Agree Realty Corporation Reports Third Quarter 2017 Results

BLOOMFIELD HILLS, Mich., Oct. 23, 2017 /PRNewswire/ -- Agree Realty Corporation (NYSE: ADC) (the "Company") today announced results for the quarter ended September 30, 2017.  All per share amounts included herein are on a diluted per common share basis unless otherwise stated.

Third Quarter 2017 Financial and Operating Highlights:

• Invested $69.0 million in 19 retail net lease properties
• Commenced two new development and Partner Capital Solutions ("PCS") projects
• Increased rental revenue 22.6% to $27.3 million
• Net Income per share attributable to the Company decreased 30.4% to $0.42
• Net Income attributable to the Company decreased 14.7% to $12.2 million
• Increased Funds from Operations ("FFO") per share 1.6% to $0.69
• Increased FFO 23.2% to $20.0 million
• Increased Adjusted Funds from Operations ("AFFO") per share 4.1% to $0.69
• Increased AFFO 26.2% to $19.9 million
• Declared a quarterly dividend of $0.505 per share, a 5.2% increase over the dividend per share declared in the third quarter of 2016
• Maintained balance sheet strength; net-debt-to recurring EBITDA of 4.7 times

Financial Results

Total Rental Revenue

Total rental revenue, which includes minimum rents and percentage rents, for the three months ended September 30, 2017 increased 22.6% to $27.3 million, compared to total rental revenue of $22.3 million for the comparable period in 2016.

Total rental revenue for the nine months ended September 30, 2017 increased 26.0% to $76.7 million, compared to total rental revenue of $60.9 million for the comparable period in 2016.

Net Income

Net Income attributable to the Company for the three months ended September 30, 2017 decreased 14.7% to $12.2 million, compared to $14.3 million for the comparable period in 2016. Net Income per share attributable to the Company for the three months ended September 30, 2017 decreased 30.4% to $0.42, compared to $0.61 per share for the comparable period in 2016. The decrease in Net Income is primarily attributable to a decrease in gain on sale of assets relative to the prior period.

Net Income attributable to the Company for the nine months ended September 30, 2017 increased 28.5% to $41.6 million, compared to $32.4 million for the comparable period in 2016.  Net Income per share attributable to the Company for the nine months ended September 30, 2017 increased 4.2% to $1.52, compared to $1.46 per share for the comparable period in 2016.

Funds from Operations

FFO for the three months ended September 30, 2017 increased 23.2% to $20.0 million, compared to FFO of $16.2 million for the comparable period in 2016.  FFO per share for the three months ended September 30, 2017 increased 1.6% to $0.69, compared to FFO per share of $0.68 for the comparable period in 2016.

FFO for the nine months ended September 30, 2017 increased 29.0% to $55.0 million, compared to FFO of $42.6 million for the comparable period in 2016.  FFO per share for the nine months ended September 30, 2017 increased 5.7% to $2.00, compared to FFO per share of $1.90 for the comparable period in 2016.

Adjusted Funds from Operations

AFFO for the three months ended September 30, 2017 increased 26.2% to $19.9 million, compared to AFFO of $15.8 million for the comparable period in 2016.  AFFO per share for the three months ended September 30, 2017 increased 4.1% to $0.69, compared to AFFO per share of $0.66 for the comparable period in 2016.

AFFO for the nine months ended September 30, 2017 increased 29.8% to $54.8 million, compared to AFFO of $42.2 million for the comparable period in 2016.  AFFO per share for the nine months ended September 30, 2017 increased 6.4% to $2.00, compared to AFFO per share of $1.88 for the comparable period in 2016.

Dividend

The Company paid a cash dividend of $0.505 per share on October 13, 2017 to stockholders of record on September 29, 2017, a 5.2% increase over the $0.48 quarterly dividend declared in the third quarter of 2016.  The quarterly dividend represents payout ratios of approximately 73.4% of FFO per share and 73.6% of AFFO per share, respectively. 

CEO Comments

"We are pleased with our performance as our leading portfolio of net lease retail assets remains extremely stable at near full occupancy as we continue to execute our operating strategy and focus on tenants and real estate of the highest quality.  Our unique investment platforms and flexible balance sheet have positioned us to increase 2017 acquisition guidance to $300 million to $325 million," said Joey Agree, President & Chief Executive Officer of Agree Realty Corporation.

Portfolio Update

As of September 30, 2017, the Company's portfolio consisted of 425 properties located in 43 states and totaled 8.3 million square feet of gross leasable space.  Properties ground leased to tenants increased to 8.2% of annualized base rents.

The portfolio was approximately 99.7% leased, had a weighted-average remaining lease term of approximately 10.5 years, and generated approximately 45.2% of annualized base rents from investment grade retail tenants.

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

Acquisitions

Total acquisition volume for the third quarter of 2017 was approximately $54.9 million and included 14 assets net leased to notable retailers operating in the off-price retail, convenience stores, auto parts, tire and auto service, health and fitness and home improvement sectors.  The properties are located in 12 states and leased to tenants operating in nine retail sectors.  The properties were acquired at a weighted-average capitalization rate of 7.4% and had a weighted-average remaining lease term of approximately 11.2 years.

For the nine months ended September 30, 2017, total acquisition volume was approximately $238.8 million and included 61 high-quality retail net lease assets.  The properties are located in 25 states and leased to 45 diverse tenants who operate in 21 retail sectors.  The properties were acquired at a weighted-average capitalization rate of 7.6% and carried a weighted-average remaining lease term of approximately 11.9 years.

Dispositions

During the quarter, the Company sold four properties for gross proceeds of approximately $7.8 million. For the nine months ended September 30, 2017, the Company has disposed of seven properties for total gross proceeds of $30.4 million. The Company is maintaining its disposition guidance of $30 million to $50 million for the current year.

Development and Partner Capital Solutions  

The Company commenced two new development and PCS projects during the quarter, with anticipated costs totaling approximately $11.5 million. The projects include the Company's first project with Burger King franchisee TOMS King in North Ridgeville, Ohio, and the Company's third Camping World in Grand Rapids, Michigan.

During the quarter, Orchard Supply Hardware (Lowe's Companies, Inc.) commenced rent in Boynton Beach, Florida. Total project costs were approximately $3.9 million. Orchard Supply Hardware had previously executed a 15-year net lease.

Construction continued during the quarter on three projects with total anticipated costs of approximately $24.4 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 located in Urbandale, Iowa and Bernalillo, New Mexico.

In the first nine months of 2017, the Company had nine development or PCS projects completed or under construction. Anticipated total costs are approximately $57.3 million and include the following completed or commenced projects:

Leasing

During the third quarter, the Company executed new leases, extensions or options on approximately 48,000 square feet of gross leasable area throughout the existing portfolio. In the first nine months of 2017, the Company executed new leases, extensions or options on approximately 480,000 square feet of gross lease area throughout the existing portfolio. The Company has no remaining lease maturities in 2017.

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 September 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 September 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 September 30, 2017:

Lease Expiration

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

Capital Markets and Balance Sheet

Capital Markets

During the three months ended September 30, 2017, the Company issued 589,093 shares of common stock under its at-the-market equity program ("ATM program") at an average price of $49.58, realizing gross proceeds of approximately $29.2 million.

Also within the quarter, the Company completed a private placement of $100 million principal amount of senior unsecured notes. The notes have a 12-year term, maturing on September 20, 2029, priced at fixed interest rate of 4.19%. The all-in pricing represented 165 basis points above the 12-year interpolated U.S. Treasury yield curve at the time of pricing.

Balance Sheet

As of September 30, 2017, the Company's net debt-to-recurring EBITDA was 4.7 times and its fixed charge coverage ratio was 4.1 times. The Company's total debt to total enterprise value was 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 months ended September 30, 2017, the Company's fully diluted weighted-average shares outstanding were 28.7 million.  The basic weighted-average shares outstanding for the three months ended September 30, 2017 were 28.6 million.

For the three months ended September 30, 2017, the Company's fully diluted weighted-average shares and units outstanding were 29.0 million. The basic weighted-average shares and units outstanding for the three months ended September 30, 2017 were 28.9 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 September 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 is being increased to a range of $300 million to $325 million of high-quality retail net lease properties. The Company's acquisition guidance, which assumes continued growth in economic activity, moderate interest rate growth, positive business trends and other significant assumptions, is being increased from a previous range of $250 million to $275 million.  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, October 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.  As of September 30, 2017, the Company owned and operated a portfolio of 425 properties, located in 43 states and containing approximately 8.3 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 October 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.

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SOURCE Agree Realty Corporation