-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QgDYre1psh9f2V1kiSheLi68Y+F6/uyjyGfFgR8bjnpTAfBmuf6VZmqlHVIFr4sL Wmd0AprVJaamGmYGkRKZdw== 0000889697-97-000175.txt : 19970806 0000889697-97-000175.hdr.sgml : 19970806 ACCESSION NUMBER: 0000889697-97-000175 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970805 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AGREE REALTY CORP CENTRAL INDEX KEY: 0000917251 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 383148187 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12928 FILM NUMBER: 97651326 BUSINESS ADDRESS: STREET 1: 31850 NORTHWESTERN HGWY CITY: FARMINGTON HILLS STATE: MI ZIP: 48334 BUSINESS PHONE: 8107374190 MAIL ADDRESS: STREET 1: 31850 NORTHWESTERN HIGHWAY CITY: FARMINGTON HILLS STATE: MI ZIP: 48334 10-Q 1 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 - ------------------------------------------------------------------------------ (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| |_| 4,332,280 Shares of Common Stock, $.0001 par value, were outstanding as of August 1, 1997
Agree Realty Corporation Form 10-Q Index - ----------------------------------------------------------------------------- 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
2 Agree Realty Corporation Part I: Financial Information - ----------------------------------------------------------------------------- ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS 3
Agree Realty Corporation Consolidated Balance Sheets (Unaudited) - ----------------------------------------------------------------------------- June 30, December 31, 1997 1996 -------- ------------ 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 ============= ============= See accompanying notes to consolidated financial statements.
4
Agree Realty Corporation Consolidated Balance Sheets (Unaudited) - ----------------------------------------------------------------------------- June 30, December 31, 1997 1996 -------- ------------ 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 ============= ============= See accompanying notes to consolidated financial statements.
5
Agree Realty Corporation Consolidated Statements of Operations (Unaudited) - ----------------------------------------------------------------------------- Six Months Ended Six Months Ended June 30, 1997 June 30, 1996 ---------------- ---------------- 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 =========== =========== See accompanying notes to consolidated financial statements.
6
Agree Realty Corporation Consolidated Statements of Operations (Unaudited) - ----------------------------------------------------------------------------- Three Months Ended Three Months Ended June 30, 1997 June 30, 1996 ------------------ ------------------ 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 =========== =========== See accompanying notes to consolidated financial statements.
7
Agree Realty Corporation Consolidated Statement of Stockholders' Equity (Unaudited) - ----------------------------------------------------------------------------- Common Stock Additional ------------------------ Paid-In Shares Amount Capital Deficit ------ ------ ------- ------- 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) ========= ======= =========== =========== See accompanying notes to consolidated financial statements.
8
Agree Realty Corporation Consolidated Statements of Cash Flows (Unaudited) - ----------------------------------------------------------------------------- Six Months Ended Six Months Ended June 30, 1997 June 30, 1996 ---------------- ---------------- 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 ============ ============ See accompanying notes to consolidated financial statements.
14 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 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 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 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 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 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:
Six Months Ended June 30, 1997 1996 - ------------------------- ----------- ----------- 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 =========== ===========
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.
Three Months Ended June 30, 1997 1996 - --------------------------- ----------- ----------- 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 =========== ===========
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 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 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 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 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 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 EX-27 2 ARTICLE 5 FDS FOR FORM 10-Q
5 3-Mos DEC-31-1997 JUN-30-1997 $ 1,920,205 0 223,701 0 0 0 133,932,606 18,688,534 123,547,395 0 58,426,350 433 0 0 55,871,995 123,547,395 9,030,748 0 0 3,362,251 0 0 3,178,804 0 0 0 0 0 0 2,151,163 0.71 0.00
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