Agree Realty Corporation (ADC) Earnings

Management highlights

- Portfolio & Growth Milestones * Q2 2026 total investment hit a company record of over $500 million across 102 properties, marking a significant milestone in the firm's 15-year history. * Portfolio occupancy reached a new company record of 99.8%, up 10 basis points sequentially. The full portfolio totals 2,825 properties across all 50 U.S. states and DC, with 66% of annualized base rent from investment-grade tenants and 10% from 268 ground lease assets. * The firm executed new leases, extensions, or options on ~760,000 square feet of gross leasable area in Q2, with a 105% recapture rate, leaving just 40 basis points of annualized base rent maturing for the rest of 2026, down over 100 basis points from the start of the year. - Strategic Positioning * Management has built durable competitive advantages via deep retail partner relationships, a full-service internal asset management platform, and a differentiated multi-platform growth strategy that supports a full suite of transaction types for top retail operators, separating Agree from peer net lease firms. * The firm continues to invest in people, processes, and technology, including embedding AI across the organization to improve decision-making, streamline workflows, and accelerate transaction execution. The next iteration of the firm's proprietary Arc platform will launch later this year, further boosting operating leverage. * Management maintains a focused strategy on high-quality retail net lease assets, with targeted exposure to off-price retail and large-format convenience store sectors, where Agree is now one of the largest owners in the U.S. - Balance Sheet & Capital Strategy * Year-to-date 2026 total capital markets activity exceeded $1 billion. The firm proactively hedged interest rate risk, ending the quarter with $300 million in forward starting swaps that fix the base rate for a contemplated 10-year unsecured debt issuance at ~4.1%. Over five years, proactive hedging has delivered $63 million in net proceeds and over $6 million in annual interest savings. * Free cash flow after dividends is projected to exceed $140 million in 2026, a more than 10% year-over-year increase. The firm has no material debt maturities until 2028, maintaining a conservative, fortress balance sheet to support ongoing growth.

Guidance

- Full-year 2026 total investment volume guidance was raised to $1.6 to $1.8 billion, representing a 24% increase at the midpoint compared to the firm's initial 2026 guidance, and surpassing 2025's full-year investment activity. - Full-year 2026 AFFO per share guidance was raised to $4.57 to $4.59, a 2 cent increase at the midpoint, implying nearly 6% year-over-year AFFO per share growth, driven by higher-than-expected investment activity and strong portfolio performance. - Management lowered the annual credit and occupancy loss assumption to 25 basis points, the low end of the prior 25 to 50 basis point range. This fully loaded metric includes all credit events, vacancy downtime, lost revenue, and expenses associated with vacant space. Year-to-date 2026 actual credit and occupancy loss is 10 basis points, supporting the updated assumption. - The firm remains on track to hit its medium-term target of $250 million in annual development and DFP project commencement, with a 50% chance of hitting the target in 2026, 18 months after setting the three-year goal.

Segment performance

Agree Realty operates three external growth platforms: core acquisitions, development, and Developer Funding Program (DFP). In Q2 2026: 1. Core Acquisitions: Total investment of $451 million across 82 retail net lease assets, accounting for 90.2% of total Q2 investment volume. Acquired assets had a weighted average cap rate of 7% and a weighted average lease term of 11.2 years, with 73% of annualized base rent from investment-grade retailers and 13.5% from ground leases. 2. Development & DFP: Five new construction projects broke ground in Q2 with total anticipated costs of $88 million, representing 17.6% of total Q2 committed capital across all active projects. Through the first half of 2026, the firm has commenced over $105 million in projects, more than three times the prior year period. As of Q2 end, 20 projects were completed or under construction with total committed capital of $200 million, a company record. 3. Dispositions: Sold 14 non-investment grade properties in Q2 for gross proceeds of $30 million at a 7% weighted average cap rate, representing 5.7% of total Q2 investment volume from divestment activity. Q2 2026 financial performance: Core FFO per share was $1.13, a 7.5% year-over-year increase. AFFO per share was $1.14, a 7.4% year-over-year increase. The monthly dividend was increased to 26.7 cents per share, a 4.3% year-over-year increase, with a 70% AFFO payout ratio. Total liquidity at quarter end was approximately $1.9 billion, with pro forma net debt to recurring EBITDA of 3.7x, net debt to enterprise value of 29%, and a fixed charge coverage ratio of 4.1x.

Risks & headwinds

- Management cited general macroeconomic uncertainty and interest rate volatility as external factors that could impact transaction pricing, cost of capital, and investment activity, but noted the firm's proactive hedging and strong liquidity position mitigate these risks. - The only identified watchlist item for credit exposure was a small number of AMC theater holdings, but management noted AMC was recently upgraded by S&P, has raised sufficient new equity, and has seen improving box office momentum, reducing credit risk. No other material tenant or sector-level credit risks were identified. - Investment activity for the back half of 2026 remains subject to due diligence and closing timing, which could impact full-year results relative to guidance.

Analyst Q&A

• Q: With accelerating acquisition activity across the net lease sector, and a higher share of investment-grade assets acquired this quarter at stable cap rates, what allows Agree to source higher credit assets without sacrificing yield, and do you expect this to continue? /

  A: This outcome is driven by Agree's deep, long-standing relationships with top retail partners, which creates access to asymmetric, off-market or proprietary opportunities that are not available to broader market participants. Agree's three-platform full-service model allows it to meet a wide range of retailer needs, generating more high-quality deal flow. No material shifts in market competition or cap rate trends have changed this dynamic, and management expects this access to persist.

• Q: What is the rationale for pursuing ground lease assets, and how large do you ultimately expect the ground lease portfolio to grow as a share of the total business? /

  A: Ground leases offer very attractive risk-adjusted returns: Agree owns the fee simple land, the tenant funds construction of the building, and if the tenant vacates, the building reverts to Agree free of cost, delivering significant upside when the property is re-leased. Ground lease opportunities are uncovered through regular deal sourcing rather than being a targeted separate channel, and they have hovered around 10-11% of the portfolio for years. There is no fixed target for the ultimate share, though elevated ground lease deal flow is expected in the back half of 2026, and Agree remains agnostic to asset type as long as it meets quality standards.

• Q: Why is the development and DFP pipeline growing: is this due to more internal focus, or favorable market conditions? Do you expect larger multi-tenant development opportunities to deploy more capital over time? /

  A: The growth of the platform is the result of deliberate increased focus over the last 18 months, as Agree built out its development capabilities to deliver a full-service offering to retail partners. The platform is now delivering on that planned growth, with outsized returns on high-credit assets. Agree is open to pursuing larger multi-tenant or multi-concept projects that would allow larger individual capital deployments, and expects to continue executing these opportunities as they arise.

• Q: With planned tech and AI investments, what is the outlook for expense growth and G&A efficiency over the next few years? /

  A: Agree has already scaled efficiently to ~100 total team members, and process improvements and AI integration are driving significant ongoing efficiency gains. The company expects to continue compressing G&A as a percentage of revenue as it grows transaction volume, with plenty of existing capacity to handle higher activity without proportional expense growth. Select headcount will be added, but the firm prioritizes developing internal talent to maintain lean and efficient operations.