Agree Realty 2026 Q2 Earnings Call

Good morning everyone, and thank you for joining us for Agree Realty's second quarter 2026 earnings call. Before turning the call over to Joey and Peter to discuss our results for the quarter, let me first run through the cautionary language. Please note that during this call, we'll make certain statements that may be considered forward-looking under Federal Securities law, 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, net debt to enterprise value, fixed charge coverage ratio, 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.

Thanks, Reuben, and thank you all for joining us this morning. I'm extremely pleased with our performance during the second quarter, which represents a significant milestone in our company's history. During the quarter, we invested a company record of over $500 million across our three external growth platforms. While the numbers are quite impressive, the combination of real estate attributes, credit composition, and lease terms similarly represent the highest quality quarter in our company's history. All three of our external growth platforms have broad and expansive pipelines, enabling us to once again raise our full year investment volume guidance to an updated range of $1.6 billion-$1.8 billion. The midpoint of this range surpasses last year's investment activity and represents a 24% increase over our initial investment volume guidance provided at the beginning of the year.

Based on our increased investment activities and the performance of our portfolio year to date, we're raising our full year AFFO per share guidance by $0.02 at the midpoint to a new range of $4.57-$4.59. This translates to nearly 6% AFFO per share growth at the midpoint and underscores what has long differentiated ARC, our ability to compound consistent, reliable earnings growth while maintaining unwavering discipline to our investment and balance sheet strategies. Peter will provide further details on the guidance range and its inputs shortly. That said, the underappreciated and I believe more compelling story, is the unique market position that we have now established. Over time, we have built durable competitive moats, deep retailer relationships, and an internal asset management platform that delivers a full suite of solutions to our partners.

These advantages have created a differentiated business that has been over 15 years in the making. As I have said many times, spread investing is quite simple. Constructing a retail net lease leader with multiple growth frontiers wholly focused on a distinct sandbox of the country's best retailers was the ultimate goal. We are supporting this growth by continuing to invest in the people, processes, and technology that underpin our platform. That commitment to constant improvement has long been part of our DNA. Today, it's reflected in how we are leveraging AI across the organization to improve decision making, streamline workflows, and accelerate transaction execution. While we are already benefiting from meaningful efficiencies, we believe the longer term opportunity is even greater as AI becomes increasingly embedded throughout our platform.

Combined with enhanced integrations and the next iteration of ARC coming online later this year, these investments will further strengthen our operating leverage. Moving on to the second quarter in detail, we invested a company record of over a half a billion dollars on 102 properties across our three platforms. This includes $451 million of acquisitions across 82 retail net lease assets, the highest level of quarterly activity since the depths of COVID. The properties acquired during the quarter are leased to leading operators in the auto parts, home improvement, grocery, farm and rural supply, and convenience store sectors. Notable acquisitions during the quarter included three Walmart Supercenter ground leases in Missouri, Ohio, and Wisconsin, a Walmart neighborhood market in Oregon, a portfolio of BP-branded travel centers, and a Home Depot ground lease in New Hampshire.

The acquired properties had a weighted average cap rate of 7% and a weighted average lease term of 11.2 years. Approximately 13.5% of annualized base rents acquired were derived from ground lease assets, while investment grade retailers accounted for over 73% of the annualized base rents acquired. During the second quarter, our development and DFP platforms continued to scale and set a company record for construction start volume. Five projects broke ground with total anticipated costs of approximately $88 million, including our seventh and eighth 7-Elevens currently under construction, as well as three Ross Dress for Less locations, two Burlingtons, and three TJX concepts. Through June 30th, we have commenced more than $105 million of projects, over three times the level achieved in the prior period, underscoring our continued progress toward our medium-term objective of $250 million of annual development and developer funding platform commencements.

In total, we had 20 projects either completed or under construction during the first half of the year, representing a company record of approximately $200 million of committed capital. We anticipate development in DFP spend to materially progress in coming quarters. Construction continued on 10 projects during the quarter, with aggregate anticipated cost of over $83 million. These projects include Burlington, Sunbelt Rentals, and Ross. One project, a Sunbelt Rentals in Missouri, was completed during the quarter for just over $6 million. As foreshadowed in our prior white papers, we continue to believe deeply and invest heavily in both the off-price and large format convenience store sectors. Today, we are amongst the largest owners of both in the country and have a significant pipeline of additional opportunities.

On the disposition front, we sold 14 properties during the quarter for gross proceeds of approximately $30 million at a weighted average cap rate of 7%. The dispositions were primarily comprised of three Goodyear locations and four Advance Auto Parts stores, as we continue to call our portfolio of lower performing or attractive 1031 opportunities. I would note that none of the dispositions were of investment-grade credit and had limited term remaining of approximately 6.9 years. Our asset management team continues to address upcoming lease maturities. We executed new leases, extensions, or options on approximately 760,000 sq ft of gross leasable area during the second quarter, with a recapture rate of approximately 105%. This included a Sam's Club in Maryland and a Walmart Supercenter in Georgia.

In the first half of the year, we executed new leases, extensions, or options in approximately 1.6 million sq ft of gross leasable area with a recapture rate of approximately 105%. We are in excellent position for the remainder of the year with just 18 leases or 40 basis points of annualized base rents maturing, which is down by over 100 basis points from the start of the year. Given the progress achieved year-to-date, our occupancy ticked up 10 basis points sequentially to match another company record of 99.8%. At quarter end, our best-in-class portfolio stood at 2,825 properties, spanning all 50 states and the District of Columbia. The portfolio includes 268 ground leases comprising over 10% of annualized base rents, and our investment-grade exposure stood at nearly two-thirds of our portfolio.

With that, I'll hand the call over to Peter to discuss our financial results for the quarter.

Thank you, Joey. Starting with earnings, Core FFO per share was $1.13 for the second quarter, which represents a 7.5% increase compared to the second quarter of last year. AFFO per share was $1.14 for the quarter, representing a 7.4% year-over-year increase. As Joey highlighted, we have updated our full year 2026 earnings outlook to reflect a very strong first half of the year. We raised our full year AFFO per share guidance to a new range of $4.57-$4.59, which is a $0.02 increase at the midpoint and implies year-over-year growth of nearly 6%. The increase in our earnings guidance is driven by higher investment activity as well as the continued strong performance of our portfolio.

Our guidance has been updated to include an assumption of 25 basis points of credit and occupancy loss for the year, which is at the low end of our prior range of 25 to 50 basis points. As a reminder, our definition of credit and occupancy loss is fully loaded, encompassing not only credit events, but downtime due to a tenant vacating at lease maturity unrelated to credit issues and other partial or non-payments for any reason. It also includes all operating and tax expenses that ARC is responsible for paying while a space is vacant, in addition to lost rental revenue. The supplemental that we introduced last quarter breaks out these components. Year-to-date, we've experienced 10 basis points of fully loaded credit and occupancy loss. Moving on to the balance sheet, total capital markets activity year-to-date is over $1 billion.