UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996
OR
|_| Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _________ to _________
Commission File Number 1-12928
Agree Realty Corporation
_____________________________________________________________________________
(Exact name of registrant as specified in its charter)
Maryland 38-3148187
_____________________________________________________________________________
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
31850 Northwestern Highway, Farmington Hills, Michigan 48334
_____________________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, included area code: (810) 737-4190
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes No
|X| |_|
2,649,475 Shares of Common Stock, $.0001 par value,
were outstanding as of August 2, 1996
<PAGE>
<TABLE>
<CAPTION>
Agree Realty Corporation
Form 10-Q
Index
- ------------------------------------------------------------------------------
Part I: Financial Information Page
<S> <C>
Item 1. Financial Information 3
Consolidated Balance Sheets as of
June 30, 1996 and December 31, 1995. 4-5
Consolidated Statements of Operations for
the six months ended June 30, 1996 and 1995. 6
Consolidated Statements of Operations for
the three months ended June 30, 1996 and 1995. 7
Consolidated Statement of Stockholders' Equity for
the six months ended June 30, 1996. 8
Consolidated Statements of Cash Flows for
the six months ended June 30, 1996 and 1995. 9-10
Notes to Consolidated Financial Statements 11-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 13-18
<CAPTION>
Part II:Other Information
<S> <C>
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
</TABLE>
2
<PAGE>
Agree Realty Corporation
Part I
- ------------------------------------------------------------------------------
ITEM 1. FINANCIAL INFORMATION
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The information furnished in the accompanying consolidated balance sheets,
consolidated statements of operations, and consolidated statements of cash
flows reflect all adjustments which are, in the opinion of management,
necessary for a fair presentation of the aforementioned financial statements
for the interim periods. Operating results for the six months ended June 30,
1996, are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996.
The aforementioned consolidated financial statements should be read in
conjunction with the notes to the consolidated financial statements,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Agree Realty Corporation's Form 10-K for the year ended
December 31, 1995.
3
<PAGE>
Agree Realty Corporation
Consolidated Balance Sheets
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
(Unaudited) (Audited)
Assets
<S> <C> <C>
Real Estate Investments
Land $ 25,241,168 $ 23,224,377
Buildings 101,359,408 94,955,086
Property under development 826,621 180,805
-------------- -------------
127,427,197 118,360,268
Less accumulated depreciation (16,044,340) (14,792,193)
-------------- -------------
Net Real Estate Investments 111,382,857 103,568,075
Cash and Cash Equivalents 472,854 1,283,672
Accounts Receivable - Tenants 241,452 626,280
Restricted Asset - Cash Held in Escrow 290,129 259,204
Investments In and Advances To
Unconsolidated Entities 1,353,799 --
Unamortized Deferred Expenses
Financing costs 2,531,173 2,513,665
Leasing costs 157,019 140,026
Other Assets 749,152 537,487
-------------- -------------
$ 117,178,435 $ 108,928,409
============== =============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
Agree Realty Corporation
Consolidated Balance Sheets
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------- ------------
(Unaudited) (Audited)
Liabilities and Stockholders' Equity
<S> <C> <C>
Mortgages Payable $ 53,820,660 $ 53,970,525
Construction Loans 7,728,511 17,603,785
Notes Payable 22,550,026 1,977,808
Dividends and Distributions Payable 1,479,345 1,474,265
Accrued Interest Payable 333,472 189,256
Accounts Payable
Operating 337,964 596,913
Capital expenditures 165,852 1,637,861
Tenant Deposits 52,144 53,477
-------------- -------------
Total Liabilities 86,467,974 77,503,890
-------------- -------------
Minority Interest 5,946,420 6,118,017
-------------- -------------
Stockholders' Equity
Common stock, $.0001 par value,
20,000,000 shares authorized,
2,649,475 and 2,638,185 shares
issued and outstanding 265 264
Additional paid-in capital 30,060,908 29,890,292
Deficit (5,297,132) (4,584,054)
-------------- -------------
Total Stockholders' Equity 24,764,041 25,306,502
-------------- -------------
$ 117,178,435 $ 108,928,409
============== =============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
Agree Realty Corporation
Consolidated Statements of Operations (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995
---------------- ----------------
<S> <C> <C>
Revenues
Rental income $6,957,535 $5,877,472
Operating cost reimbursement 895,996 812,096
Management fees and other 39,580 37,681
---------- ----------
Total Revenues 7,893,111 6,727,249
---------- ----------
Operating Expenses
Real estate taxes 585,705 564,250
Property operating expenses 507,031 405,458
Land lease payments 113,083 28,000
General and administrative 541,872 462,303
Depreciation and amortization 1,286,850 1,145,634
---------- ----------
Total Operating Expenses 3,034,541 2,605,645
---------- ----------
Income From Operations 4,858,570 4,121,604
---------- ----------
Other Income (Expense)
Interest expense, net (2,935,603) (2,131,329)
Equity in net income of
unconsolidated entities 151,048 --
---------- ----------
Total Other Expense (2,784,555) (2,131,329)
---------- ----------
Income Before Minority Interest 2,074,015 1,990,275
Minority Interest (402,566) (387,507)
---------- ----------
Net Income $1,671,449 $1,602,768
========== ==========
Earnings Per Share $ 0.63 $ 0.61
========== ==========
Weighted Average Number of
Common Shares Outstanding 2,649,475 2,638,185
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
6
<PAGE>
Agree Realty Corporation
Consolidated Statements of Operations (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1996 June 30, 1995
----------------- -----------------
<S> <C> <C>
Revenues
Rental income $ 3,586,504 $ 2,918,753
Operating cost reimbursement 419,323 387,784
Management fees and other 19,720 17,579
------------ ------------
Total Revenues 4,025,547 3,324,116
------------ ------------
Operating Expenses
Real estate taxes 293,591 287,000
Property operating expenses 193,549 152,516
Land lease payments 99,083 14,000
General and administrative 273,031 229,817
Depreciation and amortization 654,221 573,623
------------ ------------
Total Operating Expenses 1,513,475 1,256,956
------------ ------------
Income From Operations 2,512,072 2,067,160
------------ ------------
Other Income (Expense)
Interest expense, net (1,535,389) (1,063,944)
Equity in net income of
unconsolidated entities 87,251 --
------------ ------------
Total Other Expense (1,448,138) (1,063,944)
------------ ------------
Income Before Minority Interest 1,063,934 1,003,216
Minority Interest (206,509) (195,326)
------------ ------------
Net Income $ 857,425 $ 807,890
============ ============
Earnings Per Share $ 0.32 $ 0.31
============ ============
Weighted Average Number of
Common Shares Outstanding 2,649,475 2,638,185
============ ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
7
<PAGE>
Agree Realty Corporation
Consolidated Statement of Stockholders' Equity (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
------------ Additional
Paid-In
Shares Amount Capital Deficit
------ ------ ---------- -------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 2,638,185 $ 264 $29,890,292 $(4,584,054)
Stock awards 11,290 1 170,616 --
Dividends declared for the period
January 1, 1996 to June 30, 1996,
$.90 per share -- -- -- (2,384,527)
Net income for the period
January 1, 1996 to June 30, 1996 -- -- -- 1,671,449
--------- ------ ----------- -----------
Balance, June 30, 1996 2,649,475 $ 265 $30,060,908 $(5,297,132)
========= ====== =========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
8
<PAGE>
Agree Realty Corporation
Consolidated Statements of Cash Flows (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995
---------------- ----------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 1,671,449 $ 1,602,768
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 1,240,056 1,097,149
Amortization 242,702 163,965
Minority interests 402,566 387,507
Decrease in accounts receivable 384,828 385,167
Increase in other assets (50,521) 303,792)
Decrease in accounts payable (258,949) (89,274)
Increase in accrued interest 144,216 16,180
Decrease in tenant deposits (1,332) (688)
------------ --------------
Net Cash Provided By Operating Activities 3,775,015 3,258,982
------------ --------------
Cash Flows Used In Investing Activities
Acquisition of real estate investments (including
capitalized interest of $40,496 in 1996
and $35,818 in 1995) (9,066,929) (5,292,650)
Investment in and advances to
unconsolidated entities (1,353,799) --
Proceeds from sale of marketable securities -- 300,188
------------ --------------
Net Cash Used In Investing Activities (10,420,728) (4,992,462)
------------ --------------
Cash Flows From Financing Activities
Line-of-credit proceeds 20,572,218 1,700,413
Payment of construction loans (9,875,274) --
Dividends and limited partners'
distributions paid (2,953,610) (2,948,529)
Repayment of payables - capital expenditures (1,472,009) --
Payments for financing costs (213,416) --
Payments of mortgages payable (149,865) (137,155)
Payments of leasing costs (42,224) --
Increase in escrow deposits (30,925) (36,960)
Increase in payables - capital expenditures -- 3,099,916
------------ --------------
Net Cash Provided By Financing Activities 5,834,895 1,677,685
------------ --------------
Net Decrease In Cash and Cash Equivalents (810,818) (55,795)
Cash and Cash Equivalents, beginning of period 1,283,672 1,659,406
------------ --------------
Cash and Cash Equivalent, end of period $ 472,854 $ 1,603,611
============ ==============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
9
<PAGE>
Agree Realty Corporation
Consolidated Statements of Cash Flows (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995
---------------- ----------------
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 2,648,118 $ 2,090,911
============= ==============
Supplemental Disclosure of Non-Cash Transactions
Dividends and limited partners' distributions
declared and unpaid $ 1,479,345 $ 1,474,265
Shares issued under Restricted Stock Plan $ 170,616 $ --
============= ==============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
10
<PAGE>
Agree Realty Corporation
Notes to Consolidated Financial Statements
(Unaudited)
- ------------------------------------------------------------------------------
1. Basis of
Presentation The accompanying unaudited 1996 consolidated financial
statements have been prepared in accordance with
generally accepted accounting principles for interim
financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the
information and footnotes required by generally
accepted accounting principles for complete financial
statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been
included. The consolidated balance sheet at December
31, 1995 has been derived from the audited
consolidated financial statements at that date.
Operating results for the six month period ended June
30, 1996 are not necessarily indicative of the results
that may be expected for the year ending December 31,
1996 or any other interim period. For further
information, refer to the consolidated financial
statements and footnotes thereto included in the
Company's Annual Report for the year ended December
31, 1995.
2. Summary of
Significant
Accounting
Policies Investments in Unconsolidated Entities
The Company uses the equity method of accounting for
investments in non-majority owned entities where the
Company has the ability to exercise significant
influence over operating and financial policies.
3. Investments in
and Advances
to
Unconsolidated
Entities During 1996, the Company acquired economic interests,
generally approximating 11-15%, in five limited
liability companies formed for the purpose of
acquiring, developing and operating properties located
in Ann Arbor, Michigan; Boynton Beach, Florida; Tulsa,
Oklahoma; Oklahoma City, Oklahoma; and Omaha,
Nebraska. The Company accounts for these investments
using the equity method of accounting, whereby its
initial investment is recorded at cost, and the
carrying amount of the investment is (a) increased by
the Company's share of the investees' earnings (as
defined in the limited liability company agreements),
and (b) reduced by distributions paid from the
investees to the Company.
11
<PAGE>
Agree Realty Corporation
Notes to Consolidated Financial Statements
(Unaudited)
- ------------------------------------------------------------------------------
Combined summarized balance sheet and income statement information for these
five unconsolidated entities is as follows:
<TABLE>
<CAPTION>
June 30, 1996
- ------------------------------------------------------------------------------
<S> <C>
Assets
Operating property $ 10,975,000
Property under development 6,945,000
-------------
Total Real Estate 17,920,000
Other Assets 1,871,000
-------------
$ 19,791,000
=============
Liabilities and Equity
Liabilities $ 146,000
Equity 19,645,000
-------------
$ 19,791,000
=============
<CAPTION>
Six Months Ended
June 30, 1996
- ------------------------------------------------------------------------------
<S> <C>
Rental revenues $ 419,000
Expenses --
-------------
Net Income $ 419,000
=============
</TABLE>
4. Lease
Commitments The Company has entered into certain land lease
agreements for three of its properties. As of June 30,
1996, approximate future annual lease commitments
under these agreements are as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
- ------------------------------------------------------------------------------
<S> <C>
1997 $ 446,000
1998 446,000
1999 446,000
2000 462,000
2001 485,000
Thereafter 6,849,000
</TABLE>
12
<PAGE>
Agree Realty Corporation
Part I
- ------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The following should be read in conjunction with the Unaudited Consolidated
Financial Statements of Agree Realty Corporation (the "Company") including the
respective note thereto, all of which are included in this Form 10-Q.
Formation of the Company and Initial Public Offering
Agree Realty Corporation was established to continue the business of the Agree
Predecessors in operating and expanding the community shopping center
business. The Company effectively commenced its operations on April 22, 1994
with the sale of 2,500,000 shares of common stock at a price of $19.50 per
share. The net cash proceeds to the Company from the completion of this
initial public offering was approximately $45.4 million which was used
primarily to reduce outstanding indebtedness, pay stock issuance costs and
establish a working capital reserve.
The assets of the Company are held by, and all operations conducted through
the Operating Partnership. The Company is operating as a real estate
investment trust ("REIT") for federal income tax purposes.
Comparison of Six Months Ended June 30, 1996 to Six Months Ended June 30, 1995
Rental income increased $1,080,000 or 18% to $6,958,000 in 1996, compared to
$5,878,000 in 1995. The increase was the result of $1,097,000 resulting from
the development and acquisition of six single tenant properties, and a
reduction of $17,000 relating to the Company's shopping center portfolio as a
result of releasing activities.
Operating cost reimbursements, which represent additional rent required by
substantially all of the Company's leases to cover the tenants' proportionate
share of the property's operating expenses, increased $84,000 or 10% to
$896,000 in 1996, compared to $812,000 in 1995. Operating cost reimbursements
increased due to the increase in real estate taxes and property operating
expenses from 1996 to 1995 as explained below.
13
<PAGE>
Agree Realty Corporation
Part I
- ------------------------------------------------------------------------------
Management fees and other income remained relatively constant at $40,000 in
1996 versus $38,000 in 1995.
Real estate taxes increased $22,000, or 4% to $586,000 in 1996 versus $564,000
in 1995. The increase is the result of general assessment increases relating
to the shopping center properties and the addition of one single tenant
property located in Monroeville, PA.
Property operating expenses (shopping center maintenance, insurance and
utilities) increased $101,000, or 25% to $507,000 in 1996 versus $406,000 in
1995. The increase was primarily the result of additional snow removal costs
($42,000) as a result of heavy snows in northern Michigan and Wisconsin, and
additional shopping center maintenance ($65,000); in addition, insurance costs
decreased $12,000 and utilities increased $6,000 in 1996 versus 1995.
Land lease payments increased $85,000 to $113,000 in 1996 versus $28,000 in
1995 as a result of the acquisition of a single tenant property in Aventura,
Florida.
General and administrative expenses increased $80,000, or 17% to $542,000 in
1996 versus $462,000 in 1995. The increase was primarily the result of
compensation related expenses ($27,000) and other general inflationary
increases. General and administrative expenses as a percentage of rental
income remained relatively constant at 7.8% for 1996 and 7.9% for 1995.
Depreciation and amortization increased $141,000 or 12% to $1,287,000 in 1996
versus $1,146,000 in 1995. The increase is the result of the development and
acquisition of six properties.
Interest expense increased $804,000 or 38%, to $2,935,000 in 1996, from
$2,131,000 in 1995. The increase in interest expense was the result of the
Company financing the development and acquisition of six properties.
Equity in net income of unconsolidated entities represents the Company's share
of the net income ($151,000) of five limited liability companies formed for
the purpose of acquiring, developing and operating properties. These entities
were not in existence for the period ended June 30, 1995.
The Company's income before minority interest increased $84,000 as a result of
the foregoing factors.
14
<PAGE>
Agree Realty Corporation
Part I
- ------------------------------------------------------------------------------
Comparison of Three Months Ended June 30, 1996 to Three Months Ended June 30,
1995
Rental income increased $668,000 or 23% to $3,587,000 in 1996, compared to
$2,919,000 in 1995. The increase was the result of $641,000 resulting from the
development and acquisition of six single tenant properties and an increase of
$27,000 as a result of increased occupancy of the Company's shopping centers
properties.
Operating cost reimbursements increased $32,000 or 8% to $419,000 in 1996,
compared to $387,000 in 1995. The increase was due to the increase in real
estate taxes and property operating expenses from 1996 to 1995 as explained
above.
Management fees and other income remained relatively constant at $20,000 in
1996 versus $18,000 in 1995.
Real estate taxes increased $7,000, or 2% to $294,000 in 1996 versus $287,000
in 1995. The increase is the result of general assessment increases relating
to the shopping center properties.
Property operating expense increased $41,000, or 27% to $194,000 in 1996
versus $153,000 in 1995. The increase was the result of an increase in
shopping center maintenance ($46,000) and a decrease in insurance costs
($5,000).
Land lease payments increased $85,000 to $99,000 in 1996 versus $14,000 in
1995 as a result of the acquisition of a single tenant property in Aventura,
Florida.
General and administrative expenses increased $43,000, or 19% to $273,000 in
1996 versus $230,000 in 1995. The increase was the result of compensation
related expenses ($18,000) and other general inflationary increases. General
and administrative expenses, as a percentage of rental income, decreased
slightly from 7.9% for 1995 and 7.6% for 1996.
Depreciation and amortization increased $81,000, or 14% to $654,000 in 1996
versus $573,000 in 1995. The increase is the result of the development and
acquisition of six properties.
Interest expense increased $471,000, or 44% to $1,535,000 in 1996, from
$1,064,000 in 1995. The increase was the result of the Company financing the
development and acquisition of six properties.
15
<PAGE>
Agree Realty Corporation
Part I
- ------------------------------------------------------------------------------
Equity in net income of unconsolidated entities represents the Company's share
of the net income ($87,000) of five joint ventures formed for the purpose of
acquiring and developing single tenant properties. These entities were not
formed for the period ended June 30, 1995.
The Company's income before minority interest increased $61,000 as a result of
the foregoing factors.
Liquidity and Capital Resources
The Company's principal demands for liquidity are expected to be distributions
to its stockholders, debt repayment, development of new properties, and future
property acquisitions.
During the quarter ended June 30, 1996, the Company declared a quarterly
dividend of $.45 per share. The dividend was paid on July 18, 1996 to holders
of record on June 28, 1996.
Historical funds from operations (revised definition) for the six months ended
June 30, 1996 increased to $3,397,000 or $1.03 per share from $3,156,000 or
$.96 per share for the same period in 1995, due primarily to the development
and acquisition of additional single tenant properties.
As of June 30, 1996, the Company had total mortgage indebtedness of
$53,820,660 with a weighted average interest rate of 7.62%. Future scheduled
annual maturities of mortgages payable for the years ended June 30, are as
follows: 1997 - $317,393; 1998 - $403,195; 1999 - $10,436,571; 2000 -
$933,708; 2001 - $1,007,665. The debt is all fixed rate debt with the
exception of $2,375,000 which bears interest at one half percent over the
prime rate.
The Company has in place a $50 million line-of-credit facility (the "Credit
Facility") which is guaranteed by the Company. The loan is for a three year
period and can be extended by the Company for an additional three years.
Advances under the Credit Facility bear interest within a range of LIBOR plus
200 basis points to 263 basis points or the bank's prime rate plus 37 basis
points to 75 basis points, at the option of the Company, based on certain
factors such as debt to capital value and debt service coverage. The Credit
Facility will be used to fund property acquisitions and development
acquisitions and development activities and is secured by existing
unencumbered properties and properties to be acquired or developed. As of June
30, 1996, $18,563,761 was outstanding under this facility.
16
<PAGE>
Agree Realty Corporation
Part I
- ------------------------------------------------------------------------------
The Company also has in place a $5 million dollar line-of-credit. The line
bears interest at the bank's prime rate or 225 basis points in excess of the
one month LIBOR rate at the option of the Company. The purpose of the loan is
to provide working to the Company and fund land options and start-up costs
associated with new projects. As of June 30, 1996, $3,986,265 is outstanding
under this line.
The Company has entered into an agreement to fund the construction of certain
Single Tenant retail properties. Advances under this agreement bear no
interest and are required to be repaid within sixty (60) days after the date
construction has been completed. The advances are secured by the specific land
and buildings being developed. As of June 30, 1996 $7,728,511 was outstanding
under this agreement.
The Company has development activity under way which will add an additional
87,000 square feet of retail space to the Company's portfolio during 1996.
Management expects the development and acquisition of these retail projects to
have a positive effect on cash generated by operating activities and Funds
From Operations. Additional Company funding required for these projects is
estimated to be $5 million and will come from the Credit Facility.
The Company intends to meet its short-term liquidity requirements, including
capital expenditures related to the leasing and improvement of the properties,
through its cash flow provided by operations and the line-of-credit
arrangement. Management believes that adequate cash flow will be available to
fund its operations and pay dividends in accordance with REIT requirements.
The Company may obtain additional funds for future development or acquisitions
through other borrowings or the issuance of additional shares of common stock.
The Company intends to incur additional debt in a manner consistent with its
policy of maintaining a long-term debt to total market capitalization ratio of
50% or less, provided that during the period when temporary construction or
acquisition financing is used in connection with the development or
acquisition of a property, the Company intends to maintain a ratio of total
debt (including construction an acquisition financing) to total market
capitalization of 65% or less.
Kmart Corporation is the Company's largest tenant in terms of both GLA and
base rental revenue. As of December 31, 1995, the Company's 15 leases with
Kmart represented approximately 51% of its GLA, 39% of its average annual base
rental income and 52% of the Company's future minimum rentals. Kmart has
experienced declining earnings in recent periods, and has announced plans to
eliminate a significant number of jobs and close over 175 of its existing
stores (none of which were leased from the Company).
17
<PAGE>
Agree Realty Corporation
Part I
- ------------------------------------------------------------------------------
In January of 1996, Standard and Poor's (S&P) downgraded Kmart's senior debt
rating to "BB" from "BBB". Leases with Kmart generally provide that it may
cease to occupy the property, although it remains liable for payment of all
future base rental and recoveries under the relevant lease. The Company is not
aware of any plans by Kmart to vacate a property; however, should Kmart
abandon a property, although it would remain liable for its lease payments,
such an action would result in other tenants having the right to terminate
their leases at the affected property.
Inflation
The Company's leases generally contain provisions designed to mitigate the
adverse impact of inflation on net income. These provisions include clauses
enabling the Company to pass through to tenants certain operating costs,
including real estate taxes, common area maintenance, utilities and insurance,
thereby reducing the Company's exposure to increases in costs and operating
expenses resulting from inflation. Certain of the Company's leases contain
clauses enabling the Company to receive percentage rents based on tenants'
gross sales, which generally increase as prices rise, and, in certain cases,
escalation clauses, which generally increase rental rates during the terms of
the leases. In addition, expiring tenant leases permit the Company to seek
increased rents upon re-lease at market rates if rents are below the then
existing market rates.
18
<PAGE>
Agree Realty Corporation
Part II
- ------------------------------------------------------------------------------
Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On May 13, 1996, the Company held its Annual Meeting of Shareholders.
The following were the results of the meeting:
The shareholders elected Richard Agree and Michael Rotchford as
Directors until the annual meeting of shareholders in 1999 or until a
successor is elected and qualified.
The vote was as follows:
<TABLE>
<CAPTION>
<S> <C>
Richard Agree
Votes cast for 2,469,210
Votes withheld 5,860
Abstained 178,104
Michael Rotchford
Votes cast for 2,470,370
Votes withheld 4,700
Abstained 178,104
</TABLE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
19
<PAGE>
Agree Realty Corporation
Signatures
- ------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has fully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Agree Realty Corporation
/s/ RICHARD AGREE
- ---------------------------------------
Richard Agree
President and Chief Executive Officer
/s/ KENNETH R. HOWE
- ---------------------------------------
Kenneth R. Howe
Vice President - Finance and Secretary
(Principal Financial Officer)
Date: August 2, 1996
20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> $ 472,854
<SECURITIES> 0
<RECEIVABLES> 241,452
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 127,427,197
<DEPRECIATION> 16,044,340
<TOTAL-ASSETS> 117,178,435
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 117,178,435
<SALES> 0
<TOTAL-REVENUES> 7,893,111
<CGS> 0
<TOTAL-COSTS> 3,034,541
<OTHER-EXPENSES> 2,784,555
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,671,449
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.00
</TABLE>
