EX-99.1 2 tm2131555d1_ex99-1.htm EXHIBIT 99.1

 

Exhibit 99.1

 

70 E. Long Lake Rd.
Bloomfield Hills, MI 48304
www.agreerealty.com

FOR IMMEDIATE RELEASE

 

AGREE REALTY CORPORATION REPORTS THIRD QUARTER 2021 RESULTS

GROUND LEASE PORTFOLIO APPROACHES 14% OF ANNUALIZED BASE RENTS

 

Bloomfield Hills, MI, November 1, 2021 -- Agree Realty Corporation (NYSE: ADC) (the “Company”) today announced results for the quarter ended September 30, 2021. All per share amounts included herein are on a diluted per common share basis unless otherwise stated.

 

Third Quarter 2021 Financial and Operating Highlights:

 

§Invested approximately $342.7 million in 83 retail net lease properties
§30.3% of annualized base rents acquired were derived from ground leased assets
§Net Income per share attributable to common stockholders increased 34.4% to $0.52
§Core Funds from Operations (“Core FFO”) per share increased 13.0% to $0.92
§Adjusted Funds from Operations (“AFFO”) per share increased 11.5% to $0.89
§Declared an October monthly dividend of $0.227 per share, a 9.8% year-over-year increase
§Completed inaugural public offering of 4.250% Series A Cumulative Redeemable Preferred Stock for net proceeds of approximately $170.3 million
§Sold 367,464 shares of common stock via the forward component of the Company's at-the-market equity ("ATM") program for anticipated net proceeds of approximately $27.0 million
§Balance sheet positioned for growth at 3.7 times proforma net debt to recurring EBITDA; 4.4 times excluding unsettled forward equity
§Appointed Michael Judlowe to the Company’s Board of Directors

 

Financial Results

 

Net Income Attributable to Common Stockholders

 

Net Income for the three months ended September 30, 2021 increased 70.9% to $36.4 million, compared to $21.3 million for the comparable period in 2020. Net Income per share for the three months ended September 30, 2021 increased 34.4% to $0.52, compared to $0.39 per share for the comparable period in 2020.

 

Net Income for the nine months ended September 30, 2021 increased 31.1% to $88.8 million, compared to $67.8 million for the comparable period in 2020. Net Income per share for the nine months ended September 30, 2021 increased 1.3% to $1.34, compared to $1.32 per share for the comparable period in 2020.

 

Core FFO

 

Core FFO for the three months ended September 30, 2021 increased 44.0% to $64.0 million, compared to Core FFO of $44.5 million for the comparable period in 2020. Core FFO per share for the three months ended September 30, 2021 increased 13.0% to $0.92, compared to Core FFO per share of $0.81 for the comparable period in 2020.

 

Core FFO for the nine months ended September 30, 2021 increased 43.2% to $175.9 million, compared to Core FFO of $122.9 million for the comparable period in 2020. Core FFO per share for the nine months ended September 30, 2021 increased 11.2% to $2.65, compared to Core FFO per share of $2.39 for the comparable period in 2020.

 

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AFFO

 

AFFO for the three months ended September 30, 2021 increased 42.0% to $62.1 million, compared to AFFO of $43.8 million for the comparable period in 2020. AFFO per share for the three months ended September 30, 2021 increased 11.5% to $0.89, compared to AFFO per share of $0.80 for the comparable period in 2020.

 

AFFO for the nine months ended September 30, 2021 increased 41.6% to $172.3 million, compared to AFFO of $121.7 million for the comparable period in 2020. AFFO per share for the nine months ended September 30, 2021 increased 10.0% to $2.60, compared to AFFO per share of $2.36 for the comparable period in 2020.

 

Dividend

 

In the third quarter, the Company declared monthly cash dividends of $0.217 per common share for each of July, August and September 2021. The monthly dividends reflected an annualized dividend amount of $2.604 per common share, representing an 8.5% increase over the annualized dividend amount of $2.400 per common share from the third quarter of 2020. The dividends represent payout ratios of approximately 71% of Core FFO per share and 73% of AFFO per share, respectively.

 

For the nine months ended September 30, 2021, the Company declared monthly dividends totaling $1.923 per common share, a 7.7% increase over the dividends of $1.785 per common share declared for the comparable period in 2020. The dividends represent payout ratios of approximately 72% of Core FFO per share and 74% of AFFO per share, respectively.

 

Subsequent to quarter end, the Company declared a monthly cash dividend of $0.227 per common share for October 2021. The monthly dividend reflects an annualized dividend amount of $2.724 per common share, representing a 9.8% increase over the annualized dividend amount of $2.480 per common share from the fourth quarter of 2020. The dividend is payable November 12, 2021 to stockholders of record at the close of business on October 29, 2021.

 

Additionally, subsequent to quarter end, the Company declared a monthly cash dividend on its 4.25% Series A Cumulative Redeemable Preferred Stock of $0.08854 per depositary share, which is equivalent to $1.0625 per annum. The dividend is payable November 1, 2021 to stockholders of record at the close of business on October 25, 2021.

 

CEO Comments

 

“We are extremely pleased with our year-to-date performance as we achieved record investment volume of more than $1 billion through the first nine months while maintaining a disciplined underwriting approach aligned with our RETHINK RETAIL initiative,” said Joey Agree, President and Chief Executive Officer. “Our focus on best-in-class retail net lease opportunities has served to construct a leading portfolio with nearly 14% of annualized base rents derived from ground leases and 67% via investment grade tenants. Additionally, the completion of our inaugural preferred equity issuance during the quarter further positions our Company for dynamic growth and provides enhanced balance sheet flexibility.”

 

Portfolio Update

 

As of September 30, 2021, the Company’s portfolio consisted of 1,338 properties located in 47 states and contained approximately 27.7 million square feet of gross leasable area.

 

The portfolio was approximately 99.6% leased, had a weighted-average remaining lease term of approximately 9.5 years, and generated 66.9% of annualized base rents from investment grade retail tenants.

 

Ground Lease Portfolio

 

During the quarter, the Company acquired 28 ground leases for an aggregate purchase price of approximately $108.9 million, representing 30.3% of annualized base rents acquired.

 

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As of September 30, 2021, the Company’s ground lease portfolio consisted of 162 leases located in 30 states and totaled approximately 4.7 million square feet of gross leasable area. Properties ground leased to tenants increased to 13.8% of annualized base rents.

 

At quarter end, the ground lease portfolio was fully occupied, had a weighted-average remaining lease term of approximately 12.1 years, and generated 87.0% of annualized base rents from investment grade retail tenants.

 

Acquisitions

 

Total acquisition volume for the third quarter was approximately $340.1 million and included 80 properties net leased to leading retailers operating in sectors including off-price retail, convenience stores, tire and auto service, home improvement, auto parts, grocery and general merchandise. The properties are located in 28 states and leased to tenants operating in 20 sectors.

 

The properties were acquired at a weighted-average capitalization rate of 6.2% and had a weighted-average remaining lease term of approximately 10.7 years. Approximately 59.2% of annualized base rents acquired were generated from investment grade retail tenants.

 

For the nine months ended September 30, 2021, total acquisition volume was approximately $1.07 billion. The 219 acquired properties are located in 40 states and leased to tenants who operate in 26 retail sectors. The properties were acquired at a weighted-average capitalization rate of 6.2% and had a weighted-average remaining lease term of approximately 11.9 years. Approximately 69.8% of annualized base rents were generated from investment grade retail tenants or parent entities thereof.

 

The Company is increasing the lower end of its outlook for acquisition volume for the full-year 2021 to $1.3 billion and is maintaining the upper end of the range at $1.4 billion of high-quality retail net lease properties. This compares with a previous range of $1.2 billion to $1.4 billion.

 

Dispositions

 

During the three months ended September 30, 2021, the Company sold three properties for gross proceeds of approximately $11.8 million. The weighted-average capitalization rate of the dispositions was 6.3%. During the nine months ended September 30, 2021, the Company divested 13 properties for total gross proceeds of $48.3 million. The weighted-average capitalization rate of the dispositions was 6.6%.

 

The Company's disposition guidance for 2021 remains between $50 million and $75 million.

 

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Development and Partner Capital Solutions

 

During the quarter, the Company commenced its third project with Gerber Collision in New Port Richey, Florida, which is expected to be completed in the second quarter of 2022. Construction continued during the third quarter on the Company’s first development with 7-Eleven in Saginaw, Michigan and the Company’s second Gerber Collision project in Pooler, Georgia, both of which are expected to be completed during the first quarter of 2022.

 

For the nine months ended September 30, 2021, the Company had seven development or PCS projects completed or under construction. Anticipated total costs are approximately $40.0 million and include the following projects:

 

Tenant   Location   Lease
Structure 		  Lease
Term		   Actual or
Anticipated Rent
Commencement 		  Status
Burlington   Texarkana, TX   Build-to-Suit   11 years   Q1 2021   Complete
Grocery Outlet   Port Angeles, WA   Build-to-Suit   15 years   Q2 2021   Complete
Gerber Collision   Buford, GA   Build-to-Suit   15 years   Q2 2021   Complete
Floor & Décor   Naples, FL   Build-to-Suit   15 years   Q2 2021   Complete
7-Eleven   Saginaw, MI   Build-to-Suit   15 years   Q1 2022   Under Construction
Gerber Collision   Pooler, GA   Build-to-Suit   15 years   Q1 2022   Under Construction
Gerber Collision   New Port Richey, FL   Build-to-Suit   15 years   Q2 2022   Under Construction

 

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Leasing Activity and Expirations

 

During the third quarter, the Company executed new leases, extensions or options on approximately 72,000 square feet of gross leasable area throughout the existing portfolio.

 

For the nine months ended September 30, 2021, the Company executed new leases, extensions or options on approximately 347,000 square feet of gross leasable area throughout the existing portfolio.

 

As of September 30, 2021, the Company’s four remaining 2021 lease maturities represented 0.1% of annualized base rents. The following table presents contractual lease expirations within the Company’s portfolio as of September 30, 2021, 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		 
2021   4    526    0.1%   44    0.2%
2022   19    3,313    0.9%   326    1.2%
2023   45    9,857    2.8%   1,276    4.6%
2024   43    13,529    3.8%   1,613    5.8%
2025   67    15,972    4.5%   1,543    5.6%
2026   100    19,804    5.6%   2,039    7.4%
2027   90    21,013    5.9%   1,768    6.4%
2028   96    23,906    6.8%   2,125    7.7%
2029   129    37,261    10.5%   3,319    12.0%
2030   210    41,773    11.8%   3,059    11.1%
Thereafter   645    166,304    47.3%   10,482    38.0%
Total Portfolio   1,448   $353,258    100.0%   27,594    100.0%

 

The contractual lease expirations presented above exclude the effect of replacement tenant leases that had been executed as of September 30, 2021 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, 2021, 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.

 

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Top Tenants

 

As of September 30, 2021, Walgreens, CarMax and LA Fitness are 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, 2021:

 

Tenant  Annualized
Base Rent(1)		   Percent of
Annualized
Base Rent		 
Walmart  $23,760    6.7%
Tractor Supply   13,875    3.9%
Dollar General   13,335    3.8%
Best Buy   11,771    3.3%
O'Reilly Auto Parts   11,537    3.3%
TJX Companies   11,259    3.2%
Kroger   10,798    3.1%
Hobby Lobby   10,595    3.0%
Sherwin-Williams   10,290    2.9%
Lowe's   9,811    2.8%
CVS   9,520    2.7%
Wawa   9,127    2.6%
TBC Corporation   7,893    2.2%
Burlington   7,615    2.2%
Dollar Tree   7,272    2.1%
Home Depot   6,841    1.9%
Sunbelt Rentals   6,730    1.9%
AutoZone   6,288    1.8%
Other(2)   164,941    46.6%
Total Portfolio  $353,258    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 tenants generating less than 1.5% of Annualized Base Rent.

 

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Retail Sectors

 

The following table presents annualized base rents for all of the Company’s retail sectors as of September 30, 2021:

 

Sector  Annualized
Base Rent(1)		   Percent of
Annualized
Base Rent		 
Grocery Stores  $37,356    10.6%
Home Improvement   33,376    9.4%
Convenience Stores   27,670    7.8%
Tire and Auto Service   27,579    7.8%
General Merchandise   23,451    6.6%
Auto Parts   22,064    6.2%
Off-Price Retail   21,087    6.0%
Dollar Stores   19,612    5.6%
Pharmacy   15,576    4.4%
Farm and Rural Supply   15,388    4.4%
Consumer Electronics   13,552    3.8%
Crafts and Novelties   12,811    3.6%
Warehouse Clubs   8,288    2.3%
Restaurants - Quick Service   7,383    2.1%
Equipment Rental   7,056    2.0%
Health and Fitness   6,984    2.0%
Dealerships   6,475    1.8%
Health Services   6,448    1.8%
Discount Stores   6,448    1.8%
Home Furnishings   5,696    1.6%
Specialty Retail   4,710    1.3%
Restaurants - Casual Dining   4,490    1.3%
Theaters   3,854    1.1%
Financial Services   3,293    0.9%
Sporting Goods   3,243    0.9%
Pet Supplies   2,597    0.7%
Entertainment Retail   2,333    0.7%
Apparel   1,253    0.4%
Beauty and Cosmetics   1,159    0.3%
Shoes   1,058    0.3%
Office Supplies   860    0.3%
Miscellaneous   108    0.2%
Total Portfolio  $353,258    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.

 

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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, 2021:

 

State  Annualized
Base Rent(1)		   Percent of
Annualized
Base Rent		 
Texas  $25,716    7.3%
Michigan   20,982    5.9%
Florida   20,207    5.7%
Ohio   19,969    5.7%
Illinois   19,521    5.5%
New Jersey   19,201    5.4%
North Carolina   19,092    5.4%
New York   13,918    3.9%
California   13,553    3.8%
Pennsylvania   12,905    3.7%
Georgia   11,814    3.3%
Virginia   10,564    3.0%
Wisconsin   9,966    2.8%
Connecticut   9,765    2.8%
Missouri   8,921    2.5%
Other(2)   117,164    33.3%
Total Portfolio  $353,258    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.

 

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Capital Markets and Balance Sheet

 

Capital Markets

 

In September 2021, the Company completed its inaugural public offering of 7,000,000 depositary shares at $25.00 per depositary share, with each depositary share representing 1/1,000th of a share of 4.250% Series A Cumulative Redeemable Preferred Stock. Upon closing, the Company received total net proceeds of approximately $170.3 million, after deducting fees and estimated offering expenses.

 

During the third quarter of 2021, the Company entered into forward sale agreements in connection with its ATM program to sell an aggregate of 367,464 shares of common stock for anticipated net proceeds of approximately $27.0 million. Additionally, the Company settled 885,912 shares under forward sale agreements entered into through its ATM program and received net proceeds of approximately $56.1 million.

 

At quarter end, the Company had 3,419,340 shares remaining to be settled under existing forward sale agreements, which are anticipated to raise net proceeds of approximately $226.5 million after deducting fees and expenses and making certain other adjustments as provided in the equity distribution agreements.

 

The following table presents the Company’s outstanding forward equity offerings as of September 30, 2021:

 

Forward Equity Offerings  Shares
Sold		   Shares
Settled		   Shares
Remaining		   Net
Proceeds
Received		   Anticipated
Net
Proceeds
Remaining		 
Q4 2020 ATM Forward Offerings   1,501,210           -    1,501,210           -   $94,660,759 
Q1 2021 ATM Forward Offerings   372,469    -    372,469    -   $24,669,939 
Q2 2021 ATM Forward Offerings   1,178,197    -    1,178,197    -   $80,117,774 
Q3 2021 ATM Forward Offerings   367,464         367,464        $27,006,743 
Total Forward Equity Offerings   3,419,340    -    3,419,340    -   $226,455,215 

 

Balance Sheet

 

As of September 30, 2021, the Company’s net debt to recurring EBITDA was 4.4 times. The Company’s proforma net debt to recurring EBITDA was 3.7 times when deducting the $226.5 million of anticipated net proceeds from the outstanding forward equity offerings from the Company’s net debt of $1.4 billion as of September 30, 2021. The Company’s fixed charge coverage ratio was 5.1 times as of the end of the third quarter.

 

The Company’s total debt to enterprise value was 24.6% as of September 30, 2021. Enterprise value is calculated as the sum of net debt and the market value of the Company’s outstanding shares of common and preferred stock, assuming conversion of Agree Limited Partnership (the “Operating Partnership” or “OP”) units into common stock.

 

For the three and nine months ended September 30, 2021, the Company’s fully diluted weighted-average shares outstanding were 69.6 million and 66.0 million, respectively. The basic weighted-average shares outstanding for the three and nine months ended September 30, 2021 were 69.1 million and 65.6 million, respectively.

 

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For the three and nine months ended September 30, 2021, the Company’s fully diluted weighted-average shares and units outstanding were 69.9 million and 66.3 million, respectively. The basic weighted-average shares and units outstanding for the three and nine months ended September 30, 2021 were 69.5 million and 66.0 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, 2021, there were 347,619 Operating Partnership units outstanding and the Company held a 99.5% interest in the Operating Partnership.

 

Conference Call/Webcast

 

The Company will host its quarterly analyst and investor conference call on Tuesday, November 2, 2021 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 Investors section of the website. A replay of the conference call webcast will be archived and available online through the Investors section of www.agreerealty.com.

 

About Agree Realty Corporation

 

Agree Realty Corporation is a publicly traded real estate investment trust that is RETHINKING RETAIL through the acquisition and development of properties net leased to industry-leading, omni-channel retail tenants. As of September 30, 2021, the Company owned and operated a portfolio of 1,338 properties, located in 47 states and containing approximately 27.7 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 on the Company and RETHINKING RETAIL, 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 and subsequent quarterly reports filed with the Securities and Exchange Commission (the “SEC”), 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.

 

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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.

 

References to “Core FFO” and “AFFO” in this press release are representative of Core FFO attributable to OP common unitholders and AFFO attributable to OP common unitholders. Detailed calculations for these measures are shown in the Reconciliation of Net Income to FFO, Core FFO and Adjusted FFO table as “Core Funds From Operations – OP Common Unitholders” and “Adjusted Funds from Operations – OP Common Unitholders”.

 

###

 

Contact:

 

Peter Coughenour

Interim Chief Financial Officer

Agree Realty Corporation

(248) 737-4190

 

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Agree Realty Corporation

Consolidated Balance Sheet

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

(Unaudited)

 

   September 30,
2021		   December 31,
2020		 
Assets:          
Real Estate Investments:          
Land  $1,459,526   $1,094,550 
Buildings   2,863,568    2,371,553 
Accumulated depreciation   (216,775)   (172,577)
Property under development   7,728    10,653 
Net real estate investments   4,114,047    3,304,179 
Real estate held for sale, net   5,571    1,199 
Cash and cash equivalents   91,881    6,137 
Cash held in escrows   10,927    1,818 
Accounts receivable - tenants   52,854    37,808 
Lease intangibles, net of accumulated amortization of $164,517 and $125,995 at September 30, 2021 and December 31, 2020, respectively   645,594    473,592 
Other assets, net   76,626    61,450 
Total Assets  $4,997,500   $3,886,183 
           
Liabilities:          
Mortgage notes payable, net  $32,607   $33,122 
Unsecured term loans, net   -    237,849 
Senior unsecured notes, net   1,494,747    855,328 
Unsecured revolving credit facility   -    92,000 
Dividends and distributions payable   15,507    34,545 
Accounts payable, accrued expenses and other liabilities   80,494    71,390 
Lease intangibles, net of accumulated amortization of $28,303 and $24,651 at September 30, 2021 and December 31, 2020, respectively   32,544    35,700 
Total Liabilities  $1,655,899   $1,359,934 
           
Equity:          
Preferred Stock, $.0001 par value per share, 4,000,000 shares authorized, 7,000 shares Series A outstanding, at stated liquidation value of $25,000 per share, at September 30, 2021, no shares issued and outstanding at December 31, 2020   175,000    - 
Common stock, $.0001 par value per share, 180,000,000 and 90,000,000 shares authorized, 69,779,748 and 60,021,483 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively   7    6 
Additional paid-in capital   3,300,227    2,652,090 
Dividends in excess of net income   (130,455)   (91,343)
Accumulated other comprehensive income (loss)   (4,893)   (36,266)
Total Equity - Agree Realty Corporation  $3,339,886   $2,524,487 
Non-controlling interest   1,715    1,762 
Total Equity  $3,341,601   $2,526,249 
Total Liabilities and Equity  $4,997,500   $3,886,183 

 

12

 

 

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,		 
   2021   2020   2021   2020 
Revenues                    
Rental Income  $87,469   $63,701   $247,722   $176,960 
Other   68    109    189    193 
Total Revenues  $87,537   $63,810   $247,911   $177,153 
                     
Operating Expenses                    
Real estate taxes  $6,957   $5,516   $18,812   $15,058 
Property operating expenses   3,189    2,108    9,944    6,303 
Land lease expense   400    325    1,135    977 
General and administrative   5,687    4,756    18,806    13,999 
Depreciation and amortization   24,488    17,327    69,164    47,067 
Provision for impairment   -    2,868    -    3,996 
Total Operating Expenses  $40,721   $32,900   $117,861   $87,400 
                     
Gain (loss) on sale of assets, net   3,470    970    13,182    7,567 
                     
Income from Operations  $50,286   $31,880   $143,232   $97,320 
                     
Other (Expense) Income                    
Interest expense, net  $(13,066)  $(10,158)  $(37,267)  $(28,307)
Income tax (expense) benefit   (390)   (306)   (1,884)   (826)
Gain (loss) on early extinguishment of term loans and settlement of related interest rate swaps   -    -    (14,614)   - 
Other (expense) income   -    -    103    23 
                     
Net Income  $36,830   $21,416   $89,570   $68,210 
                     
Less Net Income Attributable to Non-Controlling Interest   167    136    447    444 
                     
Net Income Attributable to Agree Realty Corporation  $36,663   $21,280   $89,123   $67,766 
                     
Less Series A Preferred Stock Dividends   289    -    289    - 
                     
Net Income Attributable to Common Stockholders  $36,374   $21,280   $88,834   $67,766 
                     
Net Income Per Share Attributable to Common Stockholders                    
Basic  $0.52   $0.39   $1.35   $1.33 
Diluted  $0.52   $0.39   $1.33   $1.32 
                     
Other Comprehensive Income                    
Net Income  $36,830   $21,416   $89,570   $68,210 
Realized gain (loss) on settlement of interest rate swaps   82    -    869    - 
Other comprehensive income (loss) - change in fair value and settlement of interest rate swaps   3,300    1,420    30,676    (33,883)
Total Comprehensive Income (Loss)   40,212    22,836    121,115    34,327 
Comprehensive Income Attributable to Non-Controlling Interest   (185)   (152)   (465)   (187)
Comprehensive Income Attributable to Agree Realty Corporation  $40,027   $22,684   $120,650   $34,140 
                     
Weighted Average Number of Common Shares Outstanding - Basic   69,102,500    53,721,956    65,623,720    50,637,569 
Weighted Average Number of Common Shares Outstanding - Diluted   69,591,848    54,555,672    65,952,113    51,151,462 

 

13

 

 

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,		 
   2021   2020   2021   2020 
Net Income  $36,830   $21,416   $89,570   $68,210 
Less Series A Preferred Stock Dividends   289    -    289    - 
Net Income attributable to OP Common Unitholders   36,541    21,416    89,281    68,210 
Depreciation of rental real estate assets   17,019    12,669    48,439    34,387 
Amortization of lease intangibles - in-place leases and leasing costs   7,310    4,523    20,263    12,315 
Provision for impairment   -    2,868    -    3,996 
(Gain) loss on sale or involuntary conversion of assets, net   (3,470)   (970)   (13,285)   (7,567)
Funds from Operations - OP Common Unitholders  $57,400   $40,506   $144,698   $111,341 
Loss on extinguishment of debt and settlement of related hedges   -    -    14,614    - 
Amortization of above (below) market lease intangibles, net   6,615    3,964    16,630    11,552 
Core Funds from Operations - OP Common Unitholders  $64,015   $44,470   $175,942   $122,893 
Straight-line accrued rent   (3,215)   (2,294)   (8,779)   (5,614)
Stock based compensation expense   986    1,233    3,967    3,471 
Amortization of financing costs   203    223    692    560 
Non-real estate depreciation   159    135    462    365 
Adjusted Funds from Operations - OP Common Unitholders  $62,148   $43,767   $172,284   $121,675 
                     
Funds from Operations Per Common Share and OP Unit - Basic  $0.83   $0.75   $2.19   $2.18 
Funds from Operations Per Common Share and OP Unit - Diluted  $0.82   $0.74   $2.18   $2.16 
                     
Core Funds from Operations Per Common Share and OP Unit - Basic  $0.92   $0.82   $2.67   $2.41 
Core Funds from Operations Per Common Share and OP Unit - Diluted  $0.92   $0.81   $2.65   $2.39 
                     
Adjusted Funds from Operations Per Common Share and OP Unit - Basic  $0.89   $0.81   $2.61   $2.39 
Adjusted Funds from Operations Per Common Share and OP Unit - Diluted  $0.89   $0.80   $2.60   $2.36 
                     
Weighted Average Number of Common Shares and OP Units Outstanding - Basic   69,450,119    54,069,575    65,971,339    50,985,188 
Weighted Average Number of Common Shares and OP Units Outstanding - Diluted   69,939,467    54,903,291    66,299,732    51,499,081 
                     
                     
Additional supplemental disclosure                    
Scheduled principal repayments  $201   $236   $594   $699 
Capitalized interest   36    54    200    109 
Capitalized building improvements   1,921    973    4,376    3,248 

 

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 and certain infrequently recurring items that reduce or increase net income in accordance with GAAP. 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 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.

 

14

 

 

Agree Realty Corporation

Reconciliation of Net Debt to Recurring EBITDA

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

(Unaudited)

 

   Three months ended
September 30,		 
   2021 
Net Income  $36,830 
Interest expense, net   13,066 
Income tax expense   390 
Depreciation of rental real estate assets   17,019 
Amortization of lease intangibles - in-place leases and leasing costs   7,310 
Non-real estate depreciation   159 
(Gain) loss on sale or involuntary conversion of assets, net   (3,470)
EBITDAre  $71,304 
      
Run-Rate Impact of Investment, Disposition and Leasing Activity  $3,491 
Amortization of above (below) market lease intangibles, net   6,615 
Recurring EBITDA  $81,410 
      
Annualized Recurring EBITDA  $325,640 
      
Total Debt  $1,542,839 
Cash, cash equivalents and cash held in escrows   (102,808)
Net Debt  $1,440,031 
      
Net Debt to Recurring EBITDA   4.4x
      
Net Debt  $1,440,031 
Anticipated Net Proceeds from ATM Forward Offerings   (226,455)
Proforma Net Debt  $1,213,576 
      
Proforma Net Debt to Recurring EBITDA   3.7x

 

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

The Company has 3,419,340 shares remaining to be settled under the ATM Forward Offerings. Upon settlement, the offerings are anticipated to raise net proceeds of approximately $226.5 million based on the applicable forward sale prices as of September 30, 2021. 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 December 2021 and September 2022.

 

15

 

 

Agree Realty Corporation

Rental Income

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

(Unaudited)

 

   Three months ended
September 30,		   Nine months ended
September 30,		 
   2021   2020   2021   2020 
Rental Income Source(1)                    
Minimum rents(2)  $81,334   $58,578   $228,494   $163,045 
Percentage rents(2)   102    -    593    249 
Operating cost reimbursement(2)   9,433    6,793    26,486    19,604 
Straight-line rental adjustments(3)   3,215    2,294    8,779    5,614 
Amortization of (above) below market lease intangibles(4)   (6,615)   (3,964)   (16,630)   (11,552)
Total Rental Income  $87,469   $63,701   $247,722   $176,960 

 

(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.

 

16