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, 1997
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
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(Exact name of registrant as specified in its charter)
Maryland 38-3148187
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
31850 Northwestern Highway, Farmington Hills, Michigan 48334
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(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| |_|
4,332,280 Shares of Common Stock, $.0001 par value, were outstanding as of
August 1, 1997
<TABLE>
<CAPTION>
Agree Realty Corporation
Form 10-Q
Index
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<S> <C> <C>
Part I: Financial Information Page
Item 1. Interim Consolidated Financial Statements 3
Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996. 4-5
Consolidated Statements of Operations for the
six months ended June 30, 1997 and 1996. 6
Consolidated Statements of Operations for the
three months ended June 30, 1997 and 1996. 7
Consolidated Statement of Stockholders' Equity for
the six months ended June 30, 1997. 8
Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996. 9
Notes to Consolidated Financial Statements 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 11-17
Part II: Other Information
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
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: Financial Information
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ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
<TABLE>
<CAPTION>
Agree Realty Corporation
Consolidated Balance Sheets (Unaudited)
- -----------------------------------------------------------------------------
June 30, December 31,
1997 1996
-------- ------------
<S> <C> <C>
Assets
Real Estate Investments
Land $ 26,109,676 $ 25,183,667
Buildings 107,629,125 107,204,583
Property under development 193,805 85,993
------------- -------------
133,932,606 132,474,243
Less accumulated depreciation (18,688,534) (17,339,353)
------------- -------------
Net Real Estate Investments 115,244,072 115,134,890
Cash and Cash Equivalents 1,920,205 294,389
Accounts Receivable - Tenants 223,701 638,735
Restricted Asset - Cash Held in Escrow 297,939 266,771
Investments In and Advances To Unconsolidated Entities 2,217,164 1,820,605
Unamortized Deferred Expenses
Financing costs 2,211,861 2,398,377
Leasing costs 140,646 141,757
Other Assets 1,291,807 686,346
------------- -------------
$ 123,547,395 $ 121,381,870
============= =============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Agree Realty Corporation
Consolidated Balance Sheets (Unaudited)
- -----------------------------------------------------------------------------
June 30, December 31,
1997 1996
-------- ------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Mortgages Payable $ 53,489,485 $ 53,663,999
Construction Loans 1,701,406 10,616,936
Note Payable 3,235,459 23,616,382
Dividends and Distributions Payable 2,236,608 1,479,345
Accrued Interest Payable 216,772 354,988
Accounts Payable
Operating 365,462 691,981
Capital expenditures 608,438 596,794
Tenant Deposits 61,061 50,394
------------- -------------
Total Liabilities 61,914,691 91,070,819
------------- -------------
Minority Interest 5,760,709 5,869,014
------------- -------------
Stockholders' Equity
Common stock, $.0001 par value, 20,000,000
shares authorized, 4,332,280 and 2,649,475
shares issued and outstanding 433 265
Additional paid-in capital 62,494,353 30,060,908
Deficit (6,622,791) (5,619,136)
------------- -------------
Total Stockholders' Equity 55,871,995 24,442,037
------------- -------------
$ 123,547,395 $ 121,381,870
============= =============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Agree Realty Corporation
Consolidated Statements of Operations (Unaudited)
- -----------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
---------------- ----------------
<S> <C> <C>
Revenues
Rental income $ 8,027,824 $ 6,957,535
Operating cost reimbursement 956,845 895,996
Management fees and other 46,079 39,580
----------- -----------
Total Revenues 9,030,748 7,893,111
----------- -----------
Operating Expenses
Real estate taxes 630,833 585,705
Property operating expenses 529,315 507,031
Land lease payments 223,000 113,083
General and administrative 592,648 541,872
Depreciation and amortization 1,386,455 1,286,850
----------- -----------
Total Operating Expenses 3,362,251 3,034,541
----------- -----------
Income From Operations 5,668,497 4,858,570
----------- -----------
Other Income (Expense)
Interest expense, net (3,178,804) (2,935,603)
Gain on land sales 103,270 --
Development fee income 23,275 --
Equity in net income of unconsolidated
entities 784 151,048
----------- -----------
Total Other Expense (3,051,475) (2,784,555)
----------- -----------
Income Before Minority Interest 2,617,022 2,074,015
Minority Interest (465,859) (402,566)
----------- -----------
Net Income $ 2,151,163 $ 1,671,449
=========== ===========
Earnings Per Share $ .71 $ .63
=========== ===========
Weighted Average Number of
Common Shares Outstanding 3,048,596 2,649,475
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Agree Realty Corporation
Consolidated Statements of Operations (Unaudited)
- -----------------------------------------------------------------------------
Three Months Ended Three Months Ended
June 30, 1997 June 30, 1996
------------------ ------------------
<S> <C> <C>
Revenues
Rental income $ 3,998,671 $ 3,586,504
Operating cost reimbursement 457,498 419,323
Management fees and other 19,929 19,720
----------- -----------
Total Revenues 4,476,098 4,025,547
----------- -----------
Operating Expenses
Real estate taxes 322,203 293,591
Property operating expenses 191,771 193,549
Land lease payments 111,500 99,083
General and administrative 296,906 273,031
Depreciation and amortization 693,049 654,221
----------- -----------
Total Operating Expenses 1,615,429 1,513,475
----------- -----------
Income From Operations 2,860,669 2,512,072
----------- -----------
Other Income (Expense)
Interest expense, net (1,501,867) (1,535,389)
Gain on land sales 103,270 --
Development fee income 23,275 --
Equity in net income (loss) of unconsolidated
entities (6,029) 87,251
----------- -----------
Total Other Expense (1,381,351) (1,448,138)
----------- -----------
Income Before Minority Interest 1,479,318 1,063,934
----------- -----------
Minority Interest (247,004) (206,509)
----------- -----------
Net Income $ 1,232,314 $ 857,425
=========== ===========
Earnings Per Share $ .36 $ .32
=========== ===========
Weighted Average Number of
Common Shares Outstanding 3,414,694 2,649,475
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Agree Realty Corporation
Consolidated Statement of Stockholders' Equity (Unaudited)
- -----------------------------------------------------------------------------
Common Stock Additional
------------------------ Paid-In
Shares Amount Capital Deficit
------ ------ ------- -------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 2,649,475 $ 265 $30,060,908 $(5,619,136)
Issuance of shares under the Stock Incentive Plan 28,955 3 618,910 --
Issuance of common stock 1,653,850 165 31,814,535 --
Dividends declared for the period January 1, 1997
to June 30, 1997 -- -- -- (3,154,818)
Net income for the period January 1, 1997 to
June 30, 1997 -- -- -- 2,151,163
--------- ------- ----------- -----------
Balance, June 30, 1997 4,332,280 $ 433 $62,494,353 $(6,622,791)
========= ======= =========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Agree Realty Corporation
Consolidated Statements of Cash Flows (Unaudited)
- -----------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
---------------- ----------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 2,151,163 $ 1,671,449
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 1,350,853 1,240,056
Amortization 239,042 242,702
Equity in net income of unconsolidated entities (784) (151,048)
Minority interests 465,859 402,566
Gain on land sales (103,270) --
Decrease in accounts receivable 415,034 384,828
Increase in other assets (382,586) (50,521)
Decrease in accounts payable (326,519) (258,949)
Increase (decrease) in accrued interest (138,216) 144,216
Increase (decrease) in tenant deposits 10,667 (1,332)
------------ ------------
Net Cash Provided By Operating Activities 3,681,243 3,623,967
------------ ------------
Cash Flows From Investing Activities
Acquisition of real estate investments (including
capitalized interest of $13,222 in 1997 and $40,496
in 1996) (1,378,227) (9,066,929)
Proceeds from sale of land 148,270 --
Investments in and advances to unconsolidated
entities (142,746) (1,202,751)
------------ ------------
Cash Flows Used In Investing Activities (1,372,703) (10,269,680)
------------ ------------
Cash Flows From Financing Activities
Proceeds from issuance of common stock 31,814,700 --
Payment on line-of-credit (31,250,375) --
Line-of-credit proceeds 10,869,452 20,572,218
Payment of construction loans (8,915,530) (9,875,274)
Dividends and limited partners' distributions paid (2,971,720) (2,953,610)
Payments of mortgages payable (174,514) (149,865)
Increase in escrow deposits (31,168) (30,925)
Payments of leasing costs (18,289) (42,224)
Payments for financing costs (16,924) (213,416)
Net increase in (repayment of) capital expenditure
payables 11,644 (1,472,009)
------------ ------------
Net Cash Provided By (Used In) Financing Activities (682,724) 5,834,895
------------ ------------
Net Decrease In Cash and Cash Equivalents 1,625,816 (810,818)
Cash and Cash Equivalents, beginning of period 294,389 1,283,672
------------ ------------
Cash and Cash Equivalents, end of period $ 1,920,205 $ 472,854
============ ============
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 3,147,328 $ 2,648,118
============ ============
Supplemental Disclosure of Non-Cash Transactions
Dividends and limited partners' distributions
declared and unpaid $ 2,236,608 $ 1,479,345
Shares issued under Stock Incentive Plan $ 618,913 $ 170,616
============ ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
14
<PAGE>
Agree Realty Corporation
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of
Presentation The accompanying unaudited 1997 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, 1996 has been derived
from the audited consolidated financial statements at
that date. Operating results for the six months ended
June 30, 1997 are not necessarily indicative of the
results that may be expected for the year ending
December 31, 1997, or for 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, 1996.
2. Issuance of
Common Stock During May and June 1997, the Company sold 1,653,850
shares of common stock. The cash proceeds (net of
underwriting fees and related issuance costs) to the
Company from the stock issuance sales were
approximately $31.8 million, which was used to reduce
outstanding indebtedness.
3. Earnings Per
Share Earnings per share has been computed by dividing the
income by the weighted average number of common
shares outstanding.
10
<PAGE>
Agree Realty Corporation
Part I
- ----------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The Company was established to continue to operate and expand the retail
property business of Agree Predecessors. The Company commenced its operations
on April 22, 1994 with the sale of 2,500,000 shares of common stock. The net
cash proceeds to the Company from the completion of the initial public
offering were approximately $45.4 million which were used primarily to reduce
outstanding indebtedness, pay stock issuance costs and establish a working
capital reserve. On May 21, 1997, the Company completed an offering of
1,625,000 shares of common stock at $20.625 per share; on June 18, 1997 the
underwriters exercised their overallotment option for an additional 28,850
shares at the same per share price (collectively, "the 1997 Offering"). The
net proceeds from the 1997 Offering of approximately $31.8 million were used
to repay amounts outstanding under the Company's credit facility.
The assets of the Company are held by, and all operations are conducted
through, the Operating Partnership, in which the Company held an 87.16%
interest as of June 30, 1997 as the sole general partner. The Company is
operating so as to qualify as a real estate investment trust for federal
income tax purposes.
The following should be read in conjunction with the Unaudited Consolidated
Financial Statements of Agree Realty Corporation including the respective
notes thereto, all of which are included in this Form 10-Q.
Comparison of Six Months Ended June 30, 1997 to Six Months Ended June 30, 1996
Rental income increased $1,070,000, or 15%, to $8,028,000 in 1997, compared
to $6,958,000 in 1996. The increase is primarily the result of the
development and acquisition of five properties in fiscal 1996.
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 $61,000, or 7% to
$957,000 in 1997, compared to $896,000 in 1996. Operating cost reimbursements
increased due to the increase in real estate taxes and property operating
expenses from 1997 to 1996 as explained below.
11
<PAGE>
Agree Realty Corporation
Part I
- ----------------------------------------------------------------------------
Management fees and other income remained relatively constant at $46,000 in
1997 versus $40,000 in 1996.
Real estate taxes increased $45,000, or 8%, to $631,000 in 1997 versus
$586,000 in 1996. The increase is the result of the aforementioned addition
of new properties.
Property operating expenses (shopping center maintenance, insurance and
utilities) increased $22,000, or 4%, to $529,000 in 1997 versus $507,000 in
1996. The increase was the result of increased snow removal costs of $7,000,
an increase in shopping center maintenance costs of $21,000, a decrease in
utility costs of $4,000 and a decrease in insurance costs of $2,000 in 1997
versus 1996.
Land lease payments increased $110,000 to $223,000 in 1997 versus $113,000 in
1996 as a result of the acquisition of a ground lease of a single tenant
property in Aventura, Florida.
General and administrative expenses increased by $51,000, or 9%, to $593,000
in 1997 versus $542,000 in 1996. The increase was primarily the result of
increases in compensation-related expenses of $28,000; increases in state
franchise and income taxes of $11,000 and increased expenses in connection
with the management of the Company's properties of $12,000. General and
administrative expenses as a percentage of rental income decreased from 7.8%
for 1996 to 7.4% for 1997.
Depreciation and amortization increased $99,000, or 8%, to $1,386,000 in 1997
versus $1,287,000 in 1996. This increase was the result of the completion of
five new properties in 1996.
Interest expense increased $243,000, or 8%, to $3,179,000 in 1997, from
$2,936,000 in 1996. The increase in interest expense was the result of the
Company financing the development and acquisition of five new properties in
fiscal 1996. The proceeds of the 1997 Offering reduced the Company's
indebtedness, and the related interest expense during the quarter ended June
30, 1997.
Equity in net income of unconsolidated entities decreased $150,000 to $1,000
in 1997 versus $151,000 in 1996 as a result of additional expenses in 1997
related to certain of the seven properties held in joint ventures, in which
the Company holds interests ranging from 8% to 20%.
The Company received $23,000 of development fee income in 1997 in connection
with the completion of four Joint Venture Properties. There was no
development fee income in 1996.
12
<PAGE>
Agree Realty Corporation
Part I
- ----------------------------------------------------------------------------
The Company recognized income of $103,000 on the sale of a parcel of land in
1997. There were no land sale gains in 1996.
The Company's income before minority interest increased $543,000 as a result
of the foregoing factors.
Comparison of Three Months Ended June 30, 1997 to Three Months Ended June 30,
1996
Rental income increased $412,000, or 11%, to $3,998,000 in 1997, compared to
$3,586,000 in 1996. The increase is primarily the result of the development
and acquisition of four properties in 1996.
Operating cost reimbursements increased $38,000, or 9%, to $457,000 in 1997,
compared to $419,000 in 1996. Operating cost reimbursements increased due to
the increase in real estate taxes from 1997 to 1996 as explained below.
Management fees and other income remained constant at $20,000 in 1997 and
1996.
Real estate taxes increased $28,000, or 10%, to $322,000 in 1997 versus
$294,000 in 1996. The increase is the result of the aforementioned addition
of new properties.
Property operating expense (shopping center maintenance, insurance and
utilities) decreased $2,000, or 1% to $192,000 in 1997 versus $194,000 in
1996. The decrease was the result of decreased snow removal costs of $5,000;
an increase in shopping center maintenance costs of $3,000; an increase in
utility costs of $1,000 and a decrease in insurance costs of $1,000 in 1997
versus 1996.
Land lease payments increased $12,000 to $111,000 in 1997 versus $99,000 in
1996 as a result of the acquisition of a ground lease of a single tenant
property in Aventura, Florida.
General and administrative expenses increased by $24,000, or 9%, to $297,000
in 1997 versus $273,000 in 1996. This increase was primarily the result of
increases in compensation-related expenses of $19,000 and increased expenses
in connection with the management of the Company's properties of $5,000.
General and administrative expense as a percentage of rental income decreased
from 7.6% for 1996 to 7.4% for 1997.
Depreciation and amortization increased $39,000, or 6%, to $693,000 in 1997
versus $654,000 in 1996. This increase was the result of the completion of
four new properties in 1996.
13
<PAGE>
Agree Realty Corporation
Part I
- ----------------------------------------------------------------------------
Interest expense decreased $33,000, or 2%, to $1,502,000 in 1997, from
$1,535,000 in 1996. The decrease in interest expense was the result of the
Company's completion of the 1997 Offering during the quarter ended June 30,
1997.
Equity in net income (loss) of unconsolidated entities decreased $93,000, to
($6,000) in 1997 versus $87,000 in 1996, as a result of additional expenses
in 1997 related to certain of the seven properties held in join ventures, in
which the Company holds interests ranging form 8% to 20%.
The Company received $23,000 of development fee income in 1997 in connection
with the completion of four Joint Venture Properties. There was no
development fee income in 1996.
The Company recognized income of $103,000 on the sale of a parcel of land in
1997. There was no land sale gains in 1996.
The Company's income before minority interest increased $415,000 as a result
of the forgoing factors.
Funds from Operations
Management considers funds from operations ("FFO") to be a supplemental
measure of the Company's operating performance. FFO is defined by the
National Association of Real Estate Investment Trusts, Inc. ("NAREIT") to
mean net income (loss) before minority interest, computed in accordance with
generally accepted accounting principles ("GAAP"), excluding gains (losses)
from debt restructuring and sales of property, plus real estate related
depreciation and amortization (excluding amortization of financing costs),
and after adjustments for unconsolidated partnerships and joint ventures. FFO
does not represent cash generated from operating activities in accordance
with GAAP and is not necessarily indicative of cash available to fund cash
needs. FFO should not be considered as an alternative to net income as the
primary indicator of the Company's operating performance or as 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.
14
<PAGE>
Agree Realty Corporation
Part I
- ----------------------------------------------------------------------------
The following table illustrates the calculation of FFO for the six months and
three months ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997 1996
- ------------------------- ----------- -----------
<S> <C> <C>
Net income before minority interest $ 2,617,022 $ 2,074,015
Depreciation of real estate assets 1,338,449 1,234,558
Amortization of leasing costs 41,225 46,794
Amortization of stock awards 64,950 41,436
Depreciation of real estate assets held in
unconsolidated entities 343,843 --
Gain on sale of assets (103,270) --
Development fee income (23,275) --
----------- -----------
Funds from Operations $ 4,278,944 $ 3,396,803
----------- -----------
Funds from Operations Per Share $ 1.16 $ 1.03
----------- -----------
Weighted Average Shares and OP Units Outstanding 3,686,555 3,287,434
=========== ===========
</TABLE>
FFO increased $882,000, or 26%, to $4,279,000. The increase in FFO is
primarily the result of the development and acquisition of five properties in
1996.
<TABLE>
<CAPTION>
Three Months Ended June 30, 1997 1996
- --------------------------- ----------- -----------
<S> <C> <C>
Net income before minority interest $ 1,479,318 $ 1,063,934
Depreciation of real estate assets 669,577 627,302
Amortization of leasing costs 20,832 23,849
Amortization of stock awards 32,475 20,718
Depreciation of real estate assets held in
unconsolidated entities 175,847 --
Gain on sale of assets (103,270) --
Development fee income (23,275) --
----------- -----------
Funds from Operations $ 2,251,504 $ 1,735,803
----------- -----------
Funds from Operations Per Share $ .55 $ .52
----------- -----------
Weighted Average Shares and OP Units Outstanding 4,052,653 3,287,434
=========== ===========
</TABLE>
FFO increased $516,000, or 30%, to $2,251,000. The increase in FFO is
primarily the result of the development and acquisition of four properties in
1996.
15
<PAGE>
Agree Realty Corporation
Part I
- ----------------------------------------------------------------------------
Liquidity and Capital Resources
The Company's principal demands for liquidity are distributions to its
stockholders, debt repayment, development of new properties and future
property acquisitions.
During the quarter ended June 30, 1997 the Company declared a quarterly
dividend of $.45 per share. The dividend was paid on July 17, 1997 to holders
of record on June 30, 1997.
As of June 30, 1997, the Company had total mortgage indebtedness of
$53,489,485 with a weighted average interest rate of 7.63%. Future scheduled
annual maturities of mortgages payable for the years ended June 30, are as
follows: 1998 - $391,553; 1999 - $10,434,431; 2000 - $933,709; 2001 -
$1,007,666; 2002 - $1,087,656. This mortgage debt is all fixed rate debt with
the exception of $2,364,255 which bears interest at one half percent over
prime rate.
In addition, the Operating Partnership has in place a $50 million Credit
Facility with a bank group headed by Michigan National Bank which is
guaranteed by the Company. The loan is for a three-year period ending on
November 14, 1998 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 property value and debt service coverage. The
Credit Facility is used to fund property acquisitions and development
activities and is secured by all of the Company's existing properties which
are not otherwise encumbered and properties to be acquired or developed. As
of June 30, 1997, $2,235,459 was outstanding under the Credit Facility.
The Company also has in place a $5 million line of credit which matures in
September 1997, and which the Company expects to renew for an additional
12-month period. 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 capital to the Company
and fund land options and start-up costs associated with new projects. As of
June 30, 1997, $1,000,000 was outstanding under the line of credit.
The Company has received funding from an unaffiliated entity to fund
construction of certain of its 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, 1997, $1,701,406
was outstanding under this arrangement.
16
<PAGE>
Agree Realty Corporation
Part I
- ----------------------------------------------------------------------------
The Company has development activity under way which will add an additional
15,000 square feet of retail space to the Company's portfolio during 1997.
Management expects the development of this retail project to have a positive
effect on cash generated by operating activities and funds from operations.
Additional Company funding required for this project is estimated to be two
million dollars 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. Management believes that adequate cash flow will be available
to fund the Company's operations and pay dividends in accordance with REIT
requirements. The Company intends to maintain a ratio of total indebtedness
(including construction and acquisition financing) to Total Market
Capitalization of 65% or less. The Company plans to begin construction of
additional pre-leased developments and may acquire additional properties
which will initially be financed by the line of credit and the Credit
Facility. Management intends to periodically refinance short term
construction and acquisition financing with long-term debt and equity. Upon
the completion of such refinancing, the Company intends to lower its ratio of
total indebtedness to Total Market Capitalization to 50% or less.
Nevertheless, the Company may operate with debt levels which are in excess of
50% for extended periods of time prior to such refinancing.
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.
17
<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 12, 1997, the Company held its Annual Meeting of
Stockholders. The following were the results of the meeting:
The stockholders elected Farris Kalil and Gene Silverman as
Directors until the annual meeting of stockholders in 2000 or
until a successor is elected and qualified.
The vote was as follows:
Farris Kalil
Votes cast for 2,495,537
Votes withheld 21,132
Abstained 161,761
Gene Silverman
Votes cast for 2,495,147
Votes withheld 21,522
Abstained 161,761
18
<PAGE>
Agree Realty Corporation
Part II
- ----------------------------------------------------------------------------
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Articles of Incorporation and Articles of Amendment
of the Company (incorporated by reference to Exhibit
3.1 to the Company's Registration Statement on Form
S-11 (Registration Statement No. 33-73858, as
amended ("Agree S-11"))
3.2 Bylaws of the Company (incorporated by reference to
Exhibit 3.3 to Agree S-11)
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
19
<PAGE>
Agree Realty Corporation
Part II
- ----------------------------------------------------------------------------
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 1, 1997
20
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> $ 1,920,205
<SECURITIES> 0
<RECEIVABLES> 223,701
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 133,932,606
<DEPRECIATION> 18,688,534
<TOTAL-ASSETS> 123,547,395
<CURRENT-LIABILITIES> 0
<BONDS> 58,426,350
<COMMON> 433
0
0
<OTHER-SE> 55,871,995
<TOTAL-LIABILITY-AND-EQUITY> 123,547,395
<SALES> 9,030,748
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 3,362,251
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,178,804
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,151,163
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.00
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