Agree Realty Corporation 2026 Q3 Earnings Call

Good morning, everyone, and thank you for joining us for Agree Realty's third 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 will make certain statements that may be considered forward-looking under federal securities law, including statements related to our updated 2026 guidance and outlook for 2027. 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 in 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 on our earnings release website and SEC filings. I will now turn the call over to Joey.

Thanks, Ruben. Good morning, and thank you all for joining us today. I am pleased to report another strong quarter of performance reflecting our disciplined execution of our operating strategy. We invested in high-quality opportunities across all three external growth platforms, while our best-in-class portfolio remained at a company record 99.8% occupied. I want to start by directly hitting the elephant in the room, the dynamic and changing macroeconomic environment, which has increased our spot cost of capital. I have had the privilege to lead this company through the launch of our acquisition platform on the heels of the great financial crisis, as well as through a pandemic in which we doubled in size and reshaped the complexion of our portfolio. I intend to do the same here on our terms and at our price, and we will emerge from this period stronger than before.

Disruption is advantageous in a fragmented, non-institutionalized market such as ours in many ways. Our relationships, balance sheet, three growth verticals, and myriad of capabilities are poised to further validate our leading market position. Three years ago, we introduced our do nothing scenario to demonstrate the durability of our earnings algorithm during a period of uncertainty. Our position today is tremendously stronger, while the underlying earnings durability remains unchanged. Most importantly, we have learned from 2023. We have moved decisively as the macro began to shift this time around. While we have raised $1.1 billion of attractive capital this year, including forward equity at approximately $75 per share and a recently completed 10-year unsecured bond offering at just under 5.4%, we are in no rush to deploy at yesteryear's pricing.

We have deliberately reduced our 2026 investment volume guidance to approximately $1.6 billion by culling lower yield opportunities and aggressively repricing our pipeline. Today, we sit on a $2 billion war chest, pro forma net debt to recurring EBITDA of just 3.9x and no material debt maturities until 2028. Our best-in-class retail portfolio with highly durable cash flows and limited lease rollover, in conjunction with our fortress balance sheet, provide for a meaningful competitive advantage. That foundation positions us to generate the mid-single AFFO growth per share and double-digit operational returns in 2027 that we have consistently delivered over the past few years. We expect to do so without sacrificing our balance sheet strength or investment criteria. Prudently deploying capital while driving cap rates higher, preserving our dry powder, and leaning further into recycling capital.

We can achieve similar levels of earnings growth with less capital deployment at higher cap rates. We have already begun that shift. Acquisition cap rates expanded by 30 basis points this quarter to 7.3%, and we will expand them materially further in the fourth quarter as we lean into our capabilities and prioritize value creation over volume. This past quarter, we invested a total of approximately $360 million in 94 high-quality retail net lease properties, including the acquisition of 68 assets for approximately $310 million. The properties acquired during the quarter are leased to leading operators in sectors including auto parts, tire and auto service, home improvement, grocery, and warehouse clubs.

Notable acquisitions during the quarter included a Walmart Supercenter in Virginia, a new BJ's Wholesale in the economic center of Western Massachusetts, a portfolio of Gerber Collisions, two Hobby Lobbies, Five Belows, as well as ground leases to Lowe's and Home Depot in Connecticut and Minnesota, respectively. The acquired properties had a weighted average cap rate of 7.3%. As mentioned, this represents a 30 basis point expansion quarter-over-quarter. The weighted average lease term was 14.5 years, and investment-grade retailers accounted for over 52% of the annualized base rents acquired. During the third quarter, we broke ground on six developments, representing total anticipated costs of $57 million. This included four new 7-Eleven projects, which now total 12 7-Eleven commenced in our development platform.

Additionally, working in conjunction with the premier off-price retailer, we acquired a former furniture store located in a dominant power center in Philadelphia for an exciting redevelopment to be completed in early 2027. Seven projects were completed in the quarter, representing a company record of over $82 million in total costs. For perspective, this exceeds the total cost of all projects completed in 2024. Completed projects included three 7-Elevens and several Burlington and Ross locations. Construction continued on eight projects during the quarter, with aggregate anticipated costs of $88 million. Through September 30, we have commenced projects totaling approximately $163 million, nearly doubling the level achieved in the prior period. We continue to make progress toward our medium-term objective of $250 million in annual development and developer funding platform commencements.

This progress reflects the strength of our best-in-class team and platforms, which provide the country's leading retailers with a one-stop shop to execute on their growth objectives. In total, we had 26 projects either completed or under construction during the first nine months of the year, representing a company record of over $255 million of committed capital. Through the first nine months of the year across all three platforms, we have invested approximately $1.3 billion in 261 retail net lease properties, spanning 42 states and the District of Columbia across 29 retail sectors. Moving on to the disposition front. We sold 11 properties during the quarter for gross proceeds of approximately $27 million at a weighted average cap rate of 6.5%, 80 basis points inside the cap rate on acquisitions completed during the period.

The dispositions consisted primarily of five franchise-operated Taco Bell locations, two Goodyears, and two Advance Auto Parts stores. None of the dispositions carried an investment-grade credit rating, and the assets had a weighted average remaining lease term of approximately 7.6 years. For the year, we now anticipate total disposition volume of $100 million-$150 million, a material increase from our prior range of $50 million-$100 million. We are, and we will continue to pursue additional opportunities to recycle capital via strong demand from 1031 and bonus depreciation buyers on an accretive basis. Our asset management team continues to address upcoming lease maturities. We executed new leases, extensions, or options on over 860,000 sq ft of GLA during the third quarter with a recapture rate of approximately 106%, the highest level in six quarters.

Through the first nine months of the year, we executed new leases, extensions, or options on 2.5 million sq ft of gross leasable area at a recapture rate of more than 105%. Only 11 leases, representing 20 basis points of annualized base rent, remain scheduled to mature this year. At quarter end, our best-in-class portfolio is approaching 2,900 properties spanning all 50 states and the District of Columbia. Our investment-grade exposure stood at approximately 65% of annualized base rents. Our portfolio includes 270 ground leases comprising 10% of annualized base rents, which have investment-grade exposure of approximately 85%. With that, I will hand the call over to Peter to discuss our financial results for the quarter.

Thank you, Joey. Starting with the balance sheet, we had a very active quarter with over $825 million of debt and equity capital raised or settled, bringing this figure to nearly $1.5 billion year-to-date. In September, we completed a $400 million public bond offering of 5.65% senior unsecured notes due in 2036. The offering priced at a spread of 90 basis points, the tightest level achieved for a 10-year public bond offering in the company's history. In connection with the offering, we terminated $300 million of forward starting swap agreements and received more than $19 million of proceeds. Those proceeds reduced the all-in interest rate on the notes by nearly 50 basis points from the yield to maturity to a rate of 5.36%.

Over the past six years, we have generated more than $82 million of net proceeds from our hedging program, translating into nearly $8 million of annual interest savings. We view that as a direct result of our disciplined and proactive hedging policy. Our approach has been to avoid just-in-time financing, which has provided better visibility into our medium-term cost of capital and has created meaningful value for shareholders over time. During the quarter, we settled approximately 5.7 million shares of existing forward equity for net proceeds of over $425 million. At period end, we had approximately 8.8 million shares of outstanding forward equity, representing anticipated net proceeds of over $657 million. At quarter end, total liquidity stood at approximately $2 billion, including cash on hand, outstanding forward equity, and full availability on our revolving credit facility.