-channel world. While curbside pickup has become an essential tool forfulfilling BOPIS or click-and-collect sales, we note that drive-through capabilities, including dualdrive-throughs as seen to right and below, have also gained greater prominence.McDonald’s has continued to invest in its drive-through capabilities, which has resulted in animproved speed of service, higher customer satisfaction scores, and incremental profitability2. The recent 2020 SeeLevel HX Drive-Thru Studyindicated that McDonald’s had improved its service time by 30 seconds year-over-year with the improvement partially attributedSOURCE: MCDONALD’Sto its investment and focus on improving its drive-through service3.A G R E EK N O W L E D G EB A S EWHY NET LEASE IS SUPERIOR IN AN OMNI-CHANNEL WORLD0 6
SOURCE: CHIPOTLE MEXICAN GRILLWhile CVS originally rolled out its Express curbside option andserve as an expedited & contactless option for consumers.prescriptions pick up through drive-through 4, the companyStarbucks plans to have “hundreds” of pickup stores withinleveraged its footprint during the pandemic to offer additionalthe next five years6.COVID-19 drive-through test sites. Separately, CVS has utilized itsdrive-through for the sale of essential products (e.g. skin care, painrelief, allergy relief, etc.), with the option available for transactionsin addition to prescriptions5.Brick-and-Mortar retailers are leveraging their footprint to createa shopping experience of the customer’s choosing. Home Depotexpanded its free curbside pickup order service to most stores asan extension of its buy online/pick up in-store option. U.S. sales forAdditionally, Starbucks recently announced the introduction of its“click-and-collect” services are forecast to reach more than 100new “Starbucks Pickup” and curbside concepts. These formatsbillion in 2022 up from 72.46 billion in 2020.*leverage the strength of the company’s digital investments andA G R E E*According to the latest data from eMarketerK N O W L E D G EB A S EWHY NET LEASE IS SUPERIOR IN AN OMNI-CHANNEL WORLD0 7
SOURCE: WAWAOther retailers, most notably Wawa, have opened their first drive-through formats during the pandemic given the need to increase vehicularcirculation and fulfill contactless sales. Wawa recently opened its first convenience store with a drive-through in Westampton, New Jerseyand the company’s first drive-through only store in Morrisville, Pennsylvania7.Contactless solutions have become especially resonant during the pandemic given consumer favorability toward this sales option.On Walmart’s 3Q21 earnings call, CEO Doug McMillon commented that customer penetration of the company’s Scan & Go option(which allows customers to manage their check out from their phone) “is up more than 600 basis points and curbside delivery has beenwell received by members and is growing well above our overall comp sales”8.A G R E EK N O W L E D G EB A S EWHY NET LEASE IS SUPERIOR IN AN OMNI-CHANNEL WORLD0 8
Best Buy’s stores remained closed during the early phases ofthe pandemic, the company relied heavily on curbside pick-upto fulfill e-commerce orders in a contactless manner. Best Buywas able to generate a 155% year-over-year increase in domesticcomparable online sales during 1Q21, which contributed 42% oftotal domestic revenues for the quarter (vs. 15% in 1Q20)9. Takentogether, physical traffic into the store has becomes a less relevantbarometer of retailer four-wall performance as the focus hasshifted toward the comprehensive omni-channel sale of goods.Effective omni-channel sales require a retailer to have the realestate format to enable additional modalities and multiple pointsof sale. Simply put — inline tenants are “stuck in the middle”,while free-standing/net lease tenants have the capability toexperiment and implement the necessary changes to succeedin the 21st century.SOURCES1. art-click-and-collect-reaches-1000-stores2. p/assets/investors/Investor%20UpdateTranscript vF.pdf3. 2020 SeeLevel HX Annual-Drive Thru-Study4. ess-pickup-service-with-curbside/417697/5. https://www.cvs.com/content/rx-drive-products6. ys-it-will-have-55000-locations-20307. st-drive-thru-only-store8. Walmart, Inc. Q3 2021 Earnings Call9. Best Buy Reports First Quarter Results0 9
About UsCreating Opportunity by Rethinking RetailIn 1971, Richard Agree, our Executive Chairman of the Board of Directors, founded Agree Development Company, the predecessor to Agree RealtyCorporation. Over its 23-year history, Agree developed over 40 community shopping centers primarily throughout the Midwestern and SoutheasternUnited States.With an Initial Public Offering of 2.5 million shares in 1994, Agree Realty Corporation commenced operations as a publicly traded Real Estate InvestmentTrust (REIT). Agree Realty is listed on the New York Stock Exchange under the ticker symbol “ADC”. Today, Agree Realty is a 5 billion industry leader inthe acquisition and development of properties net leased to the foremost retailers in the United States. As of December 31, 2020, the Company ownedand operated a portfolio of 1,129 properties, located in 46 states and containing approximately 23 million square feet of gross leasable space.Disciplined and Focused Investment StrategyThe Agree Team’s expertise and strategic execution seeks to maximize value for all stakeholders. Our innovative development and acquisitionstrategies, adaptive real estate technology, and extensive capabilities are relied upon by our industry-leading partners throughout the United States.Building upon the foundation of excellence established throughout the past half century, Agree Realty continues to be a thought leader, rethinking retailin an omni-channel world.ContactsTo learn more about Agree Realty Corporation, please visit www.agreerealty.com.Joey AgreePresident & Chief Executive Officer248.419.6312jagree@agreerealty.comDanielle SpeharGeneral Counsel248.419.6329dspehar@agreerealty.comCraig ErlichChief Operating Officer248.479.3593cerlich@agreerealty.comSimon LeopoldChief Financial Officer248.419.6335sleopold@agreerealty.comNicole WitteveenVice President, People & Culture248.419.6334nwitteveen@agreerealty.com 2021 AGREE REALTY CORPORATION. ALL RIGHTS RESERVED. CONFIDENTIAL.
03 EXECUTIVE SUMMARY . With control of their entire premises, retailers can provide the full suite of omni-channel capabilities. This includes same-day delivery, BOPIS, pickup lanes, micro-fulfilment, and other modes of distribution. . Effective omni
