Agree Realty Corporation Reports Second Quarter 2016 Results

BLOOMFIELD HILLS, Mich., July 25, 2016 /PRNewswire/ -- Agree Realty Corporation (NYSE: ADC) (the "Company") today announced results for the quarter ended June 30, 2016.  All per share amounts included herein are on a diluted per common share basis unless otherwise stated.

Second Quarter 2016 Financial and Operating Highlights:

• Raised approximately $110.1 million in net proceeds from the issuance of 2.9 million common shares
• Increased Net Income attributable to the Company 3.9% to $10.7 million
• Increased Funds from Operations ("FFO) 23.8% to $13.8 million
• Increased Adjusted Funds from Operations ("AFFO") 24.3% to $13.7 million
• Increased rental revenue 23.6% to $19.9 million
• Invested $153.5 million in 36 retail net lease properties
• Announced three new developments or Partner Capital Solutions ("PCS") projects
• Declared a dividend of $0.48 per share, an increase of 3.2% over the dividend per share declared in the second quarter of 2015

Financial Results

Total Rental Revenue

Total rental revenue, which includes minimum rents and percentage rents, for the three months ended June 30, 2016 increased 23.6% to $19.9 million, compared to total rental revenue of $16.1 million for the comparable period in 2015.

Total rental revenue for the six months ended June 30, 2016 increased 25.8% to $38.6 million, compared to total rental revenue of $30.7 million for the comparable period in 2015.

Net Income

Net income attributable to the Company for the three months ended June 30, 2016 increased 3.9% to $10.7 million, compared to $10.3 million for the comparable period in 2015.  Net income per share attributable to the Company for the three months ended June 30, 2016 decreased 17.4% to $0.48, compared to $0.58 per share for the comparable period in 2015.

Net income attributable to the Company for the six months ended June 30, 2016 increased 9.0% to $18.1 million, compared to $16.6 million for the comparable period in 2015.  Net income per share attributable to the Company for the six months ended June 30, 2016 decreased 10.8% to $0.85, compared to $0.95 per share for the comparable period in 2015.

Funds from Operations

FFO for the three months ended June 30, 2016 increased 23.8% to $13.8 million, compared to FFO of $11.1 million for the comparable period in 2015.  FFO per share for the three months ended June 30, 2016 decreased 1.8% to $0.61, compared to FFO per share of $0.62 for the comparable period in 2015.

FFO for the six months ended June 30, 2016 increased 25.4% to $26.4 million, compared to FFO of $21.1 million for the comparable period in 2015.  FFO per share for the six months ended June 30, 2016 increased 3.0% to $1.22, compared to FFO per share of $1.18 for the comparable period in 2015.

Adjusted Funds from Operations

AFFO for the three months ended June 30, 2016 increased 24.3% to $13.7 million, compared to AFFO of $11.0 million for the comparable period in 2015.  AFFO per share for the three months ended June 30, 2016 decreased 1.4% to $0.61, compared to AFFO per share of $0.62 for the comparable period in 2015.

AFFO for the six months ended June 30, 2016 increased 25.4% to $26.5 million, compared to AFFO of $21.1 million for the comparable period in 2015.  AFFO per share for the six months ended June 30, 2016 increased 3.0% to $1.22, compared to AFFO per share of $1.18 for the comparable period in 2015.

Dividend

The Company paid a cash dividend of $0.48 per share on July 15, 2016 to stockholders of record on June 30, 2016, a 3.2% increase over the $0.465 quarterly dividend declared in the second quarter of 2015.  The quarterly dividend represents payout ratios of approximately 78.9% of FFO per share and 79.1% of AFFO per share, respectively. 

CEO Comments

"We're extremely pleased with our performance during the quarter as we continue to strategically execute all phases of our business," said Joey Agree, President and Chief Executive Officer of Agree Realty Corporation. "Throughout the quarter we invested in 36 high-quality retail net lease properties across our three external growth platforms.  These investments were concentrated among industry-leaders in e-commerce resistant sectors.  As we shift our focus to the second half of 2016, both our investment pipeline as well as our balance sheet are well-positioned to continue to execute our operating strategy and create value for our shareholders."

Portfolio Update

As of June 30, 2016, the Company's portfolio consisted of 326 properties located in 42 states and totaling 6.3 million square feet of gross leasable space.  Properties ground leased to tenants accounted for 7.8% of annualized base rent.

The portfolio was approximately 99.6% leased, had a weighted-average remaining lease term of approximately 11.0 years, and generated approximately 46.1% of annualized base rents from investment grade tenants.

The table below provides a summary of the Company's portfolio as of June 30, 2016:

Annualized base rent is in thousands; any differences are the result of rounding.
(1)  Represents annualized straight-line rent as of June 30, 2016.
(2)  Reflects tenants, or parent entities thereof, with investment grade credit ratings from Standard & Poor's, Moody's, Fitch and/or NAIC.

Acquisitions and Dispositions

Total acquisition volume for the second quarter of 2016 was approximately $151.5 million and included 34 assets net leased to a number of notable retailers operating in the discount apparel, home improvement, grocery, crafts and novelties, farm and rural supply, specialty retail, quick service restaurant, discount and auto service sectors.  The properties are located in 15 states and leased to 23 distinct tenants operating across 15 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 11.6 years.

During the quarter, the Company sold its Walgreens in Port St. John, Florida for approximately $7.3 million, or a 5.5% cap rate on in-place net operating income.

Development and Partner Capital Solutions

In the second quarter of 2016, the Company, through its PCS program, completed its previously announced Burger King in Farr West Utah.  This project is part of the Company's previously announced partnership with Meridian Restaurants and has a total project cost of approximately $1.6 million. 

Also within the quarter, the Company finalized its newly announced Family Fare Quick Stop in Marshall, Michigan.  This project has a total project cost of approximately $0.4 million and is subject to a new 10-year ground lease. 

The Company continues to execute on a number of active development and Partner Capital Solutions projects on behalf of industry-leading retail tenants, including the following completed or commenced projects:      

(1) Franchise restaurants operated by Meridian Restaurants Unlimited, LC.

Leasing

During the second quarter of 2016 the Company executed new leases, extensions or options on over 20,000 square feet of gross leasable area throughout the existing portfolio. The Company has no remaining lease maturities in 2016. 

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 June 30, 2016:

Annualized base rent is in thousands; any differences are the result of rounding.
(1)  Represents annualized straight-line rent as of June 30, 2016.
(2)  Franchise restaurants operated by Charter Foods North, LLC. 
(3)  Franchise restaurants operated by Meridian Restaurants Unlimited, LC.
(4)  Includes tenants generating less than 1.5% of annualized base rent.

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 June 30, 2016:

Annualized base rent is in thousands; any differences are the result of rounding.
(1) Represents annualized straight-line rent as of June 30, 2016.
(2) Includes sectors generating less than 2.5% of annualized base rent.

Lease Expiration

The following table presents contractual lease expirations within the Company's portfolio as of June 30, 2016, assuming that no tenants exercise renewal options:

Annualized base rent and gross leasable area are in thousands; any differences are the result of rounding.
(1)  Represents annualized straight-line rent as of June 30, 2016.

Capital Markets and Balance Sheet

Capital Markets

On May 10, 2016, the Company announced it 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 were approximately $109.7 million after deducting the underwriting discount and offering expenses.

During the three months ended June 30, 2016, the Company issued 15,156 shares of common stock under its at-the-market equity program ("ATM program"), realizing gross proceeds of approximately $0.6 million. 

Subsequent to the end of the second quarter, on July 6, 2016 the Company announced it has entered into agreements for the issuance of $100 million of long-term, unsecured, fixed rate debt.  The combined $100 million of unsecured financings will have a weighted average term of 10 years and a blended interest rate of 3.87%.

Balance Sheet

As of June 30, 2016, the Company's total debt to total enterprise value was approximately 25.2%.  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 six months ended June 30, 2016, the Company's fully diluted weighted-average shares outstanding were 22.3 million and 21.4 million, respectively.  The basic weighted-average shares outstanding for the three and six months ended June 30, 2016 were 22.2 million and 21.3 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 June 30, 2016, there were 347,619 operating partnership units outstanding and the Company held a 98.6% interest in the operating partnership.

2016 Outlook

The Company's outlook for acquisition volume in 2016, which assumes continued growth in economic activity, positive business trends and other significant assumptions, remains between $250 and $275 million of high-quality retail net lease properties.

Conference Call/Webcast

The Company will host its quarterly analyst and investor conference call on Tuesday, July 26, 2016 at 11:00 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 330 properties, located in 42 states and containing approximately 6.4 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, 2015 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 July 25, 2016. 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