What Management Said
Read the full Q2 2026 transcript ↗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. 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. 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. During the quarter, we invested a company record of over $500 million across our three external growth platforms.
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. Peter will provide further details on the guidance range and its inputs shortly.
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. Moving on to the Q2 in detail, we invested a company record of over a half a billion dollars on 102 properties across our three platforms. 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.
What went well
- Invested a company-record of over $500 million across the three external growth platforms on 102 properties, described as the highest-quality quarter in company history by real estate attributes, credit composition, and lease terms.
- Acquisitions totaled $451 million across 82 retail net lease assets (highest quarterly level since the depths of COVID) at a weighted average cap rate of 7% and a weighted average lease term of 11.2 years, with investment-grade retailers accounting for over 73% of annualized base rents acquired.
- Core FFO per share was $1.13 (up 7.5% year-over-year) and AFFO per share was $1.14 (up 7.4% year-over-year), supported by a very strong first half.
- Occupancy ticked up 10 basis points sequentially to match a company record of 99.8%, and the portfolio grew to 2,825 properties across all 50 states and the District of Columbia.
- Development and DFP platforms set a company record for construction start volume, with five projects breaking ground at roughly $88 million of total anticipated costs and more than $105 million of projects commenced through June 30, over three times the prior period.
- Credit and occupancy loss ran at just 10 basis points fully loaded year-to-date and only six basis points in Q2, allowing the full-year loss assumption to be lowered to 25 basis points, the low end of the prior 25-50 basis point range.
What went wrong
- Sold 14 properties for approximately $30 million at a 7% weighted average cap rate, primarily three Goodyear locations and four Advance Auto Parts stores identified as lower-performing assets, with limited remaining term of approximately 6.9 years.
- The 10-year Treasury remained elevated at 4.7%, an acknowledged source of rate volatility and macro uncertainty that management continues to monitor for potential impact on the acquisition environment.
- Excluding the impact of unsettled forward equity, net debt to recurring EBITDA stood at 5.2 times (versus approximately 3.7 times pro forma for settlement of all outstanding forward equity).
- A modest exposure to a few AMC theatres remains the biggest item on the watch list, though the tenant was upgraded by S&P and recently raised equity capital.
Guidance Changes
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Performance Breakdown
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Earnings Call Themes & Trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Investment volume and acquisition quality | Robust acquisition volume was already delivered in Q1, with investment-grade retailers around 60% of annualized base rents acquired last quarter. | Q2 set a company record of over $500 million invested, including $451 million of acquisitions, with investment-grade retailers rising to over 73% of ABR acquired while the cap rate held at 7%. | — |
| Full-year AFFO and investment guidance | Initial full-year investment volume guidance was set at the beginning of the year, roughly 24% below the new midpoint. | Investment volume guidance raised to $1.6 billion-$1.8 billion and AFFO per share guidance raised $0.02 to $4.57-$4.59, implying nearly 6% growth. | — |
| Credit and occupancy loss | Prior full-year credit and occupancy loss assumption was a range of 25-50 basis points. | Assumption lowered to 25 basis points (low end of the prior range) after just 10 basis points of fully loaded loss year-to-date and six basis points in Q2; watch list is lower than one or two years ago. | — |
| Development and developer funding platform | Effort to scale development and DFP began roughly 18 months ago, with the $250 million annual commencement goal set as a three-year target. | Company-record construction start volume with five projects breaking ground and over $105 million commenced through June 30 (over 3x the prior period); management is ahead of schedule with a 50/50 chance of hitting the $250 million goal this year and will set a new goal. | — |
| Ground lease exposure | Ground lease exposure has hovered around the 10%-11% mark for a number of quarters and years. | Ground lease exposure was elevated this quarter (about 13.5% of ABR acquired), the portfolio holds 268 ground leases at over 10% of ABR, and management expects further elevated ground lease exposure in the back half of the year. | — |
| Balance sheet and cost of capital hedging | Proactive hedging over the past five years generated approximately $63 million of net proceeds and over $6 million of annual interest savings. | Added $50 million of forward starting swaps to reach $300 million total, which together with about $1.1 billion of forward equity represents roughly $1.4 billion of hedged capital; management could issue 10-year debt in the low fives today and sees a public unsecured offering as the most attractive longer-term debt option. | — |
Q&A Summary
With acquisition activity accelerating across the net lease sector, are you seeing any changes in bidding behavior, particularly for larger portfolios or investment-grade assets?
No material changes; cap rates have effectively stayed within a band for going on three years with no new entrants to the competitive set. Management does not anticipate material changes but will continue to monitor the 10-year Treasury, which is elevated at 4.7%.
What is allowing you to acquire higher-credit assets (over 73% investment grade this quarter, up from around 60%) without sacrificing yield, and will it persist?
It is due to the depth and strength of the team, deep retailer relationships, and the asymmetrical opportunities pursued across all three platforms. Management noted it is not imputing investment-grade ratings, citing unrated operators like Hobby Lobby alongside Ulta, Publix, and Boot Barn.
Can you walk us through the BP transaction and what makes travel centers of interest for Agree?
The BP transaction was approximately $75 million for large-format travel centers guaranteed by BP North America, an A-minus rated credit. These are typically located on major interstate exit ramps with long-term leases and significant escalations, part of the firm's stated pursuit of large-format C-stores and off-price.
You have been leaning into ground leases; what makes them attractive on a risk-adjusted return basis?
Management said it is not a concerted effort but a function of what its platforms uncover; ground lease exposure sits at over 10% of the portfolio. The tenant builds the building at its own expense, Agree owns the fee simple land, there is no depreciation, and if the tenant leaves the building reverts free and clear, making it Joey Agree's favorite risk-adjusted return in the net lease sector; elevated ground lease exposure is expected in the back half.
How has the strong credit performance impacted your guide, and what is on the watch list?
Credit loss guidance was brought down to 25 basis points from a prior 25-50 basis point range, with just 10 basis points of fully loaded loss year-to-date and six basis points in Q2. No material exposure would drive a significant acceleration in Q3 or Q4; the biggest watch-list item is a few AMCs, which were upgraded by S&P and recently raised equity capital.
Is there a path to larger-format or multi-tenant development that would let you deploy more capital at one time?
The 7-Eleven projects are turnkey developments averaging roughly $10 million-$12 million each, but management is open to two or more off-price concepts together, such as a HomeGoods and Marshalls, Burlington and Ross, or a combination with Boot Barn or another tenant in its sandbox.
How large do you ultimately see the ground lease portfolio becoming as a percentage of the business?
It has hovered around the double-digit, 10%-11% mark for a number of quarters and years; there is no ultimate goal or separate channel. Management is agnostic between turnkey and ground lease, with the ultimate goal being the highest-quality retail portfolio in the country, growing at roughly 400 properties per year, while maintaining a fortress balance sheet.
With about $425 million of forward equity maturing in October and potential 10-year unsecured issuance, how are you thinking about funding sources and cadence in the back half?
The company is in a great position with $1.9 billion of liquidity, including $1.1 billion of forward equity. The roughly $425 million of forward equity can be extended, but there is a good chance those shares are settled in the back half; with $300 million of forward starting swaps in place, base rate risk is largely off the table and management is not in a rush to issue debt and can pick its spot.
Given the steeper yield curve, where is your most attractive source of capital and what is the debt pricing if you did anything in the back half?
Including the $300 million of forward starting swaps contemplating a 10-year issuance, the company could probably issue 10-year debt in the low fives today. With the term loan now fully drawn, a public unsecured offering is the most attractive longer-term debt option.
More on Agree Realty Corp
Reported 2026-07-31 · figures from the Agree Realty Corp Q2 2026 earnings call.
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