Agree Realty Corporation Reports Operating Results For The Third Quarter 2013

FARMINGTON HILLS, Mich., Oct. 28, 2013 /PRNewswire/ --

THIRD Quarter 2013 Highlights:

  • Increased funds from operations for the quarter by 20%, year over year
  • Increased adjusted funds from operations for the quarter by 18%, year over year
  • Increased total revenues for the quarter by 26%, year over year
  • Acquired seven net leased properties for $27 million
  • Delivered net leased development project to Wawa
  • Paid $0.41 per share quarterly dividend on October 8, 2013

Agree Realty Corporation (NYSE: ADC) today announced results for the quarter ended September 30, 2013. Third quarter funds from operations (FFO) increased 20% to $7,255,000 compared with FFO for the comparable period in 2012 of $6,052,000.  FFO per diluted share for the third quarter of 2013 was $0.54 compared with FFO per diluted share of $0.52 for the comparable period in 2012.  Excluding the impact of expensing acquisition costs (included in general and administrative expense), FFO per share would have been $0.56 per share for the quarter ended September 30, 2013.

Third quarter adjusted funds from operations (AFFO) increased 18% to $7,332,000 compared with AFFO for the comparable period in 2012 of $6,227,000.  AFFO per diluted share for the third quarter of 2013 was $0.55 compared to AFFO per diluted share of $0.54 for the third quarter of 2012.  Excluding the impact of expensing acquisition costs (included in general and administrative expense), AFFO per share would have been $0.57 per share for the quarter ended September 30, 2013.

Net income for the third quarter of 2013 was $4,646,000, or $0.35 per diluted share, compared to the comparable period in 2012 of $4,025,000, or $0.35 per diluted share.  Net income for the third quarter of 2013 was impacted by a non-cash impairment charge of $450,000.  Total revenues increased by 26% to $11,587,000, compared with total revenues of $9,193,000 in the third quarter of 2012.

For the nine months ended September 30, 2013, FFO was $20,443,000 compared with FFO for the nine months ended September 30, 2012 of $17,283,000. FFO per diluted share for the nine months ended September 30, 2013 was $1.54 compared with FFO per diluted share, of $1.51 for the nine months ended September 30, 2012. Excluding the impact of expensing acquisition costs (included in general and administrative expense), FFO per share would have been $1.56 per share for the nine months ended September 30, 2013.

For the nine months ended September 30, 2013, AFFO increased to $20,742,000 compared with AFFO, for the nine months ended September 30, 2012 of $17,869,000.  AFFO per diluted share for the nine months of 2013 was $1.56 compared to AFFO per diluted share, of $1.56 for the nine months of 2012. Excluding the impact of expensing acquisition costs (included in general and administrative expense), AFFO per share would have been $1.58 per share for the nine months ended September 30, 2013.

For the nine months ended September 30, 2013, net income increased to $14,568,000, to $1.10 per diluted share, compared with net income for the comparable period last year of $13,857,000, or $1.21 per diluted share. Net income in 2013 includes $953,000 of income from discontinued operations compared to $2,854,000 of income from discontinued operations in 2012.  In addition, net income for the nine months of 2013 was impacted by a non-cash impairment charge of $450,000.  Total revenues increased 25% to $32,742,000 compared with total revenues of $26,212,000 for the comparable period last year.

"I am extremely pleased to report the operating results for the quarter, including the improvements in both funds from operations and total revenues. Our acquisition, development and joint venture efforts continue to produce improved results.  Since the commencement of our acquisition program in 2010 we have acquired approximately $230,000,000 of net lease properties leased to industry leading tenants," said Joey Agree, President and Chief Executive Officer.  "With a stable, high-quality portfolio, of which 61% is investment grade, and one of the strongest balance sheets in the sector, we remain well positioned to execute on our pipeline of opportunities."

More information about the Company's calculations of FFO and AFFO, as well as reconciliations of net income (in accordance with generally accepted accounting principles) to FFO and AFFO, is included in the financial tables accompanying this press release. 

Acquisitions

The Company acquired seven retail properties during the third quarter for approximately $27 million.  The Company completed the following acquisitions during the quarter ended September 30, 2013:

 

Tenant


Sector


Location


Square Feet


Acquisition Date

Tractor Supply


Specialty Retail


Madisonville, TX


19,807


7/2/2013

Mattress Firm


Specialty Retail


Baton Rouge, LA


5,531


8/1/2013

Tractor Supply


Specialty Retail


Forest, MS


24,708


8/12/2013

AutoZone


Auto Parts


Sun Valley, NV


6,826


8/22/2013

LA Fitness


Health & Fitness


Rochester, NY


45,000


9/10/2013

BJ's Wholesale/Waffle House


Big Box Discount / Restaurant


Allentown, PA


112,230


9/19/2013

 

The Company acquired sixteen retail properties during the nine months of 2013 for approximately $70.0 million.  These acquisitions were located in thirteen states and nine different retail sectors.  Approximately 43% of the rental income generated from these acquisitions is derived from investment grade retailers.

Given the growing contribution of the Company's acquisition program to its business results, the Company has expensed acquisition costs related to business contributions beginning in the third quarter of 2013.  These costs are included in general and administrative expenses.  For the quarter ended September 30, 2013, the Company incurred $270,000, or $0.02 per diluted share, of expensed acquisition costs.

Development Activity

The Company's third Wawa development in Casselberry, Florida was delivered and held its grand opening on July 24, 2013. Total development cost for the project was approximately $2.8 million.

The Company's development activity continues at two additional projects:

  • In December 2012, the Company closed on the acquisition of a building in Ann Arbor, Michigan for redevelopment. The redevelopment, which is pre-leased to Walgreens, is expected to be completed by the first half of 2014.
  • In April 2013, the Company closed on the acquisition of a parcel of land in St. Petersburg, Florida for the development of a Wawa. Rent is anticipated to commence during the first half of 2014.

As of September 30, 2013 the Company's construction in progress balance totaled approximately $12.8 million.

Joint Venture Capital Solutions

The Company announced its first Joint Venture Capital Solutions project during the second quarter.  The Company closed on a 4.2 acre parcel of land for the development of a 55,000 square foot Hobby Lobby store in Grand Forks, North Dakota.  Hobby Lobby executed a 15 year lease for the property.  Construction has been completed and Hobby Lobby opened October 11, 2013.  The Company provided the necessary capital and is the sole owner of the project upon completion.

Subsequent to quarter end, the Company announced its second Joint Venture Capital Solutions project.  The Company closed on a 4.5 acre parcel of land for the development of a 62,450 square foot project in New Lenox, Illinois.  TJ Maxx, Ross Dress for Less and Petco have executed 10 year net leases.  The total project cost is estimated at approximately $8 million.  The project is expected to be completed in late 2014.

Portfolio

At September 30, 2013, the Company's portfolio consisted of 128 properties located in 33 states with a total of 3.8 million square feet of gross leasable space. The portfolio includes tenants operating in 17 different retail sectors. The portfolio was approximately 98% leased at the end of the quarter.  Total assets were $443,619,000.

Major Tenants

The following is a breakdown of base rents in effect at September 30, 2013 for each of the Company's major tenants:

 

Tenant



Annualized Base Rent


Percent of Total Base
Rent

Walgreens



$        11,646,744


26.2%

Kmart



2,748,691


6.2%

CVS



2,463,490


5.5%

Wawa



2,250,406


5.1%

Wal-Mart



2,093,931


4.7%

Rite Aid



1,962,135


4.4%

Lowe's



1,846,476


4.1%

LA Fitness



1,741,942


3.9%

Kohl's



1,180,964


2.7%

Dick's Sporting Goods



1,087,982


2.4%

Total



$        29,022,761


65.2%







 

Annualized Base Rent of Properties

The following is a breakdown of base rents in effect at September 30, 2013 for each type of retail tenant:

 

Type of Tenant



Annualized Base Rent


Percent of Base Rent

National



$         39,790,361


89%

Regional



$           3,508,638


8%

Local



$           1,230,064


3%

Total



$         44,529,063


100%







 

The following is a breakdown of base rents in effect at September 30, 2013 for each type of property:

 

Type of Property


Annualized Base Rent


Percent of Base Rent


Square Feet


Percent of Square feet

Free standing properties


$      36,950,412


83%


2,388,810


63%

Shopping center properties


$        7,578,651


17%


1,373,269


37%

Total


$      44,529,063


100%


3,762,079


100%










 

Lease Expirations

The following table, as of September 30, 2013, sets forth lease expirations for the next 10 years for the Company's portfolio, assuming that none of the tenants exercise renewal options or terminate their leases prior to the contractual expiration date. As of September 30, 2013, the Company's single tenant net lease portfolio had a weighted-average remaining lease term of 13 years.

 





 Gross Leasable Area 


             Annualized Base Rent 


Expiration Year


Number of Leases Expiring


 Square Footage 


Percent of Total


 Amount 


Percent of Total


Average Per Square Foot














2013


3


71,645


2.0%


$  296,212


0.7%


$        4.13

2014


18


285,617


7.8%


1,438,567


3.2%


5.04

2015


22


508,580


13.8%


2,516,368


5.7%


4.95

2016


16


110,341


3.0%


1,036,848


2.3%


9.40

2017


12


97,319


2.6%


1,675,510


3.8%


17.22

2018


15


310,792


8.5%


2,155,114


4.8%


6.93

2019


9


242,941


6.6%


3,379,490


7.6%


13.91

2020


7


140,371


3.8%


1,325,773


3.0%


9.44

2021


11


204,568


5.6%


3,670,185


8.2%


17.94

2022


9


203,409


5.5%


1,839,417


4.1%


9.04

Thereafter


79


1,500,872


40.8%


25,195,579


56.6%


16.79

Total


201


3,676,455


100.0%


$44,529,063


100.0%


$      12.11














 

Capital Markets/Balance Sheet

The Company's net debt to total enterprise value was approximately 32% as of September 30, 2013.  Enterprise value is calculated as the sum of mortgages payable and note payable and the market value of the Company's outstanding shares of common stock, assuming conversion of operating partnership units.

The Company entered into a new $35 million unsecured term loan on September 30.  The loan includes an accordion feature to increase capacity to $70 million, subject to customary terms and conditions.  The interest rate will be LIBOR plus 165 to 225 basis points, depending on the Company's leverage.  The Company also entered into an interest rate swap to fix LIBOR at 2.20% until maturity.  Based on the Company's current leverage ratio, it anticipates the margin will be 165 basis points over LIBOR, for an initial interest rate of 3.85% including the impact of the interest rate swap.

Dividend

The Company paid a cash dividend of $.41 per share on October 8, 2013 to stockholders of record on September 30, 2013.  The dividend is equivalent to an annualized dividend of $1.64 per share and represents a payout ratio of 76% of FFO for the quarter and 75% of AFFO.

Outstanding Shares and Operating Partnership Units

For the three and nine months ended September 30, 2013, the Company's fully diluted weighted average shares outstanding were 13,063,187 and 12,953,224.  The basic weighted average shares outstanding for the three and nine months ended September 30, 2013 were 12,983,774 and 12,872,808.

The Company's assets are held by, and all of its operations are conducted through, Agree Limited Partnership, of which the Company is the sole general partner.  As of September 30, 2013, there were 347,619 operating partnership units outstanding and the Company held a 97.44% interest.

Conference Call/Webcast

Agree Realty Corporation will host a live broadcast of its third quarter 2013 conference call on Tuesday, October 29, 2013 at 9:00 a.m. eastern time, to discuss its financial and operating results. The live broadcast will be available online at: http://www.videonewswire.com/event.asp?id=96589 and also by telephone at USA Toll Free: 1-800-870-4263 and International: 1-412-317-0790.  A replay will be available shortly after the call by telephone at US Toll Free: 1-877-344-7529/Conference #10035946 or International Toll: 1-412-317-0088/Conference #10035946 until January 29, 2014.

About Agree Realty Corporation

Agree Realty Corporation is primarily engaged in the acquisition and development of net leased properties leased to industry leading retail tenants.  The Company currently owns and operates a portfolio of 130 properties, located in 33 states and containing approximately 3.8 million square feet of gross leasable space.  The common stock of Agree Realty Corporation is listed on the New York Stock Exchange under the symbol "ADC."

Forward-Looking Statements

The Company considers portions of the information contained in this release to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, each as amended.  These forward-looking statements represent the Company's expectations, plans and beliefs concerning future events.  Although these forward-looking statements are based on good faith beliefs, reasonable assumptions and the Company's best judgment reflecting current information, certain factors could cause actual results to differ materially from such forward–looking statements.  Such factors are detailed from time to time in reports filed or furnished by the Company with the Securities and Exchange Commission, including the Company's Form 10-K for the year ended December 31, 2012.  Except as required by law, the Company assumes no obligation to update these forward–looking statements, even if new information becomes available in the future.

For additional information, visit the Company's home page on the Internet at http://www.agreerealty.com.     

 

Agree Realty Corporation

Operating Results (in thousands, except per share amounts)

(Unaudited)








Three Months Ended


Nine Months Ended



September 30,


September 30,



2013


2012


2013


2012

Revenues:









Minimum rents


$           10,684


$             8,636


$           30,582


$           24,438

Percentage rent


-


-


20


23

Operating cost reimbursements


901


542


2,138


1,691

Other income


2


15


2


60

Total Revenues


11,587


9,193


32,742


26,212

Expenses:









Real estate taxes


660


395


1,685


1,363

Property operating expenses


326


254


985


811

Land lease payments


107


106


321


468

General and administration


1,588


1,317


4,669


4,153

Depreciation and amortization


2,176


1,641


6,418


4,788

Impairment charge


450


-


450


-

Total Operating Expenses


5,307


3,713


14,528


11,583

Income from Operations


6,280


5,480


18,214


14,629

Other Income (Expense)









Interest expense


(1,634)


(1,344)


(4,599)


(3,626)

Income From Continuing Operations


4,646


4,136


13,615


11,003

Discontinued Operations:









Gain on sale of assets from discontinued operations


-


(321)


946


1,747

Income from discontinued operations


-


210


7


1,107

Total Discontinued Operations


-


(111)


953


2,854

Net Income


4,646


4,025


14,568


13,857

Net income attributable to non-controlling interest


118


118


379


414

Net Income Attributable to Agree Realty Corporation


4,528


3,907


14,189


13,443

Other Comprehensive Income, Net of $(14), ($5), $26 and ($20)









Attributable to Non-Controlling Interest


(536)


(172)


986


(684)

Total Comprehensive Income Attributable to Agree Realty Corporation


$             3,992


$             3,735


$           15,175


$           12,759

Basic Earnings Per Share









Continuing operations


$               0.35


$               0.36


$               1.03


$               0.97

Discontinued operations


-


(0.01)


0.07


0.25



$               0.35


$               0.35


$               1.10


$               1.22

Dilutive Earnings Per Share









Continuing operations


$               0.35


$               0.36


$               1.03


$               0.96

Discontinued operations


-


(0.01)


0.07


0.25



$               0.35


$               0.35


$               1.10


$               1.21

Weighted Average Number of Common Shares Outstanding - Basic


12,984


11,186


12,873


11,033

Weighted Average Number of Common Shares Outstanding - Dilutive


13,063


11,239


12,953


11,083










 

Agree Realty Corporation

Funds from Operations (in thousands, except per share amounts)

(Unaudited)








Three Months Ended


Nine Months Ended



September 30,


September 30,



2013


2012


2013


2012

Reconciliation of Funds from Operations to Net Income: (1)









Net income


$             4,646


$             4,025


$           14,568


$           13,857

Depreciation of real estate assets


1,723


1,393


5,082


4,274

Amortization of leasing costs


28


26


83


78

Amortization of lease intangibles


408


287


1,206


821

(Gain) Loss on sale of assets


-


321


(946)


(1,747)

Impairment charge


450


-


450


-

Funds from Operations


$             7,255


$             6,052


$           20,443


$           17,283

Funds from Operations Per Share - Dilutive


$               0.54


$               0.52


$               1.54


$               1.51

Weighted Average Number of Common Shares Outstanding - Dilutive


13,410


11,587


13,301


11,430










 

Adjusted Funds from Operations (in thousands, except per share amounts)

(Unaudited)








Three Months Ended


Nine Months Ended



September 30,


September 30,



2013


2012


2013


2012

Reconciliation of Adjusted Funds from Operations to Net Income: (1)









Net income


$             4,646


$             4,025


$           14,568


$           13,857

Cumulative adjustments to calculate FFO


2,609


2,027


5,875


3,426

Funds from Operations


7,255


6,052


20,443


17,283

Straight-line accrued rent


(265)


(197)


(893)


(498)

Deferred revenue recognition


(116)


(116)


(348)


(348)

Stock based compensation expense


467


412


1,392


1,236

Amortization of financing costs


78


79


235


199

Capitalized building improvements


(87)


(3)


(87)


(3)

Adjusted Funds from Operations


$             7,332


6,227


$           20,742


17,869

Adjusted Funds from Operations Per Share - Dilutive


$               0.55


$               0.54


$               1.56


$               1.56










Supplemental Information:









Scheduled principal repayments


$                878


$                802


$             2,586


$             2,329

Capitalized interest


$                111


$                   53


$                439


$                104










 

(1) FFO is defined by the National Association of Real Estate Investment Trusts, Inc. (NAREIT) to mean net income computed in accordance with U.S. generally accepted accounting principles (GAAP), excluding gains (or losses) from sales of property, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures.  Management uses FFO as a supplemental measure to conduct and evaluate the Company's business because there are certain limitations associated with using GAAP net income by itself as the primary measure of the Company's operating performance.  Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time.  Since real estate values instead have historically risen or fallen with market conditions, management believes that the presentation of operating results for real estate companies that use historical cost accounting is insufficient by itself.

FFO should not be considered as an alternative to net income as the primary indicator of the Company's operating performance or as an alternative to cash flow as a measure of liquidity. Further, while the Company adheres to the NAREIT definition of FFO, its presentation of FFO is not necessarily comparable to similarly titled measures of other REITs due to the fact that not all REITs use the same definition. 

Adjusted Funds from Operations ("AFFO") is a non-GAAP financial measure of operating performance used by many companies in the REIT industry. AFFO further adjusts FFO for certain non-cash items that reduce or increase net income in accordance with GAAP.  AFFO should not be considered an alternative to net earnings, as an indication of the company's performance or to cash flow as a measure of liquidity or ability to make distributions.  Management considers AFFO a useful supplemental measure of the Company's performance.  The Company's computation of AFFO may differ from the methodology for calculating AFFO used by other equity REITs, and therefore may not be comparable to such other REITs.  

 

Agree Realty Corporation

Consolidated Balance Sheets (in thousands)

(Unaudited)








September 30,


December 31,



2013


2012

Assets:





Land  


$               156,314


$        134,741

Buildings


296,399


240,204

Accumulated depreciation


(63,588)


(58,509)

Property under development 


12,837


18,981

Property held for sale


-


4,538

Net real estate investments


401,962


339,955

Cash and cash equivalents


5,824


1,270

Accounts receivable 


2,361


2,160

Deferred costs, net of amortization


31,156


24,895

Other assets


2,316


1,813

Total Assets


$               443,619


$        370,093

Liabilities





Notes Payable:





Mortgages notes payable


$               114,790


$        117,376

Unsecured revolving credit facility


40,000


43,530

Unsecured term loan


35,000


-

Total Notes Payable:


189,790


160,906

Deferred revenue


1,583


1,931

Dividends and distributions payable


5,570


4,710

Other liabilities


3,650


4,581

Total Liabilities


200,593


172,128

Stockholder's Equity





Common stock (13,240,404 and 11,436,044 shares)


1


1

Additional paid-in capital


263,963


217,769

Deficit


(23,264)


(21,167)

Accumulated other comprehensive income (loss)


(308)


(1,294)

Non-controlling interest


2,634


2,656

Total Stockholder's Equity


243,026


197,965



$               443,619


$        370,093






 

SOURCE Agree Realty Corporation



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