BLOOMFIELD HILLS, Mich., July 23, 2018 /PRNewswire/ -- Agree Realty Corporation (NYSE: ADC) (the "Company") today announced results for the quarter ended June 30, 2018.  All per share amounts included herein are on a diluted per common share basis unless otherwise stated.

Second Quarter 2018 Financial and Operating Highlights:

• Invested $104.3 million in 29 retail net lease properties
• Increased rental revenue 27.7% to $32.1 million
• Net Income per share attributable to the Company decreased 26.9% to $0.41
• Net Income attributable to the Company decreased 13.1% to $12.9 million
• Increased Funds from Operations ("FFO") per share 5.6% to $0.71
• Increased FFO 24.3% to $22.3 million
• Increased Adjusted Funds from Operations ("AFFO") per share 5.7% to $0.70
• Increased AFFO 24.5% to $22.2 million
• Declared a quarterly dividend of $0.54 per share, a 6.9% increase over the dividend per share declared in the second quarter of 2017
• Received a Baa2 investment grade credit rating from Moody's Investors Service

First Half 2018 Financial and Operating Highlights:

• Invested $207.1 million in 63 retail net lease properties
• Completed five and commenced three development and Partner Capital Solutions ("PCS") projects
• Increased rental revenue 27.7% to $63.1 million
• Net Income per share attributable to the Company decreased 16.2% to $0.94
• Net Income attributable to the Company decreased 0.3% to $29.4 million
• Increased FFO per share 7.4% to $1.41
• Increased FFO 26.8% to $44.4 million
• Increased AFFO per share 6.8% to $1.40
• Increased AFFO 26.1% to $44.0 million
• Declared dividends of $1.06 per share, a 6.0% increase over the dividends per share declared in the first half of 2017

Mid-Year 2018 Update:

• Increases 2018 acquisition guidance to a range of $350 million to $400 million
• Increases 2018 disposition guidance to a range of $50 million to $75 million
• Appoints Craig Erlich and Greg Lehmkuhl to its Board of Directors

Financial Results

Total Rental Revenue

Total rental revenue, which includes minimum rents and percentage rents, for the three months ended June 30, 2018 increased 27.7% to $32.1 million, compared to total rental revenue of $25.2 million for the comparable period in 2017.

Total rental revenue for the six months ended June 30, 2018 increased 27.7% to $63.1 million, compared to total rental revenue of $49.4 million for the comparable period in 2017.

Net Income

Net Income attributable to the Company for the three months ended June 30, 2018 decreased 13.1% to $12.9 million, compared to $14.9 million for the comparable period in 2017. Net Income per share attributable to the Company for the three months ended June 30, 2018 decreased 26.9% to $0.41, compared to $0.56 per share for the comparable period in 2017.

Net income attributable to the Company for the six months ended June 30, 2018 decreased 0.3% to $29.4 million, compared to $29.5 million for the comparable period in 2017.  Net income per share attributable to the Company for the six months ended June 30, 2018 decreased 16.2% to $0.94, compared to $1.12 per share for the comparable period in 2017.

Funds from Operations

FFO for the three months ended June 30, 2018 increased 24.3% to $22.3 million, compared to FFO of $18.0 million for the comparable period in 2017.  FFO per share for the three months ended June 30, 2018 increased 5.6% to $0.71, compared to FFO per share of $0.67 for the comparable period in 2017.

FFO for the six months ended June 30, 2018 increased 26.8% to $44.4 million, compared to FFO of $35.0 million for the comparable period in 2017.  FFO per share for the six months ended June 30, 2018 increased 7.4% to $1.41, compared to FFO per share of $1.32 for the comparable period in 2017.

Adjusted Funds from Operations

AFFO for the three months ended June 30, 2018 increased 24.5% to $22.2 million, compared to AFFO of $17.9 million for the comparable period in 2017.  AFFO per share for the three months ended June 30, 2018 increased 5.7% to $0.70, compared to AFFO per share of $0.67 for the comparable period in 2017.

AFFO for the six months ended June 30, 2018 increased 26.1% to $44.0 million, compared to AFFO of $34.9 million for the comparable period in 2017.  AFFO per share for the six months ended June 30, 2018 increased 6.8% to $1.40, compared to AFFO per share of $1.31 for the comparable period in 2017.

Dividend

The Company paid a cash dividend of $0.54 per share on July 13, 2018 to stockholders of record on June 29, 2018, a 6.9% increase over the $0.505 quarterly dividend declared in the second quarter of 2017.  The quarterly dividend represents payout ratios of approximately 76% of FFO per share and 77% of AFFO per share, respectively.

For the six months ended June 30, 2018, the Company declared dividends of $1.06 per share, a 6.0% increase over the dividends of $1.00 per share declared for the comparable period in 2017. The dividend represents payout ratios of approximately 75% of FFO per share and 76% of AFFO per share, respectively.

CEO Comments

"We are very pleased with our performance during the quarter as we demonstrated continued execution of our operating strategy," said Joey Agree, President and Chief Executive Officer of Agree Realty Corporation. "Given our robust pipeline and flexible balance sheet, we are increasing our full-year acquisition guidance. Simultaneously, we are increasing our disposition guidance which evidences our proactive approach and commitment to capital recycling, ensuring our portfolio comprises the highest-quality real estate leased to preeminent retailers."

Mr. Agree continued in highlighting the Company's new Board of Directors appointments, "On behalf of the entire Board, I would like to welcome Craig Erlich and Greg Lehmkuhl as Directors. Both Craig and Greg have extensive leadership and operational experience working with dynamic, industry-leading organizations. They will bring unique and invaluable perspectives as we chart the exciting future of our growing Company."

Portfolio Update

As of June 30, 2018, the Company's portfolio consisted of 481 properties located in 44 states and totaled 9.3 million square feet of gross leasable space.  Properties ground leased to tenants accounted for 7.2% of annualized base rents.

The portfolio was approximately 99.7% leased, had a weighted-average remaining lease term of approximately 10.2 years, and generated approximately 46.5% of annualized base rents from investment grade retail tenants.

The following table provides a summary of the Company's portfolio as of June 30, 2018:

Acquisitions

Total acquisition volume for the second quarter of 2018 was approximately $101.9 million and included 23 assets net leased to notable retailers operating in the home improvement, health and fitness, convenience store, auto parts, tire and auto service and grocery sectors.  The properties are located in 16 states and leased to tenants operating in 12 retail sectors.  The properties were acquired at a weighted-average capitalization rate of 7.2% and had a weighted-average remaining lease term of approximately 12.4 years.

For the six months ended June 30, 2018, total acquisition volume was approximately $200.6 million and included 53 high-quality retail net lease assets.  The properties are located in 23 states and leased to 30 diverse tenants who operate in 15 retail sectors.  The properties were acquired at a weighted-average capitalization rate of 7.2% and had a weighted-average remaining lease term of approximately 13.0 years.

The Company's outlook for acquisition volume in 2018 is being increased to a range of $350 million to $400 million of high-quality retail net lease properties. The Company's acquisition guidance, which assumes continued growth in economic activity, moderate interest rate growth, positive business trends and other significant assumptions, is being increased from a previous range of $250 million to $300 million.

Dispositions

During the second quarter, the Company sold five properties for gross proceeds of approximately $11.0 million. The dispositions were completed at a weighted-average capitalization rate of 7.1%.

For the six months ended June 30, 2018, the Company has divested of ten properties for total gross proceeds of $27.7 million. The weighted-average capitalization rate of the dispositions was 7.3%. In addition, a tenant exercised their option to purchase a property which had previously been ground leased from the Company. The option to purchase was exercised during the first quarter at a predetermined contractual price of $3.9 million. 

The Company's disposition guidance for 2018 is being increased to a new range of $50 million to $75 million, from a previous range of $25 million to $50 million.

Development and Partner Capital Solutions

In the second quarter of 2018, the Company completed the previously announced Camping World in Grand Rapids, Michigan. The project is subject to a 20-year net lease and had total aggregate costs of approximately $9.6 million.

The Company commenced its second project with leading Burger King franchisee TOMS King during the second quarter, with total anticipated costs of approximately $2.0 million. The project is located in Aurora, Illinois and is subject to a new 20-year net lease.

Construction continued during the second quarter on four projects with total anticipated costs of approximately $14.7 million. The projects include the Company's first PCS project with ALDI in Chickasha, Oklahoma; the Company's first project with Burlington Coat Factory in Nampa, Idaho; and the Company's third and fourth developments with Mister Car Wash in Orlando and Tavares, Florida.

For the six months ended June 30, 2018, the Company had ten development or PCS projects completed or under construction. Anticipated total costs are approximately $51.6 million and include the following projects:

Leasing Activity and Expirations

During the second quarter, the Company executed new leases, extensions or options on approximately 39,000 square feet of gross leasable area throughout the existing portfolio. Notable new leases, extensions or options included a 21,177-square foot Harbor Freight Tools in Cedar Park, Texas.

For the six months ended June 30, 2018, the Company executed new leases, extensions or options on approximately 187,000 square feet of gross leasable area throughout the existing portfolio.

At quarter end, the Company's 2018 lease maturities represented 0.3% of annualized base rents. The following table presents contractual lease expirations within the Company's portfolio as of June 30, 2018, assuming no tenants exercise renewal options:

Top Tenants

The Company added O'Reilly Auto Parts and Best Buy to its top tenants in the second quarter of 2018. The following table presents annualized base rents for all tenants that represent 1.5% or greater of the Company's total annualized base rent as of June 30, 2018:

Retail Sectors

The following table presents annualized base rents for the Company's top retail sectors that represent 2.5% or greater of the Company's total annualized base rent as of June 30, 2018:

Geographic Diversification

The following table presents annualized base rents for all states that represent 2.5% or greater of the Company's total annualized base rent as of June 30, 2018:

Capital Markets and Balance Sheet

Capital Markets

In March 2018, the Company completed a follow-on public offering of 3,450,000 shares of common stock in connection with a forward sale agreement. Upon settlement, the offering is anticipated to raise net proceeds of approximately $162.9 million after deducting fees and expenses. The Company has not received any proceeds from the sale of shares of its common stock by the forward purchaser.

In May 2018, the Company entered into a new $250 million at-the-market equity program ("ATM Program") through which the Company may, from time to time, sell shares of common stock.  In addition to selling shares of common stock, the Company may enter into forward sale agreements through its ATM Program.  The Company uses the proceeds generated from its ATM Program for general corporate purposes, including funding our investment activity, the repayment or refinancing of outstanding indebtedness, working capital and other general purposes.

Subsequent to quarter end, in July 2018, the Company partially exercised the accordion option of its unsecured revolving credit facility (the "Revolving Facility") and increased its borrowing capacity from $250 million to $325 million.  At quarter end, the Company had $166 million of outstanding borrowings on the Revolving Facility.

Balance Sheet

In May 2018, Moody's Investors Service ("Moody's") assigned a Baa2 issuer rating to the Company with a stable outlook.  According to Moody's press release, the Baa2 issuer rating reflects the Company's long-standing operational history, conservative leverage policy, strong balance sheet with ample liquidity for growth, and well-laddered debt maturity schedule. Additionally, Moody's stated that the Company has a large unencumbered asset pool, a quality net lease portfolio with long-term leases and minimal near-term lease expirations, and a substantial investment grade tenant roster. 

As of June 30, 2018, the Company's net debt to recurring EBITDA was 5.4 times and its fixed charge coverage ratio was 4.2 times. The Company's total debt to total enterprise value was 28.1%.  Total enterprise value is calculated as the sum of total debt and the market value of the Company's outstanding shares of common stock, assuming conversion of operating partnership units into common stock.

For the three and six months ended June 30, 2018, the Company's fully diluted weighted-average shares outstanding were 31.2 million and 31.0 million, respectively. The basic weighted-average shares outstanding for the three and six months ended June 30, 2018 were 30.8 million and 30.8 million, respectively.

For the three and six months ended June 30, 2018, the Company's fully diluted weighted-average shares and units outstanding were 31.6 million and 31.4 million, respectively. The basic weighted-average shares and units outstanding for the three and six months ended June 30, 2018 were 31.2 million and 31.2 million, respectively.

The Company's assets are held by, and its operations are conducted through, Agree Limited Partnership, of which the Company is the sole general partner.  As of June 30, 2018, there were 347,619 operating partnership units outstanding and the Company held a 98.9% interest in the operating partnership.

Board of Directors and Corporate Governance Update

The Company is pleased to announce that Craig Erlich and Greg Lehmkuhl have joined the Company's Board of Directors. 

Craig Erlich is a Senior Vice President and General Manager of the George P. Johnson Company ("GPJ"), a global experiential marketing firm with 30 offices worldwide. Mr. Erlich has full responsibility for operations in GPJ's world headquarters in Detroit, MI and its Nashville, TN facilities. He was previously the owner, President and Chief Executive Officer of pulse220, a boutique meetings and events firm which he successfully sold to GPJ in 2015. Mr. Erlich is a two-time nominee of the Ernst & Young Entrepreneur of the Year award and holds a Bachelor of Arts in Marketing from the Eli Broad College of Business at Michigan State University.

Greg Lehmkuhl is the President and Chief Executive Officer of Lineage Logistics and oversees all facets of the company's operations worldwide. Lineage is the world's second largest provider of temperature-controlled supply chain solutions.  Prior to joining Lineage, Mr. Lehmkuhl served as Corporate Executive Vice President for Con-Way and President of Con-Way Freight, where he was responsible for overall company operating and financial performance, strategic planning and business plan development, as well as direction of the company's continuous improvement processes. Prior to Con-way, he held management positions at Delphi and Penske.  Mr. Lehmkuhl holds a Bachelor's Degree in Business from Michigan State University as well as a Master of Business Administration from Oakland University.

In May 2018, the Company announced the termination of its Rights Agreement dated as of December 7, 1998, as amended by the Amendment to Rights Agreement dated as of October 18, 2001, the Second Amendment to Rights Agreement dated as of December 8, 2008 and the Third Amendment to Rights Agreement dated as of December 20, 2017.

Conference Call/Webcast

The Company will host its quarterly analyst and investor conference call on Tuesday, July 24, 2018 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 June 30, 2018, the Company owned and operated a portfolio of 481 properties, located in 44 states and containing approximately 9.3 million square feet of gross leasable space.  The common stock of Agree Realty Corporation is listed on the New York Stock Exchange under the symbol "ADC".  For additional information, please visit www.agreerealty.com.   

Forward-Looking Statements

This press release may contain certain "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Reform Act of 1995. Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may," "will," "should," "potential," "intend," "expect," "seek," "anticipate," "estimate," "approximately," "believe," "could," "project," "predict," "forecast," "continue," "assume," "plan," references to "outlook" or other similar words or expressions. Forward-looking statements are based on certain assumptions and can include future expectations, future plans and strategies, financial and operating projections and forecasts and other forward-looking information and estimates. These forward-looking statements are subject to various risks and uncertainties, many of which are beyond the Company's control, which could cause actual results to differ materially from such statements. These risks and uncertainties are described in greater detail in the Company's filings with the Securities and Exchange Commission, including, without limitation, the Company's Annual Report on Form 10-K for the year ended December 31, 2017 and in subsequent quarterly reports. Except as required by law, the Company disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

For further information about the Company's business and financial results, please refer to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" sections of the Company's SEC filings, including, but not limited to, its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, copies of which may be obtained at the Invest section of the Company's website at www.agreerealty.com.

All information in this press release is as of July 23, 2018. The Company undertakes no duty to update the statements in this press release to conform the statements to actual results or changes in the Company's expectations.

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SOURCE Agree Realty Corporation