Agree Realty Corporation Reports Fourth Quarter And Full Year 2016 Results

BLOOMFIELD HILLS, Mich., Feb. 23, 2017 /PRNewswire/ -- Agree Realty Corporation (NYSE: ADC) (the "Company") today announced results for the quarter and full year ended December 31, 2016.  All per share amounts included herein are on a diluted per common share basis unless otherwise stated.

2016 Full Year Financial and Operating Highlights:

• Invested $312.1 million in 92 retail net lease properties
• Completed or commenced construction on 14 development or Partner Capital Solutions ("PCS") projects
• Increased rental revenue 30.7% to $84.2 million
• Net Income per share attributable to the Company decreased 9.0% to $1.97
• Net Income attributable to the Company increased 15.6% to $45.1 million
• Increased Funds from Operations ("FFO") per share 6.1% to $2.54
• Increased FFO 34.3% to $59.2 million
• Increased Adjusted Funds from Operations ("AFFO") per share 5.2% to $2.51
• Increased AFFO 33.2% to $58.4 million
• Raised approximately $228.2 million in net proceeds from the issuance of 5.5 million common shares
• Declared dividends of $1.92 per share, an increase of 4.1% over dividends per share declared in 2015
• Net of cash on hand, full availability of recently expanded $250 million revolving credit facility
• Sector leading balance sheet at 4.5 times net debt-to-recurring earnings before interest, taxes, depreciation and amortization ("EBITDA")

Fourth Quarter 2016 Financial and Operating Highlights:

• Increased rental revenue 37.3% to $23.3 million
• Net Income per share attributable to the Company increased 22.7% to $0.50
• Net Income attributable to the Company increased 63.4% to $12.7 million
• Increased Funds from Operations ("FFO") per share 6.3% to $0.64
• Increased FFO 40.9% to $16.6 million
• Increased Adjusted Funds from Operations ("AFFO") per share 5.3% to $0.63
• Increased AFFO 39.6% to $16.2 million
• Raised approximately $103.9 million in net proceeds from the issuance of 2.3 million common shares
• Declared a dividend of $0.495 per share, an increase of 6.5% over the dividend per share declared in the fourth quarter of 2015

Financial Results

Total Rental Revenue

Total rental revenue, which includes minimum rents and percentage rents, for the three months ended December 31, 2016 increased 37.3% to $23.3 million, compared to total rental revenue of $17.0 million for the comparable period in 2015.

Total rental revenue for the year ended December 31, 2016 increased 30.7% to $84.2 million, compared to total rental revenue of $64.5 million for the comparable period in 2015.

Net Income

Net income attributable to the Company for the three months ended December 31, 2016 increased 63.4% to $12.7 million, compared to $7.8 million for the comparable period in 2015.  Net income per share attributable to the Company for the three months ended December 31, 2016 increased 22.7% to $0.50, compared to $0.41 per share for the comparable period in 2015.

Net income attributable to the Company for the year ended December 31, 2016 increased 15.6% to $45.1 million, compared to $39.0 million for the comparable period in 2015.  Net income per share attributable to the Company for the year ended December 31, 2016 decreased 9.0% to $1.97, compared to $2.16 per share for the comparable period in 2015.

Funds from Operations

FFO for the three months ended December 31, 2016 increased 40.9% to $16.6 million, compared to FFO of $11.8 million for the comparable period in 2015.  FFO per share for the three months ended December 31, 2016 increased 6.3% to $0.64, compared to FFO per share of $0.60 for the comparable period in 2015.

FFO for the year ended December 31, 2016 increased 34.3% to $59.2 million, compared to FFO of $44.0 million for the comparable period in 2015.  FFO per share for the year ended December 31, 2016 increased 6.1% to $2.54, compared to FFO per share of $2.39 for the comparable period in 2015.

Adjusted Funds from Operations

AFFO for the three months ended December 31, 2016 increased 39.6% to $16.2 million, compared to AFFO of $11.6 million for the comparable period in 2015.  AFFO per share for the three months ended December 31, 2016 increased 5.3% to $0.63, compared to AFFO per share of $0.60 for the comparable period in 2015.

AFFO for the year ended December 31, 2016 increased 33.2% to $58.4 million, compared to AFFO of $43.9 million for the comparable period in 2015.  AFFO per share for the year ended December 31, 2016 increased 5.2% to $2.51, compared to AFFO per share of $2.38 for the comparable period in 2015.

Dividend

The Company paid a cash dividend of $0.495 per share on January 3, 2017 to stockholders of record on December 23, 2016, a 6.5% increase over the $0.465 quarterly dividend declared in the fourth quarter of 2015.  The quarterly dividend represents payout ratios of approximately 77.2% of FFO per share and 78.9% of AFFO per share, respectively. 

For 2016, the Company declared annual dividends of $1.92, a 4.1% increase over the $1.845 of annual dividends declared in 2015. The annual dividend represents payout ratios of approximately 75.6% of FFO per share and 76.6% of AFFO per share, respectively. 

CEO Comments

"We are extremely pleased with our 2016 performance as we continued to execute on our operating strategy and deliver results in all phases of our business," said Joey Agree, President and Chief Executive Officer of Agree Realty Corporation.  "We maintained a disciplined approach across our three external growth platforms while remaining focused on leading retailers that offer a compelling customer experience or employ a comprehensive omni-channel strategy.  In 2017, we remain intently focused on being a retail net lease value creator through our differentiated operating strategy."

Portfolio Update

As of December 31, 2016, the Company's portfolio consisted of 366 properties located in 43 states and totaling 7.0 million square feet of gross leasable space.  Properties ground leased to tenants accounted for 7.5% of annualized base rent.

The portfolio was approximately 99.6% leased, had a weighted average remaining lease term of approximately 10.6 years, and generated approximately 45.6% of annualized base rents from investment grade tenants.

The following table provides a summary of the Company's portfolio as of December 31, 2016:

Acquisitions

Total acquisition volume for the fourth quarter of 2016 was approximately $61.6 million and included 22 assets net leased to a number of notable retailers operating in the discount apparel, grocery, auto service, auto parts and specialty retail sectors.  The properties are located in 12 states and leased to 17 distinct tenants operating across 11 retail sectors.  These properties were acquired at a weighted average cap rate of 7.8% and with a weighted average remaining lease term of approximately 10.5 years.

For the year ended December 31, 2016, total acquisition volume was approximately $295.8 million and included 82 high-quality retail net lease assets.  The properties are located in 27 states and leased to 49 diverse tenants who operate in 22 retail sectors.  The properties were acquired at a weighted average cap rate of 7.8% and with a weighted average remaining lease term of approximately 10.7 years.

Dispositions

During the quarter, the Company sold one property net leased to Walgreens in Ocala, Florida, for gross proceeds of approximately $7.1 million. The disposition was completed at a cap rate of 5.7%.

For the year ended December 31, 2016, the Company disposed of four Walgreens for gross proceeds of $29.7 million. The weighted average cap rate of the dispositions was 5.6%.

Development and Partner Capital Solutions

In the fourth quarter of 2016, the Company completed four previously announced development and Partner Capital Solutions projects, including the Company's first Texas Roadhouse in Mount Pleasant, Michigan.  This project is leased to Texas Roadhouse under a new 15-year ground lease and had a total project cost of approximately $0.5 million.

The Company also completed its previously announced Starbucks in North Lakeland, Florida during the quarter. This project, which represents the Company's first ground-up development with Starbucks, had a total project cost of approximately $1.2 million and is under a new 10-year net lease.

Also within the quarter, the Company completed two Burger Kings in Hamilton, Montana and West Fargo, North Dakota. These projects are the third and fourth Burger Kings in the Company's partnership with Meridian Restaurants, and are subject to new 20-year net leases.  The total costs of these two projects were approximately $1.5 million and $1.6 million, respectively.

During the fourth quarter, construction continued on the Company's four development and PCS projects with anticipated total project costs of approximately $21.7 million. These projects include one Burger King development in Heber, Utah; two Camping World projects in Tyler, Texas and Georgetown, Kentucky; and the redevelopment and expansion of an existing property in Boynton Beach, Florida for Orchard Supply Hardware.

For the year ended December 31, 2016, the Company completed or commenced construction on 14 development or PCS projects net leased to a number of industry-leading retail tenants. Total project costs for those developments are approximately $38.0 million and include the following completed or commenced projects:

Leasing

During 2016, the Company executed new leases, extensions or options on more than 56,000 square feet of gross leasable area throughout the existing portfolio.  Material new leases, extensions or options included a 24,153 square foot Staples in Davenport, Iowa. 

Top Tenants

The following table presents annualized base rents for all tenants that represent 1.5% or greater of the Company's total annualized base rent as of December 31, 2016:

Retail Sectors

The following table presents annualized base rents for the Company's top retail sectors that represent 2.5% or greater of the Company's total annualized base rent as of December 31, 2016:

Geographic Diversification

The following table presents annualized base rents for all states that represent 2.5% or greater of the Company's total annualized base rent as of December 31, 2016:

Lease Expiration

The following table presents contractual lease expirations within the Company's portfolio as of December 31, 2016, assuming that no tenants exercise renewal options:

Capital Markets and Balance Sheet

Capital Markets

During 2016, the Company executed on several capital markets transactions to fund strategic growth and preserve its strong balance sheet:

• In December 2016, the Company finalized an agreement to amend and restate its senior unsecured credit facility. The amended and restated credit facility was increased to $350 million and is comprised of a $250 million unsecured revolving credit facility (the "Revolving Facility") and extensions of the Company's existing $65 million and $35 million unsecured term loans (together, the "Unsecured Term Loans"). The Revolving Facility will mature in January 2021 with options to extend the maturity date to January 2022, and the Unsecured Term Loans will mature in January 2024.
• In October 2016, the Company completed a follow-on public offering of 2,087,250 shares of common stock, which included the underwriters' full exercise of their option to purchase additional shares. Total net proceeds, after deducting the underwriting discount and offering expenses, were approximately $95.0 million.
• During the three months ended December 31, 2016, the Company issued 183,602 shares of common stock under its ATM program, realizing net proceeds of approximately $8.8 million. During the year ended December 31, 2016, the Company issued 499,209 shares of common stock under its ATM Program at an average gross price of $47.74, for total net proceeds of approximately $23.5 million.
• In August 2016, the Company refinanced an existing $20.3 million secured amortizing mortgage note. The refinanced $20.3 million term loan, which is now unsecured, matures in May 2019 and has a fixed interest rate of 3.62% through the use of an existing interest rate swap.
• In July 2016, the Company completed the issuance of $100 million of long-term, unsecured, fixed rate debt. The combined $100 million of unsecured financings have a weighted average term of 10 years and a blended interest rate of 3.87%.
• In May 2016, the Company completed a follow-on public offering of 2,875,000 shares of common stock, which included the underwriters' full exercise of their option to purchase additional shares. Total net proceeds, after deducting the discount and offering expenses, were approximately $109.6 million.
• In March 2016, the Company repaid an $8.6 million mortgage secured by three Wawa properties.

Balance Sheet

As of December 31, 2016, net of cash on hand, the Company had full availability of recently expanded $250 million revolving credit facility. The Company's net debt-to-recurring EBITDA was 4.5 times and its fixed charge coverage ratio was 3.9 times. As of December 31, 2016, the Company's total debt to total enterprise value was 24.9%.  Total enterprise value is calculated as the sum of total debt and the market value of the Company's outstanding shares of common stock, assuming conversion of operating partnership units into common stock.

For the three and twelve months ended December 31, 2016, the Company's fully diluted weighted average shares outstanding were 25.5 million and 23.0 million, respectively.  The basic weighted average shares outstanding for the three and twelve months ended December 31, 2016 were 25.4 million and 22.9 million, respectively.

The Company's assets are held by, and its operations are conducted through, Agree Limited Partnership, of which the Company is the sole general partner.  As of December 31, 2016, there were 347,619 operating partnership units outstanding and the Company held a 98.7% interest in the operating partnership.

2017 Outlook

The Company's outlook for acquisition volume in 2017, which assumes continued growth in economic activity, moderate interest rate growth, positive business trends and other significant assumptions, is between $200 and $225 million of high-quality retail net lease properties.  The Company's disposition guidance for 2017 is between $20 million and $50 million.

Conference Call/Webcast

The Company will host its quarterly analyst and investor conference call on Friday, February 24, 2017 at 9:00 AM ET.  To participate in the conference call, please dial (866) 363-3979 approximately ten minutes before the call begins. 

Additionally, a webcast of the conference call will be available through the Company's website.  To access the webcast, visit www.agreerealty.com ten minutes prior to the start time of the conference call and go to the Invest section of the website.  A replay of the conference call webcast will be archived and available online through the Invest section of www.agreerealty.com.

About Agree Realty Corporation

Agree Realty Corporation is a publicly traded real estate investment trust primarily engaged in the acquisition and development of properties net leased to industry-leading retail tenants.  The Company currently owns and operates a portfolio of 368 properties, located in 43 states and containing approximately 7.1 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".  For additional information, please visit www.agreerealty.com.   

Forward-Looking Statements

This press release may contain certain "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Reform Act of 1995. Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may," "will," "should," "potential," "intend," "expect," "seek," "anticipate," "estimate," "approximately," "believe," "could," "project," "predict," "forecast," "continue," "assume," "plan," references to "outlook" or other similar words or expressions. Forward-looking statements are based on certain assumptions and can include future expectations, future plans and strategies, financial and operating projections and forecasts and other forward-looking information and estimates. These forward-looking statements are subject to various risks and uncertainties, many of which are beyond the Company's control, which could cause actual results to differ materially from such statements. These risks and uncertainties are described in greater detail in the Company's filings with the Securities and Exchange Commission, including, without limitation, the Company's Annual Report on Form 10-K for the year ended December 31, 2016 and in subsequent quarterly reports. Except as required by law, the Company disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

For further information about the Company's business and financial results, please refer to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" sections of the Company's SEC filings, including, but not limited to, its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, copies of which may be obtained at the Invest section of the Company's website at www.agreerealty.com.

All information in this press release is as of February 23, 2017. The Company undertakes no duty to update the statements in this press release to conform the statements to actual results or changes in the Company's expectations.

SOURCE Agree Realty Corporation