Release Date: July 31, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Agree Realty Corp ADC achieved a company record of over $500 million in investments during Q2 2026, with a weighted average cap rate of 7% and a weighted average lease term of 11.2 years.
- The company raised its full-year investment volume guidance to $1.6-$1.8 billion, a 24% increase from initial guidance, and raised its full-year AFFO per share guidance to $4.57-$4.59, implying nearly 6% growth.
- Portfolio quality remains exceptional, with occupancy hitting a record 99.8%, investment-grade exposure at nearly two-thirds of the portfolio, and 73% of acquired annualized base rents from investment-grade retailers.
- The development and Developer Funding Platform (DFP) are scaling rapidly, with construction starts tripling year-over-year and progress toward the medium-term goal of $250 million in annual development and DFP commitments.
- The balance sheet is well-positioned with $1.9 billion in liquidity, $1.4 billion in hedged capital (including forward equity and swaps), and no material debt maturities until 2028, providing significant visibility into future cost of capital.
- Credit and occupancy losses remain minimal at just 10 basis points year-to-date, leading to a lowered full-year assumption of 25 basis points, reflecting strong tenant performance and a healthy watch list.
Negative Points
- Agree Realty Corp (ADC) faces potential interest rate volatility, with the 10-year Treasury elevated at 4.7%, which could impact future acquisition cap rates and overall investment spreads.
- The company's net debt to recurring EBITDA is 5.2 times when excluding unsettled forward equity, indicating higher leverage on a current basis, though pro forma leverage is a more conservative 3.7 times.
- Dispositions during the quarter included lower-quality assets, such as Goodyear and Advanced Auto Parts stores, with limited remaining lease terms of approximately 6.9 years, highlighting ongoing portfolio pruning needs.
- The company's reliance on forward equity and forward-starting swaps to hedge capital costs introduces execution risk, as the settlement of these instruments is subject to market conditions and timing.
- While the development pipeline is growing, it carries inherent construction and execution risks, including potential cost overruns or delays, which could impact projected returns and earnings growth.
- The competitive landscape for net lease assets remains intense, with cap rates having been 'banned within a band' for three years, potentially limiting opportunities for yield expansion despite robust acquisition volumes.
Q & A Highlights
Q: You had robust acquisition volume in the first quarter, now again in the second quarter. With acquisition activity accelerating across the net lease sector, are you seeing any changes in bidding behavior for the transactions you're pursuing, particularly for larger portfolios or investment grade assets?
A: Joey Agree (CEO) stated there have been no material changes in competition or cap rates, which have been in a band for nearly three years. He noted that the quality of acquisitions improved, with over 73% from investment grade retailers this quarter, up from 60% last quarter, while cap rates remained the same. He attributed this to the depth of the team's relationships and the asymmetrical opportunities pursued with retail partners, not to any broader market changes.
Q: Could you walk us through the BP transaction and the rationale behind it, and what makes travel centers of interest for Agree Realty?
A: Joey Agree (CEO) explained the BP transaction was approximately $75 million for large-format travel centers with BP North America credit guaranteeing them (A- rated credit). He highlighted that these are large-format travel centers typically located on major interstate exit ramps with long-term leases and significant escalations. He reiterated the company's focus on large-format convenience stores and off-price sectors, which were the subjects of recent white papers.
Q: You've been leaning more into ground leases. What makes them attractive on a risk-adjusted return perspective?
A: Joey Agree (CEO) clarified that the company isn't deliberately leaning into ground leases but is uncovering opportunities through its platforms. He emphasized that ground leases are his favorite risk-adjusted returns in the net lease sector because the tenant builds the building at their own expense, the company owns the land, and if the tenant leaves, the building reverts to the company free and clear without any depreciation taken. He noted the ground lease portfolio now represents over 10% of the overall portfolio.
Q: On the credit loss side, a very impressive performance this quarter. How has this impacted your guidance, and what's on the watch list today?
A: Peter Coughenour (CFO) stated the company lowered its credit loss assumption to 25 basis points from a prior range of 25 to 50 basis points. Through the first half of the year, the company experienced just 10 basis points of fully loaded credit and occupancy loss, with only 6 basis points in the second quarter. He noted the watch list is in a good spot, lower than a year or two ago, with the biggest piece being a few AMC theaters, which were recently upgraded by S&P.
Q: You commenced 5 projects in the quarter for roughly $90 million. As you continue to grow, is there a path to larger format or multi-tenant development that would allow you to deploy more capital at one time?
A: Joey Agree (CEO) confirmed the company is open to larger multi-tenant developments, citing examples like combining two TJX concepts (HomeGoods and Marshalls) or pairing Burlington with Ross or TJ Maxx. He noted the 7-Eleven projects are turnkey developments averaging approximately $10-12 million per project, but the company is more than willing to execute on larger off-price concepts with multiple stores.
Q: Ground leases were a large part of the portfolio this quarter. How large do you ultimately see the ground lease portfolio becoming as a percentage of the business?
A: Joey Agree (CEO) said the ground lease portfolio has hovered around the 10-11% mark for several years. He clarified it's not a separate channel or concerted effort, but rather opportunities uncovered through external activities. He noted there is elevated ground lease exposure in the back half of the year through unique opportunities, but there is no ultimate goal percentage. The ultimate goal remains assembling the highest quality retail portfolio growing at approximately 400 properties per year.
Q: On the cadence of funding sources, you have about $425 million of forward equity contracts maturing in October. What are you thinking about in terms of different funding sources and their cadence throughout the back half of the year?
A: Peter Coughenour (CFO) stated the company is in a great position with $1.9 billion of liquidity, including $1.1 billion of outstanding forward equity. He noted the $425 million of forward equity maturing in the back half of the year could be extended or settled, with a good chance of settlement subject to capital alternatives. He also mentioned the $300 million of forward-starting swaps in place, which have taken base rate risk for future 10-year debt issuance off the table, allowing the company to pick its spot for an issuance.
Q: How should we be thinking about your expense growth over the next couple of years versus today? You've done a good job bringing G&A down as a percentage of revenues. How much more opportunity is there to limit growth on the expense side?
A: Joey Agree (CEO) said there is tremendous opportunity for efficiency, noting the company has approximately 100 team members and just completed over 100 transactions in a quarter. He highlighted the use of AI tools and in-house systems, with COO Nicole Wine running that side of the business. He expects continued compression of G&A as a percentage of revenues, with the company preferring to bring in young team members and train them rather than adding significant headcount.
Q: Given the steeper yield curve, where is your most attractive source of capital and what's the pricing on a debt perspective if you did anything in the back half of the year?
A: Peter Coughenour (CFO) stated that including the $300 million of forward-starting swaps in place, the company could probably issue 10-year debt in the low 5% range today. He noted that with the fully drawn $350 million term loan, a public unsecured offering is the most attractive longer-term option as the company looks forward.
Q: On the $250 million goal for development and DFP, can you double-click on whether that's existing tenants or new tenants, and how you're going about scaling that opportunity?
A: Joey Agree (CEO) clarified there are no new tenants that the company doesn't currently own in the portfolio, though they would selectively develop for new tenants. He noted the $250 million goal, set about 18 months ago as a three-year goal, could potentially be hit this year, ahead of schedule. He highlighted the great team in place, growing relationships, and new geographic territories being worked on a preferred basis for
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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