Agree Realty : First Quarter 2026 Earnings Call Transcript

Published: 2026-04-23 12:22:12 ET ADC

Published on 04/23/2026 at 12:22 pm EDT

April 22, 2026 (9:00 AM ET)

Agree Realty Corporation

First Quarter 2026 Earnings Call

Agree Realty Corporation; Senior Director of Corporate Finance

Agree Realty Corporation; President & Chief Executive Officer

Agree Realty Corporation; Chief Financial Officer

Bank of America; Analyst

UBS; Analyst

Citi; Analyst

Wells Fargo; Analyst

KeyBanc Capital Markets; Analyst

Barclays; Analyst

Jefferies; Analyst

BMO Capital Markets; Analyst

Morgan Stanley; Analyst

At this time, I would like to turn the conference over to Reuben Treatman, Senior Director of Corporate Finance. Please go ahead.

Please note that during this call we will make certain statements that may be considered forward-looking under federal securities laws, including statements related to our updated 2026 guidance. Our actual results may differ significantly from the matters discussed in any forward-looking statements for a number of reasons. Please see yesterday's earnings release and our SEC filings, including our latest annual report on Form 10-K for a discussion of various risks and uncertainties underlying our forward-looking statements.

In addition, we discuss non-GAAP financial measures including core funds from operations or core FFO, adjusted funds from operations or AFFO and pro forma net debt to recurring EBITDA. Reconciliations of our historical non-GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings release, website and SEC filings.

I'll now turn the call over to Joey.

I'm extremely pleased with our performance to start the year, as we have continued to execute on all fronts. During the quarter, we invested nearly 425 million across our three external growth platforms, while further strengthening our market-leading portfolio. The

$403 million of acquisitions completed during the period represents our largest quarterly acquisition volume since 2022 as we continue to source superior risk-adjusted opportunities.

While the macro backdrop remains highly unpredictable, we have never been better positioned. During the quarter, we raised approximately $660 million of forward equity through our ATM. We now enjoy $2.3 billion of total liquidity and more than $1.6 billion of hedged capital including a company record $1.4 billion of outstanding forward equity.

At quarter end, pro forma net debt to recurring EBITDA was just 3.2x, giving us meaningful flexibility to execute regardless of capital markets volatility. As a reminder, we have no material debt maturities until 2028.

We have married this fortress balance sheet with the highest quality retail portfolio in the country that only continues to improve. In a K-shaped economy, our industry-leading tenants stay poised to leverage their scale and value propositions to drive further share gains. We are consistently seeing leading retailers with the balance sheet and operating discipline winning across cycles and expanding their brick-and-mortar footprints.

Our pipeline across all three external growth platforms is robust, yet our approach remains unchanged. We will stay consistent within our established investment parameters without compromising our underwriting standards.

While our investment in earnings guidance remain unchanged, I would note that we have increased our treasury stock method dilution in anticipation of an elevated stock price and as well as the additional forward equity raise during the quarter. We'll continue to provide updates as the year progresses, and Peter will provide additional details on our guidance and input shortly.

Turning to our external growth activity. We had an active start to the year, leveraging our unique market positioning and deep relationships with retail partners to uncover opportunities across all three platforms. During the first quarter, we invested nearly

$425 million in 100 properties across these three platforms.

Of note, during the quarter, we executed a sale leaseback with Hobby Lobby on their corporately owned stores. As we've discussed on prior earnings calls, Hobby Lobby is privately owned, has a balance sheet and stands as a clear market leader in the craft and hobby space. They are a terrific operator and partner. As a reminder, we do not impute investment-grade or shadow investment-grade ratings in our IG percentage.

Additional acquisitions during the quarter included a Home Depot, five Wawa ground leases in Pennsylvania and Maryland, a portfolio of 11 Sherwin-Williams stores, several Aldi's and three Walmart's located in Georgia and South Carolina.

The acquired properties at a weighted average cap rate of 7.1% and a weighted average lease term of 11.3 years. Nearly 60% of base rents acquired was derived from investment-grade retailers, and we continue to add to our ground lease portfolio during the quarter.

As previously discussed, we continue to see increased activity across our development and Developer Funding Platforms. During the first quarter, we commenced two new development or DFP projects with total anticipated cost of approximately $18 million.

Construction continued on nine projects during the quarter with aggregate and

anticipated cost of approximately $71 million. We completed four projects during the quarter, representing a total investment of approximately $23 million.

Our development in DFP pipelines continue to grow significantly, and we expect development in DFP activity to meaningfully ramp in the second and third quarters, including several additional projects that commenced subsequent to quarter end.

Moving on to dispositions. We sold seven properties during the quarter for total gross proceeds of approximately $11 million at a weighted average cap rate of 6.8%. This activity included both the Jiffy Lube and Dutch Brothers that were loaded in the grocery portfolio acquisition last year. We sold these assets approximately 300 basis points inside of where we acquired them less than one year ago, highlighting our ability to opportunistically recycle capital and harvest value across our portfolio.

Our Asset Management Team continues to do an excellent job proactively addressing upcoming lease maturities. We executed new leases, extensions or options on over 876,000 square feet of gross leasable area during the first quarter with a recapture rate of over 104%. This included a Walmart Supercenter in Whitewater, Wisconsin and a Home Depot in Orange, Connecticut.

We remain well positioned for the remainder of the year with just 29 leases or 90 basis points of annualized base rent maturing, which is down 60 basis points quarter-over-quarter and 260 basis points year-over-year.

We ended the quarter with pharmacy exposure at 3.5% of annualized base rent, and it now falls outside of our top 10 sectors, a meaningful milestone given that pharmacy once exceeded 40% of our portfolio. Anchored by assets which is our Walgreens on the corner of the Diag and the University of Michigan campus and our CVS on Greenwich Avenue, we are confident in the real estate and performance of our remaining pharmacy assets.

As of quarter end, our best-in-class portfolio comprised 2,756 properties spanning all 50 states. The portfolio included 261 ground leases, comprising over 10% of annualized base rent. Our investment-grade exposure stood at over 65% and occupancy is strong at 99.7%, up 50 basis points year-over-year.

Before I hand the call over to Peter, I'd like to thank and complement the tremendous work he and his team did on the creation of our inaugural supplement. We have taken feedback from a number of constituents and created a first-class document that provides investors and analysts with a thorough picture of our portfolio and financials.

Peter, thank you. And take it away.

Starting with the balance sheet. We were very active in the capital markets during the first quarter, selling 8.7 million shares of forward equity via our ATM program for anticipated net proceeds of approximately $658 million. This represents yet another company record for equity raised in the quarter and underscores our ability to raise equity at scale via our ATM and in a cost-efficient manner. At quarter end, we had approximately 18.4 million shares of outstanding forward equity, which are anticipated to raise net proceeds of approximately $1.4 billion upon settlement.

Additionally, during the period, we drew $250 million on our previously announced $350 million delayed draw term loan. As a reminder, we entered into forward starting swaps to fix SOFR through maturity in 2031, and inclusive of those swaps, the term loan bears interest at a fixed rate of 4.02%.

We also took further steps to hedge against interest rate volatility, entering into $50 million of forward starting swaps during the quarter. In total, we now have $250 million of forward starting swaps, effectively fixing the base rate for a contemplated 10-year unsecured debt issuance at roughly 4.1%, combined with the approximately $1.4 billion of outstanding forward equity. We have over $1.6 billion of hedge capital, which provides critical visibility into our intermediate cost of capital, particularly amidst recent geopolitical and macro uncertainty.

At quarter end, we had liquidity of approximately $2.3 billion including the aforementioned forward equity, availability on our revolving credit facility, term loan and cash on hand. Pro forma for the settlement of all outstanding forward equity, our net debt to recurring EBITDA was approximately 3.2x. Our total debt to enterprise value is under 29%, and our fixed charge coverage ratio, which includes the preferred dividend, remains very healthy at 4.2x.

Our sole short-term or floating rate exposure was comprised of outstanding commercial paper borrowings at quarter end. And as Joey mentioned, we continue to have no material debt maturities until 2028. Our balance sheet is extremely well positioned to execute on our robust investment activity across all three external growth platforms.

Moving to earnings. Core FFO per share was $1.13 for the first quarter, which represents an 8.1% increase compared to the first quarter of last year. AFFO per share was $1.14 for the quarter, representing a 7.9% year-over-year increase, which is the highest quarterly AFFO per share growth achieved since the second quarter of 2022.

As Joey noted, we are reiterating our full year 2026 AFFO per share guidance of $4.54 to $4.58, which implies approximately 5.4% year-over-year growth at the midpoint. We provide parameters on several other inputs in our earnings release including investment and disposition volume, general and administrative expenses, non-reimbursable real estate expenses as well as income tax and other tax expenses.

Our current guidance also includes anticipated treasury stock method dilution related to our outstanding forward equity. Provided that our stock continues to trade around current levels, we anticipate that treasury stock method dilution will have an impact of 2 to 4 cents on full year 2026 AFFO per share. This is up from approximately 1 cent in our prior guidance due to both the higher share price and more forward equity outstanding. As always, the impact could be higher or lower if our stock price moved significantly above or below current levels.

During the quarter, we recorded approximately $2.4 million of percentage rent, up from

$1.6 million in the first quarter of last year. Roughly a third of the increase was driven by strong same-store sales performance across this group of leases as we have actively targeted leases with potential percentage rent upside. The remainder reflects a timing shift as certain tenants that have historically paid percentage rent in Q2 contributed in Q1 of this year.

Our growing and well-covered dividend continues to be supported by our consistent and durable earnings growth. During the first quarter, we declared monthly cash dividends of

26.2 cents per common share for January, February and March. The monthly dividend equates to an annualized dividend of over $3.14 per share and represents a 3.6% year-over-year increase. Our dividend is very well covered with a payout ratio of 69% of AFFO per share for the first quarter. We anticipate having over $140 million in free cash flow after the dividend this year, an increase of over 10% from last year. This provides us another source of cost-efficient capital while maintaining a healthy and growing dividend.

Subsequent to quarter end, we announced an increased monthly cash dividend of 26.7 cents per common share for April. This represents a 4.3% year-over-year increase and equates to an annualized dividend of over $3.20 per share.

Our inaugural financial supplement this quarter includes several non-GAAP financial metrics and key performance indicators, including our recapture rate, credit and occupancy loss and same-store rent growth. The enhanced disclosures are intended to provide better visibility into our operations and highlight the high-quality nature of our tenancy and portfolio, reflecting our best-in-class execution. We also hope the supplement serves as a one-stop resource that centralizes the key information needed to understand the performance and drivers of our business.

With that, I'd like to turn the call back over to Joey.

Beyond that, to your point, we have roughly 18.4 million shares of outstanding forward equity. As disclosed in our new supplemental, the contract for about 8 million of those shares matures at some point this year. And while we can always extend the contract, if needed, I think there's a good chance that we settle those shares at or prior to maturity given our anticipated uses. So, I would expect that those 8 million shares are likely settled at some point in 2026.

And then lastly, we have the $250 million of forward-starting swaps in place that have effectively fixed the base rate for us on a future 10-year issuance at 4.1%. And so, with those swaps in place, we'll evaluate the appropriateness of an issuance later this year.

But we're not in a rush to do anything, given the term loan we have the capacity there, plus the forward equity. I think most importantly, with $2.3 billion of liquidity from multiple sources, we have plenty of flexibility, optionality here.

They're a market leader here. They had limited stores on their balance sheet. Most of their assets are leased. They wanted to eliminate the real estate from the balance sheet and the management responsibilities that is entitled and had with owning those assets. So, this was a unique transaction for us. They're a tremendous operator, a tremendous partner. They're extremely methodical in their growth plans, and we are thrilled to complete this transaction with them.

As I mentioned in the prepared remarks, we have commenced several projects subsequent to quarter close, and we will be closing on additional projects later this week and next week.

In terms of costs, the projects that we close on have guaranteed maximum price bids. They have GMP contracts in place from general contractors. I'll remind everybody, we're not speculating on land. We're mobilizing and commencing right after close. We aren't speculating on small tenant space here. These are build-to-suit projects or ground lease projects for the leading operators in the country that are signed, sealed and delivered at the time we close.

And so, we have not seen any material cost creep yet. The team here, the construction team, led by Jeff Konkle, does a tremendous job budgeting these projects in advance, and then we work with general contractors to the bid process prior to close.

And so, 7-Eleven is just a proxy here for the broader gas station convenience store space. The days of the 1,800 square foot get cigarettes and gum and a couple of coolers and gas are gone. That was the gas station. If you think back 10, 15 years ago, they also had an auto bay. They probably blocked that up to add a little bit more square footage to sell in-store products.

Today the gas station is moving to the convenience store model, whether it's 7-Eleven or Sheetz or Wawa, we acquired a number of assets this quarter and led their development entry into the state of Florida over a decade ago. These operators are taking meaningful share across sectors and the evolution of the business is happening before our eyes. And so, again, the pump, while it produces significant revenue doesn't produce the EBITDA that the inside source sale does. That is F&B, food and beverage, primarily breakfast and lunch, liquid gold, coffee, and affordable meals and convenience items that also take from the front end of the pharmacy for consumers.

And so, this is going to be a multiyear evolution, and we're going to continue to see the 2,000 square foot -- 1,200 to 2,000 square foot "gas stations" go away. Michigan, we're at the heart of this right now, with Sheetz and QuikTrip and 7-Eleven, Speedway and operators expanding across the state while the legacy gas stations are frankly put out of business.

Now this takes time, like any transition of any retail sector. But effectively, it's sweeping the country. And so, it's a tremendous opportunity for us. You see us -- our activity here through all three platforms. But it's truly the evolution of a business model into a highly successful operator that has significant margin in food, beverage and in-store components.

But as Joey said, the portfolio is continuing to perform well.

And then the second one for me is just yields and deployment timeline on development DFP, Lider 1Q, I know in opening remarks, you mentioned some scale in 2Q and 3Q. I guess my question is, we've highlighted $250 million as sort of a medium-term target. Is that still a realistic target for this year?

And then maybe above and beyond that, is there the opportunity to scale above that? Like, would it be surprising for us to see a number well north of $250 million a year, or is there a reason, from a risk perspective, why your initial remarks sort of capped that target is like a 250 number?

Again, Q1 is generally light just because if you get into the northern half of the country, you get weather related, you're not going to commence a project with frost in the ground. Q1 is generally light, Q2 will be significantly larger and Q3 is shaping up to be along the same lines of Q2.

Now these projects are generally subject to entitlements and municipal the government authorities approving approvals there. But we are on track to hit that intermediate goal of $250 million in the ground. The team is doing a tremendous job working with the biggest retailers in the country and the best developers in the country on the DFP side. We're very excited about our pipeline there.

I'll tell you, we see more and more opportunities, our funnel is bigger than it's ever been across all three platforms. We don't see increased competition. I would tell you, we haven't seen a notable decrease in competition. Really, nothing's changed since coming out of 2024 on our do-nothing scenario.

And so, the only thing that I can point to is the performance, the size, the scope, the depth and the experience of this team and then our relationships within the market, highlighted in the supplemental just the retailer relationship-driven transaction.

And then acquisitions of investment-grade-rated tenants has come down again this quarter. I'm just curious, outside of IG credit ratings, is there something else in the lease economics that we should -- that you're acquiring that is a sign of higher quality that we should be considering?

family. So that's the biggest piece of this year. We're talking about, again, the largest craft and hobbies retailers, a multibillion dollar revenue operator that is far and away the leader in the crafts and hobby space that is privately owned by one family. So that is the driver. And I'll reiterate, investment grade is an output for us. We have tremendous operators in our portfolio that we don't impute shadow investment-grade ratings, too, but Publix, Chick-fil-A, ALDI, Wegmans, Hobby Lobby, again, so that is an output.

In order for us to call an operator, an investment-grade operator, they have to be rated by a major agency and therefore have the outstanding debt. Ulta is not an investment-grade company, but I believe they don't have any debt, correct, Peter?

So it's an output to what we do. Our focus is on the biggest and best operators, the best real estate opportunities across the country, leveraging all three platforms, whether or not they have an investment-grade rated balance sheet or carry any debt is really, again, just a secondary here.

We have no interest in owning 1,000-square-foot Dutch Brothers that trades in the low fives or a Quick Lube that's a 1,200-square-feet that has no residual value in the low fives either.

So we quickly moved, we closed those in a TRS and then quickly move to recycle those assets, accretive to the overall transaction, and we'll redeploy those proceeds accretively into better real estate and we think better credit.

But we are seeing, through non-percentage rent but through anecdotal conversations and also through other data here, and look, you're seeing it as well through the public reporters, the Walmarts and the TJs of the world are thriving, right? The trade-down effect is real. In the middle-income consumer, the $125,000 median household income, plus/minus is trading down.

And we're seeing that through multiple data points, both public and private. I think the percent rent falls in line with it. That's the only conclusion I would gather.

We talked about Hobby Lobby owned by David Green, they could be nonprofit companies, ESOPs or some other form of private ownership. So there is a small component of private equity within that private bucket, but it isn't a significant component of the portfolio today for us.

So, we are continuously seeing that trade-down effect now pinched by gasoline prices as well and exacerbated by gasoline prices and prices at the pump. So, I think it's across all luxury experiential and discretionary sectors, and then also trading down in the necessity-based stuff for things like groceries.

The low price point stuff, the Jiffy Lubes and the Dutch Bothers, those trade extremely aggressively. Those are to the limited 1031 buyers. But if you look at just the inventory out there, even for Starbucks and things like that, there's a significant amount of inventory that's stale out there because of the lack of a bid the buyer pool. But we really haven't seen any material change here almost to two years.

the net new space, the goal was to get an intermediate perspective on our cost of capital. So, volatility could give us the decision-making, real-time basis, whether we do something or not because we liked it in relative to the environment, not because we had to fund it just in time, right?

And so, inherently, we think the forward equity construct, and I think has adopted now by all or the vast majority of our peers takes a just-in-time financing business and then gives you that intermediate cost of capital to truly operate looking forward months and quarters in advance.

Now we'll look at all opportunities to raise and source capital that are efficient and fit within context of our balance sheet and so why wouldn't rule anything out on a go-forward basis. But sitting here with $1.4 billion of forward equity and $2.3 billion of liquidity, it's not something that's top of mind for us.

And so, it is just time and pricing that duration risk. And so, that's where we drive that spread from. But we're not targeting different types of assets or credits here. It's all within our sandbox. We're not doing anything on a speculative basis across all three platforms. So we're seeing significant activity across all three platforms at appropriate spreads, and we're going to continue to build that pipeline and we'll demonstrate it in Q2.

And so, when those escalators hit, it's going to drive some variability in same-store rent growth. But what we've seen over the trailing eight quarters, and it's consistent with what we've seen historically, is same-store rent growth just north of 1%, with very little falling out, as you can see from our credit loss and occupancy loss disclosure.

Disclaimer

Agree Realty Corporation published this content on April 23, 2026, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on April 23, 2026 at 16:21 UTC.