Agree Realty Corporation Reports Second Quarter 2017 Results

BLOOMFIELD HILLS, Mich., July 24, 2017 /PRNewswire/ -- Agree Realty Corporation (NYSE: ADC) (the "Company") today announced results for the quarter ended June 30, 2017.  All per share amounts included herein are on a diluted per common share basis unless otherwise stated.

Second Quarter 2017 Financial and Operating Highlights:

• Invested $139.2 million in 37 retail net lease properties
• Commenced three development and Partner Capital Solutions ("PCS") projects
• Raised approximately $108.0 million in net proceeds from the issuance of 2.4 million common shares
• Increased rental revenue 26.3% to $25.2 million
• Net Income per share attributable to the Company increased 17.4% to $0.56
• Net Income attributable to the Company increased 39.5% to $14.9 million
• Increased Funds from Operations ("FFO") per share 10.2% to $0.67
• Increased FFO 30.6% to $18.0 million
• Increased Adjusted Funds from Operations ("AFFO") per share 9.7% to $0.67
• Increased AFFO 30.1% to $17.9 million
• Declared a quarterly dividend of $0.505 per share, an increase of 5.2% over the dividend per share declared in the second quarter of 2016

Financial Results

Total Rental Revenue

Total rental revenue, which includes minimum rents and percentage rents, for the three months ended June 30, 2017 increased 26.3% to $25.2 million, compared to total rental revenue of $19.9 million for the comparable period in 2016.

Total rental revenue for the six months ended June 30, 2017 increased 28.0% to $49.4 million, compared to total rental revenue of $38.6 million for the comparable period in 2016.

Net Income

Net Income attributable to the Company for the three months ended June 30, 2017 increased 39.5% to $14.9 million, compared to $10.7 million for the comparable period in 2016.  Net Income per share attributable to the Company for the three months ended June 30, 2017 increased 17.4% to $0.56, compared to $0.48 per share for the comparable period in 2016.

Net income attributable to the Company for the six months ended June 30, 2017 increased 62.5% to $29.5 million, compared to $18.1 million for the comparable period in 2016.  Net income per share attributable to the Company for the six months ended June 30, 2017 increased 32.4% to $1.12, compared to $0.85 per share for the comparable period in 2016.

Funds from Operations

FFO for the three months ended June 30, 2017 increased 30.6% to $18.0 million, compared to FFO of $13.8 million for the comparable period in 2016.  FFO per share for the three months ended June 30, 2017 increased 10.2% to $0.67, compared to FFO per share of $0.61 for the comparable period in 2016.

FFO for the six months ended June 30, 2017 increased 32.5% to $35.0 million, compared to FFO of $26.4 million for the comparable period in 2016.  FFO per share for the six months ended June 30, 2017 increased 8.3% to $1.32, compared to FFO per share of $1.22 for the comparable period in 2016.

Adjusted Funds from Operations

AFFO for the three months ended June 30, 2017 increased 30.1% to $17.9 million, compared to AFFO of $13.7 million for the comparable period in 2016.  AFFO per share for the three months ended June 30, 2017 increased 9.7% to $0.67, compared to AFFO per share of $0.61 for the comparable period in 2016.

AFFO for the six months ended June 30, 2017 increased 32.0% to $34.9 million, compared to AFFO of $26.5 million for the comparable period in 2016.  AFFO per share for the six months ended June 30, 2017 increased 7.9% to $1.31, compared to AFFO per share of $1.22 for the comparable period in 2016.

Dividend

The Company paid a cash dividend of $0.505 per share on July 14, 2017 to stockholders of record on June 30, 2017, a 5.2% increase over the $0.48 quarterly dividend declared in the second quarter of 2016.  The quarterly dividend represents payout ratios of approximately 75.3% of FFO per share and 75.8% of AFFO per share, respectively. 

CEO Comments

"We are very pleased with our performance during the quarter as we continue to deliver strong results across all aspects of our business," said Joey Agree, President and Chief Executive Officer of Agree Realty Corporation. "During the quarter, we invested in 37 high-quality net lease properties across our three external growth platforms, while also maintaining capacity and flexibility with our leading balance sheet. We remain intently focused on industry-leading retailers that employ a cohesive omni-channel strategy or offer a compelling 21^st century customer experience."

Portfolio Update                                                               

As of June 30, 2017, the Company's portfolio consisted of 413 properties located in 43 states and totaled 7.9 million square feet of gross leasable space.  Properties ground leased to tenants accounted for 6.9% of annualized base rents.

The portfolio was approximately 99.6% leased, had a weighted average remaining lease term of approximately 10.6 years, and generated approximately 43.9% of annualized base rents from investment grade retail tenants.

The following table provides a summary of the Company's portfolio as of June 30, 2017:

Acquisitions

Total acquisition volume for the second quarter of 2017 was approximately $131.0 million and included 36 assets net leased to notable retailers operating in the discount apparel, convenience stores, auto parts, auto service, health and fitness and home improvement sectors.  The properties are located in 19 states and leased to tenants operating in 18 retail sectors.  The properties were acquired at a weighted-average capitalization rate of 7.7% and with a weighted average remaining lease term of approximately 12.7 years.

For the six months ending June 30, 2017, total acquisition volume was approximately $183.9 million and included 47 high-quality retail net lease assets.  The properties are located in 21 states and leased to 38 diverse tenants who operate in 20 retail sectors.  The properties were acquired at a weighted-average capitalization rate of 7.7% and with a weighted-average remaining lease term of approximately 12.1 years.

Dispositions

During the quarter, the Company sold two properties for gross proceeds of approximately $12.1 million. The dispositions were completed at a weighted-average capitalization rate of 6.0%.

For the six months ended June 30, 2017, the Company has divested of three properties for total gross proceeds of $22.6 million. The weighted-average capitalization rate of the dispositions was 5.9%.

Development and Partner Capital Solutions

In the second quarter of 2017, the Company completed its previously announced Camping World in Georgetown, Kentucky. The project was the Company's first ground-up development for Camping World, and is subject to a new 20-year net lease. Total project costs were approximately $8.2 million.

Also within the quarter, the Company completed landlord's work in Boynton Beach, Florida. The property has been redeveloped and expanded for Orchard Supply Hardware (Lowe's Companies, Inc.). The project is subject to a new 15-year net lease. Rent is anticipated to commence in the third quarter of 2017, upon completion of the tenant's work.

During the second quarter, the Company commenced three new development and PCS projects with total costs of approximately $24.1 million. The projects include the Company's first PCS project with Art Van Furniture in Canton, Michigan, as well as the Company's first two development projects with Mister Car Wash in Urbandale, Iowa and Bernalillo, New Mexico.

In the first six months of 2017, the Company had seven development or PCS projects completed or under construction on behalf of a number of industry-leading retail tenants. Anticipated total costs are approximately $45.9 million and include the following completed or commenced projects:

Leasing

During the second quarter, the Company executed new leases, extensions or options on approximately 86,000 square feet of gross leasable area throughout the existing portfolio.  Notable new leases, extensions or options included a 33,608-square foot Big Lots in Cedar Park, Texas. The Company has one remaining lease maturity in 2017 representing 0.3% of annualized base rent.

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, 2017:

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, 2017:

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 June 30, 2017:

Lease Expiration

The following table presents contractual lease expirations within the Company's portfolio as of June 30, 2017, assuming no tenants exercise renewal options:

Capital Markets and Balance Sheet

Capital Markets

On June 16, 2017, the Company announced it completed a follow-on public offering of 2,415,000 shares of common stock, which included the underwriters' full exercise of their option to purchase additional shares. Total net proceeds were approximately $108.0 million after deducting the underwriting discount and offering expenses.

During the three months ended June 30, 2017, the Company issued 2,500 shares of common stock under its at-the-market equity program ("ATM program"), realizing gross proceeds of approximately $0.1 million.

Balance Sheet

As of June 30, 2017, the Company's net debt-to-recurring EBITDA was 4.6 times and its fixed charge coverage ratio was 4.0 times. The Company's total debt to total enterprise value was 24.7%.  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 months ended June 30, 2017, the Company's fully diluted weighted average shares outstanding were 26.5 million.  The basic weighted average shares outstanding for the three months ended June 30, 2017 were 26.4 million.

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, 2017, there were 347,619 operating partnership units outstanding and the Company held a 98.8% 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, remains between $250 million and $275 million of high-quality retail net lease properties.  The Company's disposition guidance for 2017 remains between $30 million and $50 million.

Conference Call/Webcast

The Company will host its quarterly analyst and investor conference call on Tuesday, July 25, 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 417 properties, located in 43 states and containing approximately 8.0 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 July 24, 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