ADC
$65.42
Agree Realty
$.03
.05%
Earnings Details
3rd Quarter September 2020
Monday, October 19, 2020 4:05:00 PM
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Summary

Agree Realty Misses

Agree Realty (ADC) reported 3rd Quarter September 2020 earnings of $0.80 per share on revenue of $63.8 million. The consensus earnings estimate was $0.79 per share on revenue of $61.3 million. The Earnings Whisper number was $0.81 per share. Revenue grew 32.7% on a year-over-year basis.

Agree Realty Corp is engaged in fully-integrated, self-administered and self-managed REIT. It is focused on the ownership, development, acquisition and management of retail properties net leased to national tenants.

Results
Reported Earnings
$0.80
Earnings Whisper
$0.81
Consensus Estimate
$0.79
Reported Revenue
$63.8 Mil
Revenue Estimate
$61.3 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Agree Realty Corporation Reports Third Quarter 2020 Results

BLOOMFIELD HILLS, Mich., Oct. 19, 2020 /PRNewswire/ -- Agree Realty Corporation (NYSE: ADC) (the "Company") today announced results for the quarter ended September 30, 2020.  All per share amounts included herein are on a diluted per common share basis unless otherwise stated.

Third Quarter 2020 Financial and Operating Highlights:

  • Invested a record $470.7 million in 97 retail net lease properties
  • 16.0% of annualized base rents acquired were derived from ground leased assets
  • Commenced three new development and Partner Capital Solutions ("PCS") projects
  • Net Income per share attributable to the Company decreased 19.8% to $0.39
  • Net Income attributable to the Company increased 3.3% to $21.3 million
  • Increased Core Funds from Operations ("Core FFO") per share 3.5% to $0.81
  • Increased Core FFO 33.2% to $44.5 million
  • Increased Adjusted Funds from Operations ("AFFO") per share 4.0% to $0.80
  • Increased AFFO 33.9% to $43.8 million
  • Declared a quarterly dividend of $0.60 per share, a 5.3% year-over-year increase
  • Completed inaugural public bond offering of $350.0 million of 2.90% senior unsecured notes due 2030
  • Sold 885,912 shares of common stock via the forward component of the Company's at-the-market equity ("ATM") program for anticipated net proceeds of $58.4 million
  • Settled 1,515,000 shares of the Company's outstanding April 2020 forward equity offering for net proceeds of approximately $88.0 million

Financial Results

Net Income

Net Income attributable to the Company for the three months ended September 30, 2020 increased 3.3% to $21.3 million, compared to $20.6 million for the comparable period in 2019. Net Income per share attributable to the Company for the three months ended September 30, 2020 decreased 19.8% to $0.39, compared to $0.48 per share for the comparable period in 2019.

Net Income attributable to the Company for the nine months ended September 30, 2020 increased 17.8% to $67.8 million, compared to $57.5 million for the comparable period in 2019.  Net Income per share attributable to the Company for the nine months ended September 30, 2020 decreased 6.3% to $1.32, compared to $1.41 per share for the comparable period in 2019.

Core Funds from Operations

Core FFO for the three months ended September 30, 2020 increased 33.2% to $44.5 million, compared to Core FFO of $33.4 million for the comparable period in 2019. Core FFO per share for the three months ended September 30, 2020 increased 3.5% to $0.81, compared to Core FFO per share of $0.78 for the comparable period in 2019.

Core FFO for the nine months ended September 30, 2020 increased 32.2% to $122.9 million, compared to Core FFO of $92.9 million for the comparable period in 2019.  Core FFO per share for the nine months ended September 30, 2020 increased 5.2% to $2.39, compared to Core FFO per share of $2.27 for the comparable period in 2019.

Adjusted Funds from Operations

AFFO for the three months ended September 30, 2020 increased 33.9% to $43.8 million, compared to AFFO of $32.7 million for the comparable period in 2019.  AFFO per share for the three months ended September 30, 2020 increased 4.0% to $0.80, compared to AFFO per share of $0.77 for the comparable period in 2019.

AFFO for the nine months ended September 30, 2020 increased 33.7% to $121.7 million, compared to AFFO of $91.0 million for the comparable period in 2019.  AFFO per share for the nine months ended September 30, 2020 increased 6.4% to $2.36, compared to AFFO per share of $2.22 for the comparable period in 2019.

Dividend

The Company paid a cash dividend of $0.60 per share on October 9, 2020 to stockholders of record on September 25, 2020, a 5.3% increase over the $0.570 quarterly dividend declared in the third quarter of 2019.  The quarterly dividend represents payout ratios of approximately 74% of Core FFO per share and 75% of AFFO per share, respectively.

For the nine months ended September 30, 2020, the Company declared dividends of $1.785 per share, a 5.3% increase over the dividends of $1.695 per share declared for the comparable period in 2019. The dividends represent payout ratios of approximately 75% of Core FFO per share and 76% of AFFO per share, respectively.

CEO Comments

"We are extremely pleased with our record performance during the quarter as we deployed our war chest into a myriad of high-quality investment opportunities amidst the ongoing disruption caused by COVID-19," said Joey Agree, President and Chief Executive Officer. "Our rent collections of more than 97% during the third quarter, including 99% in September, are evidence of the stability of our best-in-class retail portfolio. Given our record year-to-date investment volume and strong pipeline, we are increasing our full-year acquisition guidance to a range of $1.25 billion to $1.35 billion.  While increasing our acquisition guidance, we remain committed to our rigorous underwriting standards and we will maintain balance sheet strength and flexibility."

Portfolio Update

As of September 30, 2020, the Company's growing portfolio consisted of 1,027 properties located in 45 states and totaled approximately 21.0 million square feet of gross leasable area. 

The portfolio was approximately 99.8% leased, had a weighted-average remaining lease term of approximately 9.8 years, and generated 62.2% of annualized base rents from investment grade retail tenants or parent entities thereof.

COVID-19 Rental Payment Update

As of October 16, 2020, the Company received July, August and September rent payments from 96%, 97% and 99% of its portfolio, respectively. In the aggregate, the Company received third quarter rent payments from 97% of its portfolio. The Company has entered into deferral agreements representing 3% of July rents, 2% of August rents and less than 1% of September rents. In the aggregate, the Company entered into deferral agreements representing 2% of third quarter rents.   

Ground Lease Portfolio

During the quarter, the Company acquired five properties for an aggregate purchase price of approximately $83.4 million, each of which are ground leased to industry-leading tenants. Notable acquisitions included the Company's first Wegmans in Chapel Hill, North Carolina, a Walmart and Home Depot in Pittsfield, Massachusetts and a Home Depot in Paterson, New Jersey.

As of September 30, 2020, the Company's ground lease portfolio consisted of 73 properties located in 25 states and totaled approximately 2.8 million square feet of gross leasable area. Properties ground leased to tenants increased to 8.8% of annualized base rents.

The ground lease portfolio was fully occupied, had a weighted-average remaining lease term of approximately 11.6 years, and generated 91.3% of annualized base rents from investment grade retail tenants or parent entities thereof.

Acquisitions

Total acquisition volume for the third quarter of 2020 was approximately $458.3 million and included 91 properties net leased to leading retailers operating in sectors including off-price retail, home improvement, auto parts, general merchandise, dollar stores, convenience stores, grocery stores and tire and auto service.  The properties are located in 26 states and leased to tenants operating in 15 sectors. 

The properties were acquired at a weighted-average capitalization rate of 6.4% and had a weighted-average remaining lease term of approximately 11.5 years. Approximately 72.1% of annualized base rents acquired were generated from investment grade retail tenants or parent entities thereof. Approximately 16.0% of annualized base rents acquired were derived from ground leased assets.

For the nine months ended September 30, 2020, total acquisition volume was approximately $957.8 million.  The 217 acquired properties are located in 35 states and leased to 38 diverse tenants who operate in 18 retail sectors.  The properties were acquired at a weighted-average capitalization rate of 6.4% and had a weighted-average remaining lease term of approximately 11.2 years. Approximately 78.2% of annualized base rents were generated from investment grade retail tenants or parent entities thereof. Approximately 9.5% of annualized base rents acquired were derived from ground leased assets.

The Company's outlook for total acquisition volume in 2020, which includes several significant assumptions, is being increased to a range of $1.25 billion to $1.35 billion from a previous range of $900 million to $1.1 billion.

Dispositions

During the third quarter, the Company sold two properties for gross proceeds of approximately $3.5 million. The dispositions were completed at a weighted-average capitalization rate of 5.6%. During the nine months ended September 30, 2020, the Company divested 16 properties for total gross proceeds of $47.6 million. The weighted-average capitalization rate of the dispositions was 7.0%.

The Company's disposition guidance for 2020 remains between $50 million to $75 million.

Development and Partner Capital Solutions  

During the quarter, the Company commenced three new development and PCS projects, with total anticipated costs of approximately $10.1 million. The projects consist of the Company's first developments with O'Reilly Auto Parts, Grocery Outlet and Tire Discounters.

Construction continued during the third quarter on the Company's second development with Harbor Freight Tools in Weslaco, Texas, which is expected to be completed in the fourth quarter of 2020.

The Company completed two development and PCS projects during the quarter, including the Company's first development with TJ Maxx in Harlingen, Texas and a Burlington and Tractor Supply in Columbus, Ohio.

For the nine months ended September 30, 2020, the Company had 10 development or PCS projects completed or under construction. Anticipated total costs are approximately $37.3 million and include the following projects:

Tenant


Location


Lease
Structure


Lease
Term


Actual or
A
nticipated Rent
Commencement


Status












ALDI


Frankfort, KY


Build-to-Suit


10 years


Q4 2019


Complete

Harbor Freight Tools


Frankfort, KY


Build-to-Suit


10 years


Q4 2019


Complete

Big Lots


Frankfort, KY


Build-to-Suit


10 years


Q1 2020


Complete

Tractor Supply


Hart, MI


Build-to-Suit


10 years


Q1 2020


Complete

Sunbelt Rentals


Converse, TX


Build-to-Suit


10 years


Q1 2020


Complete

Family Dollar


Grayling, MI


Build-to-Suit


7 Years


Q2 2020


Complete

TJ Maxx


Harlingen, TX


Build-to-Suit


10 years


Q3 2020


Complete

Burlington


Columbus, OH


Build-to-Suit


10 years


Q3 2020


Complete

Tractor Supply


Columbus, OH


Build-to-Suit


10 years


Q3 2020


Complete

Harbor Freight Tools


Weslaco, TX


Build-to-Suit


15 Years


Q4 2020


Under Construction

O'Reilly Auto Parts


Mayflower, AR


Build-to-Suit


10 years


Q4 2020


Under Construction

Tire Discounters


Westerville, OH


Build-to-Suit


15 Years


Q4 2020


Under Construction

Grocery Outlet


Port Angeles, WA


Build-to-Suit


15 years


Q2 2021


Under Construction

Leasing Activity and Expirations

During the third quarter, the Company executed new leases, extensions or options on approximately 106,000 square feet of gross leasable area throughout the existing portfolio. Notable leasing activity in the quarter included new twenty-year leases on three Wawa convenience stores located in the Mid-Atlantic. The three leases were previously set to expire in 2021.  

For the nine months ended September 30, 2020, the Company executed new leases, extensions or options on approximately 436,000 square feet of gross leasable area throughout the existing portfolio.

As of September 30, 2020, the Company's 2020 lease maturities represented 0.2% of annualized base rents. The following table presents contractual lease expirations within the Company's portfolio as of September 30, 2020, assuming no tenants exercise renewal options:

Year

 Leases


Annualized
Base Rent(1)


 Percent of
Annualized
Base Rent


Gross

Leasable Area


 Percent of Gross
Leasable Area











2020

4


406


0.2%


73


0.3%

2021

16


2,519


1.0%


157


0.7%

2022

18


3,713


1.4%


340


1.6%

2023

39


7,729


2.9%


921


4.4%

2024

39


13,815


5.2%


1,596


7.6%

2025

58


14,196


5.4%


1,339


6.4%

2026

78


14,996


5.7%


1,519


7.3%

2027

78


17,387


6.6%


1,336


6.4%

2028

78


20,177


7.6%


1,727


8.2%

2029

105


31,367


11.8%


2,761


13.2%

Thereafter

601


138,494


52.2%


9,172


43.9%

Total Portfolio

1,114


$264,799


100.0%


20,941


100.0%




The contractual lease expirations presented above exclude the effect of replacement tenant leases that had been executed as of September 30, 2020 but that had not yet commenced. Annualized Base Rent and gross leasable area (square feet) are in thousands; any differences are the result of rounding.

(1)

Annualized Base Rent represents the annualized amount of contractual minimum rent required by tenant lease agreements as of September 30, 2020, computed on a straight-line basis. Annualized Base Rent is not, and is not intended to be, a presentation in accordance with generally accepted accounting principles ("GAAP"). The Company believes annualized contractual minimum rent is useful to management, investors, and other interested parties in analyzing concentrations and leasing activity.

Top Tenants

The Company added Kroger to its top tenants during the third quarter of 2020. As of September 30, 2020, Wawa is no longer among the Company's 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, 2020:

Tenant


Annualized
Base Rent(1)


 Percent of

Annualized Base Rent






Walmart


$19,643


7.4%

Dollar General


12,310


4.6%

TJX Companies


10,450


3.9%

Tractor Supply


10,295


3.9%

Sherwin-Williams


10,077


3.8%

Best Buy


8,973


3.4%

O'Reilly Auto Parts


7,959


3.0%

Hobby Lobby


7,226


2.7%

Lowe's


6,901


2.6%

Home Depot


6,841


2.6%

TBC Corporation


6,619


2.5%

Walgreens


6,594


2.5%

Burlington


6,240


2.4%

CVS


5,530


2.1%

Dollar Tree


5,168


2.0%

AutoZone


5,098


1.9%

LA Fitness


5,091


1.9%

Sunbelt Rentals


4,735


1.8%

Kroger


4,072


1.5%

Other(2)


114,977


43.5%

Total Portfolio


$264,799


100.0%




Annualized Base Rent is in thousands; any differences are the result of rounding.


Bolded and italicized tenants represent additions for the three months ended September 30, 2020.

(1)

Refer to footnote 1 on page 5 for the Company's definition of Annualized Base Rent. 

(2)

Includes tenants generating less than 1.5% of Annualized Base Rent.

Retail Sectors

The following table presents annualized base rents for all of the Company's retail sectors as of September 30, 2020:

Sector


Annualized
Base Rent(1)


 Percent of
Annualized

Base Rent

Q3 2020 Rent
Payments
Received(2)







Home Improvement


$27,044


10.2%

100%

Grocery Stores


21,131


8.0%

100%

General Merchandise


19,727


7.4%

100%

Tire and Auto Service


19,629


7.4%

98%

Off-Price Retail


18,902


7.1%

84%

Dollar Stores


16,269


6.1%

100%

Convenience Stores


16,216


6.1%

100%

Auto Parts


14,831


5.6%

100%

Pharmacy


12,944


4.9%

100%

Farm and Rural Supply


11,246


4.2%

100%

Consumer Electronics


10,555


4.0%

100%

Crafts and Novelties


9,430


3.6%

100%

Health and Fitness


7,499


2.8%

82%

Home Furnishings


5,485


2.1%

100%

Restaurants - Quick Service


5,286


2.0%

98%

Health Services


5,271


2.0%

100%

Equipment Rental


5,061


1.9%

100%

Warehouse Clubs


4,988


1.9%

100%

Specialty Retail


4,949


1.9%

90%

Discount Stores


4,353


1.6%

98%

Dealerships


4,273


1.6%

100%

Theaters


3,854


1.5%

81%

Entertainment Retail


3,117


1.2%

100%

Pet Supplies


2,597


1.0%

100%

Restaurants - Casual Dining


2,207


0.8%

88%

Sporting Goods


2,020


0.8%

100%

Financial Services


2,001


0.8%

100%

Apparel


1,271


0.5%

72%

Shoes


1,019


0.4%

82%

Beauty and Cosmetics


878


0.3%

100%

Office Supplies


659


0.2%

100%

Miscellaneous


87


0.1%

100%

Total Portfolio


$264,799


100.0%

97%




Annualized Base Rent is in thousands; any differences are the result of rounding.

(1)

Refer to footnote 1 on page 5 for the Company's definition of Annualized Base Rent.

(2)

Reflects the contractual rent paid as a percentage of the total contractual rent due for the three months ended September 30, 2020 for each respective sector. Beginning in 2020, the Company began providing supplemental disclosures due to the COVID-19 pandemic. "Contractual rent" for any period means the recurring cash amount charged to tenants, inclusive of monthly base rent and recurring operating cost reimbursements due pursuant to lease agreements, for such period. "Contractual rent" has not been adjusted for any rent relief granted and includes amounts charged to tenants in bankruptcy.

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, 2020:

State


Annualized
Base Rent(1)


 Percent of

Annualized Base Rent






Michigan


$19,248


7.3%

Texas


18,632


7.0%

North Carolina


14,811


5.6%

Florida


14,784


5.6%

Ohio


13,554


5.1%

Illinois


13,546


5.1%

Pennsylvania


11,931


4.5%

New Jersey


10,570


4.0%

Georgia


10,347


3.9%

New York


9,653


3.6%

California


9,081


3.4%

Wisconsin


8,435


3.2%

Virginia


8,001


3.0%

Missouri


7,688


2.9%

Mississippi


6,932


2.6%

Louisiana


6,682


2.5%

Other(2)


80,904


30.7%

Total Portfolio


$264,799


100.0%




Annualized Base Rent is in thousands; any differences are the result of rounding.

(1)

Refer to footnote 1 on page 5 for the Company's definition of Annualized Base Rent. 

(2)

Includes states generating less than 2.5% of Annualized Base Rent.

Capital Markets and Balance Sheet

Capital Markets

During the second and third quarter of 2020, the Company entered into forward sale agreements for an aggregate of 7,795,438 shares of common stock. On September 28, 2020, the Company settled 1,515,000 shares under an existing forward sale agreement and received net proceeds of approximately $88.0 million.

At quarter end, the Company had 6,280,438 shares remaining to be settled under existing forward sale agreements, which are anticipated to raise net proceeds of approximately $376.4 million after deducting fees and expenses and making certain other adjustments as provided in the forward sale agreement and equity distribution agreements.

The following table presents the Company's outstanding forward equity offerings as of September 30, 2020:

Forward Equity

Offerings

 Shares
Sold


 Shares
Settled


 Shares
Remaining


 Net
Proceeds
Received


 Anticipated
Net
Proceeds
Remaining











April 2020

Forward Offering

6,166,666


1,515,000


4,651,666


$87,988,928


$270,148,200

Q2 2020 ATM

Forward Offerings

742,860


-


742,860


-


$47,826,682

Q3 2020 ATM

Forward Offerings

885,912


-


885,912


-


$58,421,636

Total Forward

Equity Offerings

7,795,438


1,515,000


6,280,438


$87,988,928


$376,396,518

On August 17, 2020, the Company completed its inaugural public bond offering of $350.0 million of 2.90% senior unsecured notes due 2030 (the "Notes"). The public offering price for the Notes was 99.93% of the principal amount for an effective yield to maturity of 2.91%. The Notes are senior unsecured obligations of Agree Limited Partnership (the "Operating Partnership"), guaranteed by the Company and certain of their subsidiary guarantors.

Balance Sheet

As of September 30, 2020, the Company's net debt to recurring EBITDA was 4.7 times and its fixed charge coverage ratio was 4.8 times. The Company's proforma net debt to recurring EBITDA was 3.2 times when deducting the $376.4 million of anticipated net proceeds from the April 2020 Forward Offering and the ATM Forward Offerings from the Company's net debt of $1.1 billion as of September 30, 2020.

The Company's total debt to enterprise value was 24.6% as of September 30, 2020.  Enterprise value is calculated as the sum of net 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 nine months ended September 30, 2020, the Company's fully diluted weighted-average shares outstanding were 54.6 million and 51.2 million, respectively. The basic weighted-average shares outstanding for the three and nine months ended September 30, 2020 were 53.7 million and 50.6 million, respectively.

For the three and nine months ended September 30, 2020, the Company's fully diluted weighted-average shares and units outstanding were 54.9 million and 51.5 million, respectively. The basic weighted-average shares and units outstanding for the three and nine months ended September 30, 2020 were 54.1 million and 51.0 million, respectively.

The Company's assets are held by, and its operations are conducted through, the Operating Partnership, of which the Company is the sole general partner.  As of September 30, 2020, there were 347,619 Operating Partnership units outstanding and the Company held a 99.4% interest in the Operating Partnership.

Conference Call/Webcast

The Company will host its quarterly analyst and investor conference call on Tuesday, October 20, 2020 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, 2020, the Company owned and operated a portfolio of 1,027 properties, located in 45 states and containing approximately 21.0 million square feet of gross leasable area.  The Company's common stock 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 contains forward-looking statements, including statements about projected financial and operating results,  within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and includes this statement for purposes of complying with these safe harbor provisions.  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," "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 or other forward-looking information.  Although these forward-looking statements are based on good faith beliefs, reasonable assumptions and the Company's best judgment reflecting current information, you should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond the Company's control and which could materially affect the Company's results of operations, financial condition, cash flows, performance or future achievements or events. Currently, one of the most significant factors, however, is the potential adverse effect of the current pandemic of the novel coronavirus, or COVID-19, on the financial condition, results of operations, cash flows and performance of the Company and its tenants, the real estate market and the global economy and financial markets. The extent to which COVID-19 impacts the Company and its tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures, among others. Moreover, investors are cautioned to interpret many of the risks identified in the risk factors discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 and other filings with the Securities and Exchange Commission (the "SEC") including the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2020, as well as the risks set forth below, as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19. Additional important factors, among others, that may cause the Company's actual results to vary include the general deterioration in national economic conditions, weakening of real estate markets, decreases in the availability of credit, increases in interest rates, adverse changes in the retail industry, the Company's continuing ability to qualify as a REIT and other factors discussed in the Company's reports filed with the SEC. The forward-looking statements included in this press release are made as of the date hereof.   Unless legally required, the Company disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events, changes in the Company's expectations or assumptions 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 Investor Relations section of the Company's website at www.agreerealty.com.

The Company defines the "weighted-average capitalization rate" for acquisitions and dispositions as the sum of contractual fixed annual rents computed on a straight-line basis over the primary lease terms and anticipated annual net tenant recoveries, divided by the purchase and sale prices.

 

Agree Realty Corporation

Consolidated Balance Sheet

($ in thousands, except share and per-share data)

(Unaudited)


September 30, 2020


December 31, 2019

Assets:




Real Estate Investments:




Land  

$                  981,476


$                 735,991

Buildings

2,184,620


1,600,293

Accumulated depreciation

(158,719)


(127,748)

Property under development 

8,229


10,056

Net real estate investments

3,015,606


2,218,592

Real estate held for sale, net

-

#

3,750

Cash and cash equivalents

14,715


15,603

Cash held in escrows

1,515


26,554

Accounts receivable - tenants

39,309


26,808

Lease intangibles, net of accumulated amortization of $114,990 and $89,118 at September 30, 2020 and December 31, 2019, respectively

422,373


343,514

Other assets, net

54,096


29,709

Total Assets

$               3,547,614


$              2,664,530





Liabilities:




Mortgage notes payable, net

$                    33,304


$                   36,698

Unsecured term loans, net

237,765


237,403

Senior unsecured notes, net

855,232


509,198

Unsecured revolving credit facility

20,000


89,000

Dividends and distributions payable

32,522


25,014

Accounts payable, accrued expenses and other liabilities

67,871


48,987

Lease intangibles, net of accumulated amortization of $23,067 and $19,307 at September 30, 2020 and December 31, 2019, respectively

35,533


26,668

Total Liabilities

$               1,282,227


$                 972,968





Equity:




Common stock, $.0001 par value, 90,000,000 shares authorized, 55,370,525 and 45,573,623 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

$                             6


$                            5

Preferred stock, $.0001 par value per share, 4,000,000 shares authorized

-


-

Additional paid-in capital

2,384,331


1,752,912

Dividends in excess of net income

(80,627)


(57,094)

Accumulated other comprehensive income (loss)

(40,140)


(6,492)

Total Equity - Agree Realty Corporation

$               2,263,570


$              1,689,331

Non-controlling interest

1,817


2,231

Total Equity

$               2,265,387


$              1,691,562

Total Liabilities and Equity

$               3,547,614


$              2,664,530

 

Agree Realty Corporation

Consolidated Statements of Operations and Comprehensive Income

($ in thousands, except share and per share-data)

(Unaudited)










Three months ended
September 30,


Nine months ended
September 30,


2020


2019


2020


2019

Revenues








Rental Income

$      63,701


$       48,020


$    176,960


$    135,240

Other

109


55


193


102

Total Revenues

$      63,810


$       48,075


$    177,153


$    135,342









Operating Expenses








Real estate taxes

$        5,516


$         3,674


$      15,058


$      11,016

Property operating expenses

2,108


1,598


6,303


4,832

Land lease expense

325


354


977


922

General and administrative

4,756


3,832


13,999


11,746

Depreciation and amortization

17,327


11,897


47,067


32,597

Provision for impairment

2,868


-


3,996


1,609

Total Operating Expenses

$      32,900


$       21,355


$      87,400


$      62,722









Income from Operations

$      30,910


$       26,720


$      89,753


$      72,620









Other (Expense) Income








Interest expense, net

$     (10,158)


$       (8,352)


$     (28,307)


$     (23,363)

Gain (loss) on sale of assets, net

970


2,597


7,567


8,973

Income tax (expense) benefit

(306)


(184)


(826)


(210)

Other (expense) income

-


-


23


-









Net Income

$      21,416


$       20,781


$      68,210


$      58,020









Less Net Income Attributable to Non-Controlling Interest

136


170


444


498









Net Income Attributable to Agree Realty Corporation

$      21,280


$       20,611


$      67,766


$      57,522









Net Income Per Share Attributable to Agree Realty Corporation








Basic

$          0.39


$           0.49


$          1.33


$          1.43

Diluted

$          0.39


$           0.48


$          1.32


$          1.41

















Other Comprehensive Income








Net Income

$      21,416


$       20,781


$      68,210


$      58,020

Changes in fair value of interest rate swaps

24,555


(7,418)


(10,714)


(14,617)

Realized gain (loss) on settlement of interest rate swaps

(23,135)


-


(23,169)


802

Total Comprehensive Income (Loss)

22,836


13,363


34,327


44,205

Comprehensive Income Attributable to Non-Controlling Interest

(152)


(109)


(187)


(367)

Comprehensive Income Attributable to Agree Realty Corporation

$      22,684


$       13,254


$      34,140


$      43,838









Weighted Average Number of Common Shares Outstanding - Basic

53,721,956


41,832,457


50,637,569


39,992,703

Weighted Average Number of Common Shares Outstanding - Diluted

54,555,672


42,318,042


51,151,462


40,625,441

 

Agree Realty Corporation

Reconciliation of Net Income to FFO, Core FFO and Adjusted FFO

($ in thousands, except share and per-share data)

(Unaudited)










Three months ended
September 30,


Nine months ended
September 30,


2020


2019


2020


2019









Net Income

$      21,416


$      20,781


$      68,210


$      58,020

Depreciation of rental real estate assets

12,669


8,866


34,387


24,785

Amortization of lease intangibles - in-place leases and leasing costs

4,523


2,965


12,315


7,618

Provision for impairment

2,868


-


3,996


1,609

(Gain) loss on sale of assets, net

(970)


(2,597)


(7,567)


(8,973)

Funds from Operations

$      40,506


$      30,015


$    111,341


$      83,059

Amortization of above (below) market lease intangibles, net

3,964


3,381


11,552


9,882

Core Funds from Operations

$      44,470


$      33,396


$    122,893


$      92,941

Straight-line accrued rent

(2,294)


(1,975)


(5,614)


(5,165)

Deferred tax expense (benefit)

-


-


-


(475)

Stock based compensation expense

1,233


1,033


3,471


2,972

Amortization of financing costs

223


176


560


541

Non-real estate depreciation

135


66


365


194

Adjusted Funds from Operations

$      43,767


$      32,696


$    121,675


$      91,008









Funds from Operations Per Share - Basic

$          0.75


$          0.71


$          2.18


$          2.06

Funds from Operations Per Share - Diluted

$          0.74


$          0.70


$          2.16


$          2.03









Core Funds from Operations Per Share - Basic

$          0.82


$          0.79


$          2.41


$          2.30

Core Funds from Operations Per Share - Diluted

$          0.81


$          0.78


$          2.39


$          2.27









Adjusted Funds from Operations Per Share - Basic

$          0.81


$          0.78


$          2.39


$          2.26

Adjusted Funds from Operations Per Share - Diluted

$          0.80


$          0.77


$          2.36


$          2.22









Weighted Average Number of Common Shares and Units Outstanding - Basic

54,069,575


42,180,076


50,985,188


40,340,322

Weighted Average Number of Common Shares and Units Outstanding - Diluted

54,903,291


42,665,661


51,499,081


40,973,060

















Additional supplemental disclosure








Scheduled principal repayments

$           236


$           543


$           699


$        2,150

Capitalized interest

54


118


109


321

Capitalized building improvements

973


240


3,248


1,200

Contractual rents subject to deferral(1)

1,000


-


3,157


-

Uncollected contractual rents not subject to deferral(1)

494


-


2,693


-


(1) Beginning in the second quarter of 2020, the Company began providing supplemental disclosures due to the COVID-19 pandemic. "Contractual rent" for any period means the recurring cash amount charged to tenants, inclusive of monthly base rent and recurring operating cost reimbursements due pursuant to lease agreements, for such period. "Contractual rents subject to deferral" are presented net of amounts repaid under deferral agreements. "Uncollected contractual rents not subject to deferral" as used within this table exclude rents that have been deemed uncollectible for purposes of ASC 842. Rents deemed uncollectible are excluded from the reported net income and funds from operations measures in the reconciliation above.


Non-GAAP Financial Measures

Funds from Operations ("FFO" or "Nareit FFO")
FFO is defined by the National Association of Real Estate Investment Trusts, Inc. ("Nareit") to mean net income computed in accordance with GAAP, excluding gains (or losses) from sales of real estate assets and/or changes in control, plus real estate related depreciation and amortization and any impairment charges on depreciable real estate assets, and after adjustments for unconsolidated partnerships and joint ventures. 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, most real estate industry investors consider FFO to be helpful in evaluating a real estate company's operations. FFO should not be considered 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 all REITs may not use the same definition.

Core Funds from Operations ("Core FFO")
The Company defines Core FFO as Nareit FFO with the addback of noncash amortization of above- and below- market lease intangibles. Under Nareit's definition of FFO, lease intangibles created upon acquisition of a net lease must be amortized over the remaining term of the lease. The Company believes that by recognizing amortization charges for above- and below-market lease intangibles, the utility of FFO as a financial performance measure can be diminished. Management believes that its measure of Core FFO facilitates useful comparison of performance to its peers who predominantly transact in sale-leaseback transactions and are thereby not required by GAAP to allocate purchase price to lease intangibles.  Unlike many of its peers, the Company has acquired the substantial majority of its net leased properties through acquisitions of properties from third parties or in connection with the acquisitions of ground leases from third parties. Core FFO should not be considered 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, the Company's presentation of Core FFO is not necessarily comparable to similarly titled measures of other REITs due to the fact that all REITs may not use the same definition.

Adjusted Funds from Operations ("AFFO")
AFFO is a non-GAAP financial measure of operating performance used by many companies in the REIT industry. AFFO further adjusts FFO and Core FFO for certain non-cash and/or infrequently recurring items that reduce or increase net income computed in accordance with GAAP. Management considers AFFO a useful supplemental measure of the Company's performance, however, AFFO should not be considered an alternative to net income as an indication of its performance, or to cash flow as a measure of liquidity or ability to make distributions. 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

Reconciliation of Net Debt to Recurring EBITDA

($ in thousands, except share and per-share data)

(Unaudited)




Three months ended
September 30,


2020



Net Income

$                      21,416

Interest expense, net

10,158

Income tax expense

306

Depreciation of rental real estate assets

12,669

Amortization of lease intangibles - in-place leases and leasing costs

4,523

Non-real estate depreciation

135

Provision for impairment

2,868

(Gain) loss on sale of assets, net

(970)

EBITDAre

$                      51,105



Run-Rate Impact of Investment, Disposition and Leasing Activity

$                        5,093

Amortization of above (below) market lease intangibles, net

3,964

Recurring EBITDA

$                      60,162



Annualized Recurring EBITDA

$                    240,648



Total Debt

$                 1,153,642

Cash, cash equivalents and cash held in escrows

(16,230)

Net Debt

$                 1,137,412



Net Debt to Recurring EBITDA

4.7x



Net Debt

$                 1,137,412

Anticipated Net Proceeds from ATM Forward Offerings 

(106,248)

Anticipated Net Proceeds from April 2020 Forward Offering

(270,148)

Proforma Net Debt

$                    761,016



Proforma Net Debt to Recurring EBITDA

3.2x





Non-GAAP Financial Measures

EBITDAre
EBITDAre is defined by Nareit to mean net income computed in accordance with GAAP, plus interest expense, income tax expense, depreciation and amortization, any gains (or losses) from sales of real estate assets and/or changes in control, any impairment charges on depreciable real estate assets, and after adjustments for unconsolidated partnerships and joint ventures. The Company considers the non-GAAP measure of EBITDAre to be a key supplemental measure of the Company's performance and should be considered along with, but not as an alternative to, net income or loss as a measure of the Company's operating performance. The Company considers EBITDAre a key supplemental measure of the Company's operating performance because it provides an additional supplemental measure of the Company's performance and operating cash flow that is widely known by industry analysts, lenders and investors. The Company's calculation of EBITDAre may not be comparable to EBITDAre reported by other REITs that interpret the Nareit definition differently than the Company.

Recurring EBITDA
The Company defines Recurring EBITDA as EBITDAre with the addback of noncash amortization of above- and below- market lease intangibles, and after adjustments for the run-rate impact of the Company's investment and disposition activity for the period presented, as well as adjustments for non-recurring benefits or expenses. The Company considers the non-GAAP measure of Recurring EBITDA to be a key supplemental measure of the Company's performance and should be considered along with, but not as an alternative to, net income or loss as a measure of the Company's operating performance. The Company considers Recurring EBITDA a key supplemental measure of the Company's operating performance because it represents the Company's earnings run rate for the period presented and because it is widely followed by industry analysts, lenders and investors.  Our Recurring EBITDA may not be comparable to Recurring EBITDA reported by other companies that have a different interpretation of the definition of Recurring EBITDA. Our ratio of net debt to Recurring EBITDA is used by management as a measure of leverage and may be useful to investors in understanding the Company's ability to service its debt, as well as assess the borrowing capacity of the Company.  Our ratio of net debt to Recurring EBITDA is calculated by taking annualized Recurring EBITDA and dividing it by our net debt per the consolidated balance sheet. 

Net Debt
The Company defines Net Debt as total debt less cash, cash equivalents and cash held in escrows. The Company considers the non-GAAP measure of Net Debt to be a key supplemental measure of the Company's overall liquidity, capital structure and leverage. The Company considers Net Debt a key supplemental measure because it provides industry analysts, lenders and investors useful information in understanding our financial condition. The Company's calculation of Net Debt may not be comparable to Net Debt reported by other REITs that interpret the definition differently than the Company.  The Company presents Net Debt on both an actual and proforma basis, assuming the net proceeds of the ATM Forward Offerings (see below) are used to pay down debt. The Company believes the proforma measure may be useful to investors in understanding the potential effect of the ATM Forward Offerings on the Company's capital structure, its future borrowing capacity, and its ability to service its debt.

ATM Forward Offerings and April 2020 Forward Offering
The Company has 1,628,772 shares remaining to be settled under the ATM Forward Offerings. Upon settlement, the offerings are anticipated to raise net proceeds of approximately $106.2 million based on the applicable forward sale prices as of September 30, 2020. The applicable forward sale price varies depending on the offering. The Company is contractually obligated to settle the ATM Forward Offerings by certain dates between May 2021 and September 2021.  On April 20, 2020, the Company commenced an underwritten public offering of 6,166,666 shares of common stock in connection with a forward sale agreement at a public offering price of $60.00 per share. On September 28, 2020, the Company settled 1,515,000 shares and received net proceeds of approximately $88.0 million. The 4,651,666 shares remaining under the April 2020 Forward Offering are anticipated to raise net proceeds of approximately $270.1 million based on the applicable forward sale price as of September 30, 2020. The Company is contractually obligated to settle the offering in full by April 2021.

 

Agree Realty Corporation

Rental Income

($ in thousands, except share and per share-data)

(Unaudited)










Three months ended
September 30,


Nine months ended
September 30,


2020


2019


2020


2019

Rental Income Source(1)








Minimum rents(2)

$ 58,578


$ 44,558


$ 163,045


$ 124,789

Percentage rents(2)

-


-


249


287

Operating cost reimbursement(2)

6,793


4,868


19,604


14,881

Straight-line rental adjustments(3)

2,294


1,975


5,614


5,165

Amortization of (above) below market lease intangibles(4)

(3,964)


(3,381)


(11,552)


(9,882)

Total Rental Income

$ 63,701


$ 48,020


$ 176,960


$ 135,240



(1)  The Company adopted Financial Accounting Standards Board Accounting Standards Codification ("FASB ASC") 842 "Leases" using the modified retrospective approach as of January 1, 2019.  The Company adopted the practical expedient in FASB ASC 842 that alleviates the requirement to separately present lease and non-lease components of lease contracts. As a result, all income earned pursuant to tenant leases is reflected as one line, "Rental Income," in the consolidated statement of operations.  The purpose of this table is to provide additional supplementary detail of Rental Income.

(2)  Represents contractual rentals and/or reimbursements as required by tenant lease agreements, recognized on an accrual basis of accounting.  The Company believes that the presentation of contractual lease income is not, and is not intended to be, a presentation in accordance with GAAP. The Company believes this information is frequently used by management, investors, analysts and other interested parties to evaluate the Company's performance.

(3)  Represents adjustments to recognize minimum rents on a straight-line basis, consistent with the requirements of FASB ASC 842.

(4)  In allocating the fair value of an acquired property, above- and below-market lease intangibles are recorded based on the present value of the difference between the contractual amounts to be paid pursuant to the leases at the time of acquisition and the Company's estimate of current market lease rates for the property.  Effective in 2019, the Company began classifying amortization of above- and below-market lease intangibles as a net reduction of rental income.

 

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SOURCE Agree Realty Corporation