Agree Realty (NYSE:ADC) reported first-quarter financial results on Wednesday. The transcript from the company’s first-quarter earnings call has been provided below.
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Access the full call at https://events.q4inc.com/attendee/935659141
Summary
Agree Realty reported its largest quarterly acquisition volume since 2022, investing $403 million in acquisitions and $425 million across three external growth platforms.
The company raised approximately $660 million through forward equity and holds $2.3 billion in total liquidity, with a pro forma net debt to recurring EBITDA of 3.2 times.
The company reiterated its full-year 2026 AFFO per share guidance of $4.54 to $4.58, implying a 5.4% year-over-year growth.
Operational highlights include a sale-leaseback with Hobby Lobby and acquisitions including Home Depot, Wawa, Sherwin Williams, Aldi, and Walmart properties.
Management emphasized the robustness of its external growth pipeline and the strategic focus on high-quality retail portfolio improvements.
Full Transcript
OPERATOR
Good morning and welcome to the Agree Realty first quarter 2026 conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the Star key followed by zero. After today’s presentation there will be an opportunity to ask questions. To ask a question, you may press Star then one on your touchtone phone. To withdraw your question, please press Star one again. Please limit yourself to two questions during this call. Note this event is being recorded and at this time I would like to turn the conference over to Reuben Treitman, Senior Director of Corporate Finance. Please go ahead.
Reuben Treitman (Senior Director of Corporate Finance)
Thank you. Good morning everyone and thank you for joining US for Agree Realty’s first 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. 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 10K 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.
Joey
Thank you Ruben and thank you all for joining us this morning. 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 remained 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 hedge capital including a company record 1.4 billion of outstanding forward equity at quarter end. Pro forma net debt to recurring EBITDA was just 3.2 times giving us meaningful flexibility to execute regardless of customers, 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 stand poised to leverage their scale and value propositions to drive further share gains. We are consistently seeing leading retailers with the balance sheets and operating discipline when 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 and earning 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 3 platforms. During the first quarter, we invested nearly 425 million in 100 properties across these 3 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 pristine 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 Walmarts located in Georgia and South Carolina. The acquired properties had a weighted average cap rate of 7.1% and a weighted average lease term of 11.3 years. Nearly 60% of base rent acquired was derived from investment grade retailers and we continued 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 2 new development or DSP projects with total anticipated costs of approximately $18 million. Construction continued on nine projects during the quarter with aggregate and anticipated costs of approximately $71 million. We completed four projects during the quarter representing a total investment of approximately 23 million. Our development and DFP pipelines continue to grow significantly and we expect development and DFP activity to meaningfully ramp in the second and third quarters, including several additional Projects that have 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 included 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 Super center 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 such as our Walgreens on the corner of the Diag on the University of Michigan’s campus, 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 compliment 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.
Peter
Thank you, Joey. 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 a 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 3.2 times, our total debt to enterprise value is under 29% and our fixed charge coverage ratio which includes the preferred dividend remains very healthy at 4.2 times. 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 $0.02 to $0.04 on full year 2026 AFFO per share. This is up from approximately 1 penny in our prior guidance due to both a higher share price and more forward equity outstanding. As always, the impact could be higher or lower if our stock price moves 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 …
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