Agree Realty Corporation Reports Fourth Quarter And Record Full Year 2020 Results

BLOOMFIELD HILLS, Mich., Feb. 18, 2021 /PRNewswire/ -- Agree Realty Corporation (NYSE: ADC) (the "Company") today announced results for the quarter and full year ended December 31, 2020.  All per share amounts included herein are on a diluted per common share basis unless otherwise stated.

(PRNewsfoto/Agree Realty Corporation)

Fourth Quarter 2020 Financial and Operating Highlights:

  • Invested $363.3 million in 106 retail net lease properties
  • 19.4% of annualized base rents acquired were derived from ground leased assets
  • Commenced two new development and Partner Capital Solutions ("PCS") projects
  • Net Income per share attributable to the Company decreased 19.6% to $0.42
  • Net Income attributable to the Company increased 4.7% to $23.6 million
  • Increased Core Funds from Operations ("Core FFO") per share 3.8% to $0.84
  • Increased Core FFO 35.1% to $47.3 million
  • Increased Adjusted Funds from Operations ("AFFO") per share 4.8% to $0.83
  • Increased AFFO 36.4% to $47.1 million
  • Declared a quarterly dividend of $0.620 per share, a 6.0% year-over-year increase
  • Sold 1,501,210 shares of common stock via the forward component of the Company's at-the-market equity ("ATM") program for anticipated net proceeds of approximately $98.2 million
  • Settled the remaining 4,651,666 shares of the Company's outstanding April 2020 forward equity offering for net proceeds of approximately $266.7 million

Full Year 2020 Financial and Operating Highlights:

  • Invested or committed a record $1.36 billion in 329 retail net lease properties
  • Completed nine development and PCS projects
  • Net Income per share attributable to the Company decreased 10.1% to $1.74
  • Net Income attributable to the Company increased 14.1% to $91.4 million
  • Increased Core FFO per share 4.8% to $3.23
  • Increased Core FFO 33.0% to $170.2 million
  • Increased AFFO per share 6.0% to $3.20
  • Increased AFFO 34.4% to $168.8 million
  • Declared dividends of $2.405 per share, a 5.5% year-over-year increase
  • Received a BBB investment grade credit rating from S&P Global Ratings
  • Completed inaugural public bond offering of $350.0 million of 2.90% senior unsecured notes due 2030
  • Balance sheet positioned for growth at 4.8 times net debt to recurring EBITDA

Financial Results

Net Income

Net Income attributable to the Company for the three months ended December 31, 2020 increased 4.7% to $23.6 million, compared to $22.6 million for the comparable period in 2019. Net Income per share attributable to the Company for the three months ended December 31, 2020 decreased 19.6% to $0.42, compared to $0.52 per share for the comparable period in 2019.

Net Income attributable to the Company for the twelve months ended December 31, 2020 increased 14.1% to $91.4 million, compared to $80.1 million for the comparable period in 2019.  Net Income per share attributable to the Company for the twelve months ended December 31, 2020 decreased 10.1% to $1.74, compared to $1.93 per share for the comparable period in 2019.

Core Funds from Operations

Core FFO for the three months ended December 31, 2020 increased 35.1% to $47.3 million, compared to Core FFO of $35.0 million for the comparable period in 2019. Core FFO per share for the three months ended December 31, 2020 increased 3.8% to $0.84, compared to Core FFO per share of $0.81 for the comparable period in 2019.

Core FFO for the twelve months ended December 31, 2020 increased 33.0% to $170.2 million, compared to Core FFO of $128.0 million for the comparable period in 2019.  Core FFO per share for the twelve months ended December 31, 2020 increased 4.8% to $3.23, compared to Core FFO per share of $3.08 for the comparable period in 2019.

Adjusted Funds from Operations

AFFO for the three months ended December 31, 2020 increased 36.4% to $47.1 million, compared to AFFO of $34.5 million for the comparable period in 2019.  AFFO per share for the three months ended December 31, 2020 increased 4.8% to $0.83, compared to AFFO per share of $0.80 for the comparable period in 2019.

AFFO for the twelve months ended December 31, 2020 increased 34.4% to $168.8 million, compared to AFFO of $125.5 million for the comparable period in 2019.  AFFO per share for the twelve months ended December 31, 2020 increased 6.0% to $3.20, compared to AFFO per share of $3.02 for the comparable period in 2019.

Dividend

The Company paid a cash dividend of $0.620 per share on January 6, 2021 to stockholders of record on December 23, 2020, a 6.0% increase over the $0.585 quarterly dividend declared in the fourth quarter of 2019.  The quarterly dividend represents payout ratios of approximately 74% of both Core FFO per share and AFFO per share, respectively.

For the twelve months ended December 31, 2020, the Company declared dividends of $2.405 per share, a 5.5% increase over the dividends of $2.280 per share declared for the comparable period in 2019. The dividends represent payout ratios of approximately 75% of both Core FFO per share and AFFO per share, respectively.

In January 2021, the Company announced the transition to a monthly cash dividend and declared its inaugural monthly dividend of $0.207 per share. The dividend was paid on February 12, 2021 to stockholders of record at the close of business on January 29, 2021.

In February 2021, the Company declared a monthly cash dividend of $0.207 per share. The dividend is payable March 12, 2021 to stockholders of record at the close of business on February 26, 2021. The January and February monthly dividends reflect an annualized dividend amount of $2.484 per common share, representing a 6.2% increase over the annualized dividend amount of $2.340 per common share from the first quarter of 2020.

CEO Comments

"We are extremely pleased with our record performance in 2020 amidst the most difficult of circumstances," said Joey Agree, President and Chief Executive Officer. "We are poised to become an omni-channel retail thought leader with our RETHINK RETAIL initiative and have strategically positioned our portfolio to thrive in any environment. Our Team and our balance sheet remain positioned for 2021."

Portfolio Update

As of December 31, 2020, the Company's growing portfolio consisted of 1,129 properties located in 46 states and totaled approximately 22.7 million square feet of gross leasable area.

The portfolio was approximately 99.5% leased, had a weighted-average remaining lease term of approximately 9.7 years, and generated 67.5% of annualized base rents from investment grade retail tenants.

COVID-19 Rental Payment Update

The Company has received second, third, and fourth quarter rent payments originally contracted for those quarters from 95%, 98% and 99% of its portfolio, respectively. The Company has also entered into deferral agreements representing 2%, 2% and less than 1% of second, third and fourth quarter rents, respectively, net of repayments received.

Ground Lease Portfolio

During the quarter, the Company acquired 16 ground leased assets for an aggregate purchase price of approximately $78.7 million, representing 19.4% of annualized base rents acquired.

As of December 31, 2020, the Company's ground lease portfolio consisted of 89 leases located in 27 states and totaled approximately 3.1 million square feet of gross leasable area. Properties ground leased to tenants increased to 9.6% of annualized base rents.

At year end, the ground lease portfolio was fully occupied, had a weighted-average remaining lease term of approximately 11.9 years, and generated 92.3% of annualized base rents from investment grade retail tenants.

Acquisitions

Total acquisition volume for the fourth quarter of 2020 was approximately $355.6 million and included 100 properties net leased to leading retailers operating in sectors including off-price retail, home improvement, auto parts, general merchandise, dollar stores, convenience stores, farm and rural supply, grocery stores and tire and auto service.  The properties are located in 33 states and leased to tenants operating in 18 sectors. 

The properties were acquired at a weighted-average capitalization rate of 6.4% and had a weighted-average remaining lease term of approximately 11.6 years. Approximately 83.5% of annualized base rents acquired were generated from investment grade retail tenants.

For the twelve months ended December 31, 2020, total acquisition volume was approximately $1.31 billion.  The 317 acquired properties are located in 39 states and leased to 45 tenants who operate in 20 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 11.3 years. Approximately 83.6% of annualized base rents were generated from investment grade retail tenants. Approximately 12.2% of annualized base rents acquired were derived from ground leased assets.

The Company's outlook for acquisition volume in 2021, which includes several significant assumptions, remains between $800 million and $1.0 billion of high-quality retail net lease properties.

Dispositions

During the fourth quarter, the Company sold one property for gross proceeds of approximately $1.8 million. The disposition was completed at a capitalization rate of 7.2%. During the twelve months ended December 31, 2020, the Company divested 17 properties for total gross proceeds of $49.4 million. The weighted-average capitalization rate of the dispositions was 7.1%.

The Company's disposition guidance for 2021 remains between $25 million and $75 million.

Development and Partner Capital Solutions  

In the fourth quarter, the Company completed three previously announced development and PCS projects, including the Company's second development with Harbor Freight Tools in Weslaco, Texas, and the Company's first development projects with O'Reilly Auto Parts and Tire Discounters.

During the quarter, the Company commenced two new development and PCS projects, with total anticipated costs of approximately $6.2 million. The projects consist of a Burlington in Texarkana, Texas, and a Gerber Collision in Buford, Georgia.

Construction continued during the fourth quarter on the Company's first development with Grocery Outlet in Port Angeles, Washington, which is expected to be completed in the second quarter of 2021.

For the twelve months ended December 31, 2020, the Company had 12 development or PCS projects completed or under construction. Anticipated total costs are approximately $43.2 million and include the following projects:

Tenant


Location


Lease

Structure


Lease

Term


Actual or

Anticipated 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


Complete

O'Reilly Auto Parts


Mayflower, AR


Build-to-Suit


10 years


Q4 2020


Complete

Tire Discounters


Westerville, OH


Build-to-Suit


15 Years


Q4 2020


Complete

Grocery Outlet


Port Angeles, WA


Build-to-Suit


15 years


Q2 2021


Under Construction

Burlington


Texarkana, TX


Build-to-Suit


11 years


Q2 2021


Under Construction

Gerber Collision


Buford, GA


Build-to-Suit


15 years


Q2 2021


Under Construction

Leasing Activity and Expirations

During the fourth quarter, the Company executed new leases, extensions or options on approximately 83,000 square feet of gross leasable area.

For the twelve months ended December 31, 2020, the Company executed new leases, extensions or options on approximately 518,000 square feet of gross leasable area. Notable new leases, extensions or options included new twenty-year leases on three Wawa convenience stores located in the Mid-Atlantic, an approximately 44,000-square foot Dick's Sporting Goods in Boynton Beach, Florida, and an approximately 38,000-square foot Giant Eagle in Ligonier, Pennsylvania.

As of December 31, 2020, the Company's 2021 lease maturities represented 0.9% of annualized base rents. The following table presents contractual lease expirations within the Company's portfolio as of December 31, 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











2021

16


2,594


0.9%


163


0.7%

2022

19


3,726


1.3%


344


1.5%

2023

42


8,236


2.9%


942


4.2%

2024

41


14,195


4.9%


1,623


7.2%

2025

64


15,410


5.4%


1,509


6.7%

2026

82


16,280


5.7%


1,589


7.0%

2027

81


17,989


6.3%


1,375


6.1%

2028

84


20,566


7.2%


1,797


8.0%

2029

110


32,814


11.4%


2,913


12.9%

2030

185


33,624


11.7%


2,661


11.8%

Thereafter

492


122,000


42.3%


7,647


33.9%

Total Portfolio

1,216


$287,434


100.0%


22,563


100.0%




The contractual lease expirations presented above exclude the effect of replacement tenant leases that had been executed as of December 31, 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 December 31, 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 Wawa to its top tenants during the fourth quarter of 2020. 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 December 31, 2020:

Tenant


Annualized
Base Rent(1)


 Percent of
Annualized Base Rent






Walmart


$21,089


7.3%

Dollar General


12,545


4.4%

Tractor Supply


12,457


4.3%

Best Buy


10,493


3.7%

TJX Companies


10,450


3.6%

Sherwin-Williams


10,077


3.5%

O'Reilly Auto Parts


9,411


3.3%

Hobby Lobby


7,631


2.7%

TBC Corporation


6,948


2.4%

Lowe's


6,901


2.4%

Home Depot


6,841


2.4%

Walgreens


6,594


2.3%

Burlington


6,526


2.3%

CVS


6,421


2.2%

Dollar Tree


6,216


2.2%

Kroger


5,919


2.1%

Wawa


5,536


1.9%

AutoZone


5,268


1.8%

LA Fitness


5,091


1.8%

Sunbelt Rentals


4,992


1.7%

Other(2)


120,028


41.7%

Total Portfolio


$287,434


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 December 31, 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 December 31, 2020:

Sector


Annualized
Base Rent(1)


Percent of
Annualized
Base Rent

Q4 2020 Rent
Payments
Received(2)







Home Improvement


$28,208


9.8%

100%

Grocery Stores


23,794


8.3%

100%

Tire and Auto Service


23,257


8.1%

100%

General Merchandise


20,958


7.3%

100%

Convenience Stores


19,904


6.9%

100%

Off-Price Retail


19,188


6.7%

100%

Auto Parts


17,882


6.2%

100%

Dollar Stores


17,552


6.1%

100%

Pharmacy


13,835


4.8%

100%

Farm and Rural Supply


13,408


4.7%

100%

Consumer Electronics


12,051


4.2%

100%

Crafts and Novelties


9,835


3.4%

100%

Health and Fitness


7,077


2.5%

97%

Home Furnishings


5,485


1.9%

100%

Restaurants - Quick Service


5,363


1.9%

99%

Equipment Rental


5,318


1.9%

100%

Health Services


5,271


1.8%

100%

Warehouse Clubs


4,988


1.7%

100%

Specialty Retail


4,862


1.7%

94%

Dealerships


4,820


1.7%

100%

Discount Stores


4,565


1.6%

99%

Theaters


3,854


1.3%

76%

Entertainment Retail


3,117


1.1%

100%

Pet Supplies


2,597


0.9%

100%

Restaurants - Casual Dining


2,314


0.8%

89%

Sporting Goods


2,020


0.7%

100%

Financial Services


2,001


0.7%

100%

Apparel


1,260


0.4%

99%

Shoes


1,019


0.4%

83%

Beauty and Cosmetics


878


0.3%

100%

Office Supplies


659


0.2%

100%

Miscellaneous


94


0.0%

99%

Total Portfolio


$287,434


100.0%

99%




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 December 31, 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 temporary 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 December 31, 2020:

State


Annualized
Base Rent(1)


Percent of
Annualized Base Rent






Texas


$22,207


7.7%

Michigan


19,447


6.8%

North Carolina


16,296


5.7%

Ohio


16,231


5.6%

Florida


15,457


5.4%

Illinois


14,521


5.1%

Pennsylvania


12,053


4.2%

New Jersey


11,145


3.9%

Georgia


10,717


3.7%

California


10,577


3.7%

New York


9,437


3.3%

Wisconsin


9,283


3.2%

Virginia


8,397


2.9%

Missouri


8,177


2.8%

Mississippi


7,404


2.6%

Louisiana


7,304


2.5%

Other(2)


88,781


30.9%

Total Portfolio


$287,434


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 2020, the Company executed numerous capital markets transactions to fund strategic growth and maintain a fortified balance sheet:

  • On March 30, 2020, the Company settled 1,400,251 shares under forward sale agreements entered into through its ATM program and received net proceeds of approximately $104.6 million.
  • On April 2, 2020, the Company completed a follow-on public offering of 2,875,000 shares of common stock, including the underwriters' overallotment option, at a public offering price of $61.00 per share. Upon closing, the Company received net proceeds of approximately $170.4 million.
  • On April 22, 2020, the Company settled 3,976,695 shares under forward sale agreements entered into through its ATM program and received net proceeds of approximately $267.4 million.
  • On April 22, 2020, the Company closed an underwritten public offering of 6,166,666 shares of its common stock (the "April 2020 Forward Offering") in connection with a forward sale agreement in which the shares were sold to Cohen & Steers Capital Management, Inc. at a price of $60.00 per share.
  • During the second quarter of 2020, the Company entered into forward sale agreements in connection with its ATM program to sell an aggregate of 742,860 shares of common stock at a weighted-average gross price of $66.61 per share.
  • 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.
  • During the third quarter of 2020, the Company entered into forward sale agreements in connection with its ATM program to sell an aggregate of 885,912 shares of common stock at a weighted-average gross price of $67.47 per share.
  • On September 28, 2020, the Company settled 1,515,000 shares under the April 2020 Forward Offering and received net proceeds of approximately $88.0 million.
  • During the fourth quarter of 2020, the Company entered into forward sale agreements in connection with its ATM program to sell an aggregate of 1,501,210 shares of common stock at a weighted-average gross price of $66.85 per share.
  • On December 28, 2020, the Company settled the remaining 4,651,666 shares under the April 2020 Forward Offering and received net proceeds of approximately $266.7 million.

In January 2021, Company completed a follow-on public offering of 3,450,000 shares of common stock, including the underwriters' option to purchase additional shares. Upon closing, the Company received total net proceeds of approximately $221.6 million.

At year end, the Company had 3,129,982 shares remaining to be settled under existing forward sale agreements, which are anticipated to raise net proceeds of approximately $203.2 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 December 31, 2020:

Forward Equity Offerings

 Shares

Sold


 Shares

Settled


 Shares

Remaining


 Net

Proceeds

Received


 Anticipated

Net

Proceeds

Remaining











Q2 2020 ATM Forward Offerings

742,860


-


742,860


-


$47,255,448

Q3 2020 ATM Forward Offerings

885,912


-


885,912


-


$57,737,161

Q4 2020 ATM Forward Offerings

1,501,210


-


1,501,210


-


$98,218,182

Total Forward Equity Offerings

3,129,982


-


3,129,982


-


$203,210,791

Balance Sheet

As of December 31, 2020, the Company's net debt to recurring EBITDA was 4.8 times and its fixed charge coverage ratio was 4.8 times. The Company's proforma net debt to recurring EBITDA was 4.0 times when deducting the $203.2 million of anticipated net proceeds from the outstanding forward equity offerings from the Company's net debt of $1.2 billion as of December 31, 2020.

The Company's total debt to enterprise value was 23.4% as of December 31, 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 twelve months ended December 31, 2020, the Company's fully diluted weighted-average shares outstanding were 56.1 million and 52.4 million, respectively. The basic weighted-average shares outstanding for the three and twelve months ended December 31, 2020 were 55.4 million and 51.8 million, respectively.

For the three and twelve months ended December 31, 2020, the Company's fully diluted weighted-average shares and units outstanding were 56.4 million and 52.7 million, respectively. The basic weighted-average shares and units outstanding for the three and twelve months ended December 31, 2020 were 55.7 million and 52.2 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 December 31, 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 Friday, February 19, 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 primarily engaged in the acquisition and development of properties net leased to industry-leading retail tenants.  As of December 31, 2020, the Company owned and operated a portfolio of 1,129 properties, located in 46 states and containing approximately 22.7 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, 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.

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)


December 31, 2020


December 31, 2019

Assets:




Real Estate Investments:




Land  

$              1,094,550


$                 735,991

Buildings

2,371,553


1,600,293

Accumulated depreciation

(172,577)


(127,748)

Property under development 

10,653


10,056

Net real estate investments

3,304,179


2,218,592

Real estate held for sale, net

1,199


3,750

Cash and cash equivalents

6,137


15,603

Cash held in escrows

1,818


26,554

Accounts receivable - tenants

37,808


26,808

Lease intangibles, net of accumulated amortization of $125,995 and $89,118 at December 31, 2020 and December 31, 2019, respectively

473,592


343,514

Other assets, net

61,450


29,709

Total Assets

$              3,886,183


$              2,664,530





Liabilities:




Mortgage notes payable, net

$                   33,122


$                   36,698

Unsecured term loans, net

237,849


237,403

Senior unsecured notes, net

855,328


509,198

Unsecured revolving credit facility

92,000


89,000

Dividends and distributions payable

34,545


25,014

Accounts payable, accrued expenses and other liabilities

71,390


48,987

Lease intangibles, net of accumulated amortization of $24,651 and $19,307 at December 31, 2020 and December 31, 2019, respectively

35,700


26,668

Total Liabilities

$              1,359,934


$                 972,968





Equity:




Common stock, $.0001 par value, 90,000,000 shares authorized, 60,021,483 and 45,573,623 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively

$                            6


$                            5

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

-


-

Additional paid-in capital

2,652,090


1,752,912

Dividends in excess of net income

(91,343)


(57,094)

Accumulated other comprehensive income (loss)

(36,266)


(6,492)

Total Equity - Agree Realty Corporation

$              2,524,487


$              1,689,331

Non-controlling interest

1,762


2,231

Total Equity

$              2,526,249


$              1,691,562

Total Liabilities and Equity

$              3,886,183


$              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
December 31,


Twelve months ended
December 31,


2020


2019


2020


2019

Revenues








Rental Income

$      71,349


$      52,039


$    248,309


$    187,279

Other

65


96


259


199

Total Revenues

$      71,414


$      52,135


$    248,568


$    187,478









Operating Expenses








Real estate taxes

$        6,370


$        4,504


$      21,428


$      15,520

Property operating expenses

2,720


1,916


9,023


6,749

Land lease expense

325


320


1,301


1,242

General and administrative

6,793


3,820


20,793


15,566

Depreciation and amortization

19,691


13,106


66,758


45,703

Provision for impairment

141


-


4,137


1,609

Total Operating Expenses

$      36,040


$      23,666


$    123,440


$      86,389









Income from Operations

$      35,374


$      28,469


$    125,128


$    101,089









Other (Expense) Income








Interest expense, net

$    (11,791)


$      (9,730)


$    (40,097)


$    (33,094)

Gain (loss) on sale of assets, net

437


4,333


8,004


13,306

Income tax (expense) benefit

(260)


(328)


(1,086)


(538)

Other (expense) income

-


-


23


-









Net Income

$      23,760


$      22,744


$      91,972


$      80,763









Less Net Income Attributable to Non-Controlling Interest

147


185


591


682









Net Income Attributable to Agree Realty Corporation

$      23,613


$      22,559


$      91,381


$      80,081









Net Income Per Share Attributable to Agree Realty Corporation








Basic

$          0.43


$          0.53


$          1.76


$          1.96

Diluted

$          0.42


$          0.52


$          1.74


$          1.93

















Other Comprehensive Income








Net Income

$      23,760


$      22,744


$      91,972


$      80,763

Other comprehensive income (loss) - change in fair value and settlement of interest rate swaps

3,888


5,828


(29,996)


(7,987)

Total Comprehensive Income (Loss)

27,648


28,572


61,976


72,776

Comprehensive Income Attributable to Non-Controlling Interest

(182)


(502)


(369)


(611)

Comprehensive Income Attributable to Agree Realty Corporation

$      27,466


$      28,070


$      61,607


$      72,165









Weighted Average Number of Common Shares Outstanding - Basic

55,397,190


42,287,660


51,838,219


40,577,346

Weighted Average Number of Common Shares Outstanding - Diluted

56,063,758


42,996,318


52,396,734


41,223,614

 

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
December 31,


Twelve months ended
December 31,


2020


2019


2020


2019









Net Income

$      23,760


$      22,744


$      91,972


$      80,763

Depreciation of rental real estate assets

13,980


9,563


48,367


34,349

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

5,567


3,453


17,882


11,071

Provision for impairment

141


-


4,137


1,609

(Gain) loss on sale of assets, net

(437)


(4,333)


(8,004)


(13,306)

Funds from Operations

$      43,011


$      31,427


$    154,354


$    114,486

Amortization of above (below) market lease intangibles, net

4,333


3,618


15,885


13,501

Core Funds from Operations

$      47,344


$      35,045


$    170,239


$    127,987

Straight-line accrued rent

(2,204)


(1,928)


(7,818)


(7,093)

Deferred tax expense (benefit)

-


-


-


(475)

Stock based compensation expense

1,524


1,134


4,995


4,106

Amortization of financing costs

266


165


826


706

Non-real estate depreciation

144


89


509


283

Adjusted Funds from Operations

$      47,074


$      34,505


$    168,751


$    125,514









Funds from Operations Per Share - Basic

$          0.77


$          0.74


$          2.96


$          2.80

Funds from Operations Per Share - Diluted

$          0.76


$          0.73


$          2.93


$          2.75









Core Funds from Operations Per Share - Basic

$          0.85


$          0.82


$          3.26


$          3.13

Core Funds from Operations Per Share - Diluted

$          0.84


$          0.81


$          3.23


$          3.08









Adjusted Funds from Operations Per Share - Basic

$          0.84


$          0.81


$          3.23


$          3.07

Adjusted Funds from Operations Per Share - Diluted

$          0.83


$          0.80


$          3.20


$          3.02









Weighted Average Number of Common Shares and Units Outstanding - Basic

55,744,809


42,635,279


52,185,838


40,924,965

Weighted Average Number of Common Shares and Units Outstanding - Diluted

56,411,377


43,343,937


52,744,353


41,571,233

















Additional supplemental disclosure








Scheduled principal repayments

$           208


$           251


$           907


$        2,401

Capitalized interest

63


89


172


410

Capitalized building improvements

2,333


1,251


5,581


2,451

Contractual rents subject to deferral(1)

263


-


2,133


-

Uncollected contractual rents not subject to deferral(1)

89


-


2,069


-


(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
December 31,


2020



Net Income

$                       23,760

Interest expense, net

11,791

Income tax expense

260

Depreciation of rental real estate assets

13,980

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

5,567

Non-real estate depreciation

144

Provision for impairment

141

(Gain) loss on sale of assets, net

(437)

EBITDAre

$                       55,206



Run-Rate Impact of Investment, Disposition and Leasing Activity

$                         3,973

Amortization of above (below) market lease intangibles, net

4,333

Recurring EBITDA

$                       63,512



Annualized Recurring EBITDA

$                     254,048



Total Debt

$                  1,225,433

Cash, cash equivalents and cash held in escrows

(7,955)

Net Debt

$                  1,217,478



Net Debt to Recurring EBITDA

4.8x



Net Debt

$                  1,217,478

Anticipated Net Proceeds from ATM Forward Offerings 

(203,211)

Proforma Net Debt

$                  1,014,267



Proforma Net Debt to Recurring EBITDA

4.0x


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 3,129,982 shares remaining to be settled under the ATM Forward Offerings. Upon settlement, the offerings are anticipated to raise net proceeds of approximately $203.2 million based on the applicable forward sale prices as of December 31, 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 December 2021.

 

Agree Realty Corporation

Rental Income

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

(Unaudited)










Three months ended
December 31,


Twelve months ended
December 31,


2020


2019


2020


2019

Rental Income Source(1)








Minimum rents(2)

$ 65,333


$ 47,759


$ 228,122


$ 172,548

Percentage rents(2)

-


50


249


336

Operating cost reimbursement(2)

8,145


5,920


28,005


20,803

Straight-line rental adjustments(3)

2,204


1,928


7,818


7,093

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

(4,333)


(3,618)


(15,885)


(13,501)

Total Rental Income

$ 71,349


$ 52,039


$ 248,309


$ 187,279


(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

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