-----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, OsYwhEgNDOTIXVGhcNSXDWdlC8QxUSN+pYUov2qleduiwz3+UkTQQj4LgAZO4UCi 1sXC0X3o2slmE35kCN80dQ== 0000950009-96-000355.txt : 19960808 0000950009-96-000355.hdr.sgml : 19960808 ACCESSION NUMBER: 0000950009-96-000355 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960807 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: 96605257 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, 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
Agree Realty Corporation Form 10-Q Index - ------------------------------------------------------------------------------ Part I: Financial Information Page 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 Part II:Other Information 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
2 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 Agree Realty Corporation Consolidated Balance Sheets - ------------------------------------------------------------------------------
June 30, December 31, 1996 1995 -------- ------------ (Unaudited) (Audited) Assets 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 ============== ============= See accompanying notes to consolidated financial statements.
4 Agree Realty Corporation Consolidated Balance Sheets - ------------------------------------------------------------------------------
June 30, December 31, 1996 1995 --------- ------------ (Unaudited) (Audited) Liabilities and Stockholders' Equity 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 ============== ============= See accompanying notes to consolidated financial statements.
5 Agree Realty Corporation Consolidated Statements of Operations (Unaudited) - ------------------------------------------------------------------------------
Six Months Ended Six Months Ended June 30, 1996 June 30, 1995 ---------------- ---------------- 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 ========== ========== See accompanying notes to consolidated financial statements.
6 Agree Realty Corporation Consolidated Statements of Operations (Unaudited) - ------------------------------------------------------------------------------
Three Months Ended Three Months Ended June 30, 1996 June 30, 1995 ----------------- ----------------- 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 ============ ============ 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, 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) ========= ====== =========== =========== 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, 1996 June 30, 1995 ---------------- ---------------- 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 ============ ============== See accompanying notes to consolidated financial statements.
9 Agree Realty Corporation Consolidated Statements of Cash Flows (Unaudited) - ------------------------------------------------------------------------------
Six Months Ended Six Months Ended June 30, 1996 June 30, 1995 ---------------- ---------------- 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 $ -- ============= ============== See accompanying notes to consolidated financial statements.
10 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 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:
June 30, 1996 - ------------------------------------------------------------------------------ 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 ============= Six Months Ended June 30, 1996 - ------------------------------------------------------------------------------ Rental revenues $ 419,000 Expenses -- ------------- Net Income $ 419,000 =============
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:
Year Ended June 30, - ------------------------------------------------------------------------------ 1997 $ 446,000 1998 446,000 1999 446,000 2000 462,000 2001 485,000 Thereafter 6,849,000
12 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 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 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 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 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 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 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:
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
Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K None 19 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 EX-27 2 ARTICLE 5 FDS FOR FORM 10-Q
5 6-MOS DEC-31-1996 JUN-30-1996 $ 472,854 0 241,452 0 0 0 127,427,197 16,044,340 117,178,435 0 0 0 0 0 0 117,178,435 0 7,893,111 0 3,034,541 2,784,555 0 0 0 0 0 0 0 0 1,671,449 0.63 0.00
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