ADC — Q3 2026 Financial Report Analysis

Overview

Agree Realty (ADC), a real estate investment trust (REIT) that owns 2,888 stores leased to chains such as Walmart, Tractor Supply and Dollar General, grew rental revenue 16.7% to $213.9 million in the third quarter of 2026 because it owned about 285 more properties than a year earlier. But the company paid for much of that growth by selling new shares, so the figure shareholders care most about, AFFO per share, rose a much smaller 4.9% to $1.15. GAAP net income jumped 32.3%, but about half of that gain came from property-sale gains and the absence of last year's write-down, not from rent.

Why REITs are judged on FFO, not net income

GAAP net income (profit under standard accounting rules) is a poor guide to a landlord's earning power. Accounting rules make the company deduct depreciation every year, as if its buildings were steadily wearing out in value, and they count gains or losses from selling property as income. Funds from operations (FFO), a standard industry measure, adds depreciation back and strips out property-sale gains and write-downs. Agree also reports Core FFO, which adds back a non-cash accounting charge tied to leases it bought from other owners. It also reports adjusted FFO (AFFO), which goes further and removes other non-cash items such as "straight-line" rent (explained below) and stock-based pay. AFFO is closest to the cash the business makes per share, and it is the figure management gives guidance on and the one the dividend is set from.

EPS growth is the company's own figure, calculated before rounding; $0.53 vs $0.45 after rounding is about 17.8%. The year-ago leased percentage isn't given in this filing. Operating margin here includes $6.3 million of gains on property sales and insurance (vs $1.1 million a year ago).

For the first nine months, AFFO per share was $3.43, up 6.7% from $3.22, and GAAP diluted EPS was $1.47, up from $1.30.

What drove the quarter

More buildings, not higher rents on existing ones. The 10-Q says the increases in rental income, property taxes, operating costs and depreciation were "due to the acquisition and the ownership of an increased number of properties." The net investment in real estate grew from $8.30 billion (2,603 properties) to $9.52 billion (2,888 properties) in a year. Minimum contractual rent rose 17.0% to $196.0 million, in line with the larger portfolio. The filing does not report a same-property rent growth figure, so the quarter cannot be split into rent increases on stores it already owned versus rent from new stores. Net-lease rents usually rise only slowly under fixed lease terms, so nearly all the growth is from buying more.

Costs the tenants mostly pay. Under a net lease the tenant pays the property taxes, insurance and upkeep. Property taxes (+20%) and operating expenses (+20%) rose faster than rent, but tenant reimbursements rose too, from $19.8 million to $23.8 million (+19.9%), largely offsetting them. General and administrative costs rose 14% to $12.4 million because of higher pay and a change in how stock awards vest. As a share of revenue they slipped to 5.8% from 5.9%.

Interest costs grew a little slower than revenue. Net interest expense rose 16% to $41.0 million. That came from a $350 million term loan taken out in November 2025 (about $3.6 million of the increase), more short-term borrowing ($1.9 million) and the new 2036 bonds ($0.5 million).

Deals in the quarter. Agree invested $357.7 million across 94 properties: $308.6 million of purchases (68 properties, 7.3% average yield on price, 14.5-year average remaining lease term, 52.1% of rent from investment-grade tenants, meaning companies with strong credit ratings), plus development projects. It sold 11 properties for $26.9 million at a 6.5% yield. Selling below the yield it buys at means it sold those stores for a higher price relative to their rent than it pays for new ones.

What the headline numbers hide

• Half the GAAP profit jump is from one-off items. Net income rose $16.2 million. Gains on sales and an insurance payout on a tornado-damaged property added $6.3 million this quarter vs $1.1 million a year ago, and there was no impairment (a write-down of a property's book value) against $3.0 million last year. Together that is an $8.2 million swing, about half the increase. Excluding those items, profit grew about 15%, close to revenue growth. That is why the 32% net income growth and the 4.9% AFFO-per-share growth point in such different directions.
• Share issuance is diluting per-share growth. Agree raised $425.7 million in the quarter by delivering 5.7 million shares under "forward" equity sales (shares sold earlier at a fixed price, delivered and paid for later). It still has 8.8 million shares, worth about $657 million, left to deliver by 2027-2028. That money funds next year's purchases, but every new share splits the rent among more owners. With total AFFO up 17.2% and per-share AFFO up 4.9%, buying property with new shares only adds a little per share.
• Cash backs up the earnings. Operating cash flow for nine months was $460.7 million, well above $185.6 million of net income (because depreciation is non-cash). It included $19.4 million from closing out interest-rate hedges. Excluding that, operating cash flow was about $441 million, slightly above nine-month AFFO of $419.8 million.
• Receivables are mostly accounting rent, and in line with growth. Tenant receivables rose to $140.7 million from $122.5 million at year-end. Most of that ($108.6 million, up from $94.5 million) is "straight-line" rent: accounting rules spread a lease's built-in rent increases evenly over its life, so early years book more rent than tenants actually pay. AFFO removes this ($5.7 million in the quarter), which is why AFFO is the better measure here. Only one lease, with one tenant, is flagged as unlikely to be collected, and there is no general allowance for bad debts.
• Core FFO and AFFO add back real costs. Core FFO adds back $11.9 million of amortization tied to leases bought at below-market rents. AFFO also adds back $3.7 million of stock-based pay. Both are standard REIT adjustments, but they mean AFFO exceeds Nareit FFO ($1.05 per share) by 10 cents.
• Guidance edged up only at the bottom of the range. Full-year AFFO guidance moved to $4.58-$4.59 from $4.57-$4.59. That means a fourth quarter of about $1.15-$1.16, roughly flat with the third. The investment target was trimmed to about $1.6 billion from $1.6-$1.8 billion, and planned sales were raised to $100-$150 million from $50-$100 million.

Balance sheet and dividend

Net debt was $3.66 billion, or 4.8 times annualized recurring EBITDA (a measure of operating earnings before interest, tax, depreciation and amortization). Counting the $657 million of forward equity still to be delivered as if it repaid debt, that falls to 3.9 times. The credit line was fully undrawn ($1.25 billion available), cash was $91.5 million including escrow, and total liquidity was about $2.0 billion. Fixed charge coverage (earnings available to cover interest and other fixed payments) was 4.1 times. The company was in compliance with all its material loan covenants.

The monthly dividend was $0.267 per share in the quarter ($3.204 annualized, up 4.3%), about 69% of AFFO per share. In October it was raised to $0.271 a month ($3.252 annualized). A payout under 70% of AFFO leaves room to fund some purchases from retained cash.

Takeaway: Agree's growth comes from buying stores at a 7.3% yield and funding them with new shares and 5.36% debt. That keeps the portfolio near-fully leased and growing about 17% a year in total. But because the share count rose almost 12%, only about 5% of that reached each share's AFFO, and the slightly smaller investment target for 2026 points to similar per-share growth ahead.

Outlook

Management now expects 2026 AFFO of $4.58-$4.59 per share. After $3.43 in the first nine months, that implies a fourth quarter of $1.15-$1.16, about flat with the third. Three things to watch in the next report:

1. How much it invests. Cutting the 2026 target to about $1.6 billion (about $300 million left for the fourth quarter after $1.3 billion in nine months) slows the main growth engine. Management says it is "preserving our liquidity to capitalize on shifts in the transaction market."
2. The spread between purchase yields and funding costs. The 7.3% purchase yield against a 5.36% bond cost is a healthy gap. If purchase yields fall or borrowing costs rise, each new deal adds less per share.
3. Tenant credit. The 10-Q's own risk list cites tariffs and retail-sector disruption as threats to tenants' ability to pay. With 65.1% of rent from investment-grade tenants and one lease flagged as doubtful, credit is clean today. Any rise in uncollectible rent or vacancies would show up first in the leased percentage and the collectability note.

Our read: this is a steady, low-risk compounder whose per-share growth is limited by how it funds itself. Expect AFFO per share to keep growing at mid-single digits, not the double-digit rates the total revenue line suggests.