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:

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:

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:

Retail Sectors

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

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:

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:

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.

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