Agree Realty (NYSE:ADC) reported record second-quarter investment activity and raised its full-year outlook, citing strong acquisition, development and portfolio performance.
President and CEO Joey Agree said the company invested more than $500 million across its three external growth platforms during the quarter, calling it a company record. The investment activity included $451 million of acquisitions involving 82 retail net-lease assets, along with development and developer funding platform activity.
Guidance Raised as Investment Pipeline Expands
The company raised its full-year 2026 investment-volume guidance to a range of $1.6 billion to $1.8 billion. At the midpoint, the updated range exceeds the company’s investment activity last year and represents a 24% increase from its initial guidance for 2026, according to Agree.
Agree Realty also increased its full-year adjusted funds from operations, or AFFO, per-share guidance to $4.57 to $4.59. The midpoint was raised by $0.02 and implies nearly 6% year-over-year growth, CFO Peter Coughenour said.
Core FFO per share was $1.13 in the second quarter, up 7.5% from a year earlier. AFFO per share was $1.14, an increase of 7.4% year over year.
Coughenour said the updated outlook reflects higher investment activity and continued portfolio strength. The company now assumes 25 basis points of credit and occupancy loss for the year, at the low end of its prior 25-to-50-basis-point range. Through the first half of the year, Agree Realty experienced 10 basis points of fully loaded credit and occupancy loss.
Acquisitions Emphasized Retail Credit and Ground Leases
Second-quarter acquisitions were concentrated in sectors including auto parts, home improvement, grocery, farm and rural supply, and convenience stores. Notable investments included three Walmart Supercenter ground leases in Missouri, Ohio and Wisconsin; a Walmart Neighborhood Market in Oregon; BP-branded travel centers; and a Home Depot ground lease in New Hampshire.
The acquired assets carried a weighted-average capitalization rate of 7% and a weighted-average lease term of 11.2 years. Investment-grade retailers accounted for more than 73% of annualized base rent acquired during the quarter, while ground leases represented approximately 13.5% of acquired annualized base rent.
Agree said the company has not seen material changes in competitive bidding conditions or cap rates, which he said have remained within a relatively consistent range for about three years. He attributed the company’s ability to acquire higher-credit assets without sacrificing yield to its retailer relationships, internal team and ability to offer multiple transaction structures.
Regarding the approximately $75 million BP transaction, Agree said the assets are large-format travel centers backed by BP North America, which carries an A-minus credit rating. He said the properties are generally located near interstate exits and feature long-term leases with significant escalations.
Ground leases accounted for more than 10% of Agree Realty’s annualized base rent at quarter-end. Agree described them as among his preferred risk-adjusted opportunities because the tenant has typically funded the building while the company owns the land. If a tenant leaves, the building reverts to the landowner, he said.
Development Activity Reaches Record Level
The company commenced five development and developer funding projects during the quarter, with anticipated costs of about $88 million. The projects included its seventh and eighth 7-Eleven locations under construction, three Ross Dress for Less sites, two Burlington locations and three TJX concepts.
Through June 30, Agree Realty had commenced more than $105 million of projects, more than three times the volume in the prior-year period. It had 20 projects completed or under construction in the first half, representing roughly $200 million of committed capital.
The company is pursuing a medium-term goal of $250 million in annual development and developer funding platform commencements. Agree said there is a “50/50 shot” that the company reaches that target this year, subject to diligence and timing, and that management would set a new goal if it reaches the target ahead of schedule.
Agree said the development effort centers on tenants already represented in its portfolio, though the company may selectively develop for new tenants. The company continues to focus on off-price retail and large-format convenience stores, he said.
Portfolio Occupancy, Liquidity and Capital Position
Agree Realty sold 14 properties during the quarter for approximately $30 million in gross proceeds at a weighted-average cap rate of 7%. The dispositions primarily included three Goodyear locations and four Advance Auto Parts stores. Agree said the properties were non-investment-grade assets with roughly 6.9 years of remaining lease term.
The company executed new leases, extensions or options on about 760,000 square feet during the quarter, producing a recapture rate of approximately 105%. Occupancy increased 10 basis points sequentially to 99.8%, matching a company record.
At quarter-end, the portfolio comprised 2,825 properties in all 50 states and Washington, D.C. Nearly two-thirds of the portfolio was investment grade, while 268 ground leases accounted for more than 10% of annualized base rent.
Year-to-date capital markets activity exceeded $1 billion. During the quarter, the company sold about 400,000 shares of forward equity for approximately $31 million in net proceeds and settled about 4.3 million shares of existing forward equity for nearly $315 million.
Agree Realty ended the quarter with approximately $1.9 billion of liquidity, including cash, forward equity and more than $750 million available under its revolving credit facility, net of commercial-paper borrowings. Pro forma for the settlement of outstanding forward equity, net debt to recurring EBITDA was approximately 3.7 times.
The company also said it has $300 million of forward-starting swaps in place, effectively fixing the base rate for a contemplated 10-year unsecured debt issuance at about 4.1%. Coughenour said the company could issue 10-year debt in the low-5% range based on current conditions and its swaps.
Agree Realty increased its monthly common dividend to $0.267 per share for April through June, equivalent to an annualized dividend of more than $3.20 per share. The dividend represented a 4.3% year-over-year increase and had a second-quarter AFFO payout ratio of 70%.
About Agree Realty (NYSE:ADC)
Agree Realty Corporation (NYSE: ADC) is a publicly traded real estate investment trust headquartered in Chicago, Illinois. Founded in 1971, the company converted to a REIT structure in 2013 and focuses on acquiring, developing and managing a diversified portfolio of retail properties under long-term, triple-net (NNN) leases. Its tenant roster spans national and regional retailers in sectors such as grocery, home improvement, convenience and specialty retail.
Agree Realty’s primary business activities include sourcing and underwriting new property acquisitions, originating build-to-suit projects and executing value-add redevelopment programs.
