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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, 2001
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: (248) 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| | |
4,416,869 Shares of Common Stock, $.0001 par value, were outstanding as of
August 2, 2001
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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, 2001 and December 31, 2000 4-5
Consolidated Statements of Operations for the six months ended June 30, 2001 and 2000 6
Consolidated Statements of Operations for the three months ended June 30, 2001 and 2000 7
Consolidated Statement of Stockholders' Equity for the six months ended June 30, 2001 8
Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2000 9
Notes to Consolidated Financial Statements 10
Item 2. Management's Discussion and Analysis of Financial Condition and 11-18
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5 Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
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AGREE REALTY CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
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AGREE REALTY CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, December 31,
2001 2000
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ASSETS
REAL ESTATE INVESTMENTS
Land $ 46,723,679 $ 45,028,679
Buildings 145,663,234 143,474,205
Property under development 1,839,634 2,545,018
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194,226,547 191,047,902
Less accumulated depreciation (31,759,824) (29,907,682)
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NET REAL ESTATE INVESTMENTS 162,466,723 161,140,220
CASH AND CASH EQUIVALENTS 152,621 1,119,072
ACCOUNTS RECEIVABLE - TENANTS 347,566 741,565
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED ENTITIES 260,828 266,449
UNAMORTIZED DEFERRED EXPENSES
Financing 1,288,100 1,476,100
Leasing costs 322,340 310,424
OTHER ASSETS 752,311 998,260
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$ 165,590,489 $ 166,052,090
=====================================================================================================================
See accompanying notes to consolidated financial statements.
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AGREE REALTY CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, December 31,
2001 2000
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LIABILITIES AND STOCKHOLDERS' EQUITY
MORTGAGE PAYABLE $ 51,426,663 $ 52,119,770
CONSTRUCTION LOANS 16,587,102 16,614,002
NOTES PAYABLE 36,158,232 35,358,232
DIVIDENDS AND DISTRIBUTIONS PAYABLE 2,341,591 2,331,379
ACCRUED INTEREST PAYABLE 258,627 314,607
ACCOUNTS PAYABLE
Operating 665,980 1,017,493
Capital expenditures 1,077,427 1,110,673
TENANT DEPOSITS 50,020 51,240
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TOTAL LIABILITIES 108,565,642 108,917,396
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MINORITY INTEREST 5,675,284 5,707,608
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STOCKHOLDERS' EQUITY
Common stock, $.0001 par value; 20,000,000 shares authorized,
4,416,869 and 4,394,669 shares issued and outstanding 442 440
Additional paid-in capital 63,937,682 63,632,433
Deficit (11,874,970) (11,663,446)
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52,063,154 51,969,427
Less: unearned compensation - restricted stock (713,591) (542,341)
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TOTAL STOCKHOLDERS' EQUITY 51,349,563 51,427,086
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$ 165,590,489 $ 166,052,090
=====================================================================================================================
See accompanying notes to consolidated financial statements.
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AGREE REALTY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
SIX MONTHS ENDED Six Months Ended
JUNE 30, 2001 June 30, 2000
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REVENUES
Minimum rents $ 10,838,855 $ 10,284,320
Percentage rents 131,360 103,031
Operating cost reimbursements 1,308,977 1,207,209
Management fees and other 21,835 22,492
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TOTAL REVENUES 12,301,027 11,617,052
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OPERATING EXPENSES
Real estate taxes 863,827 873,330
Property operating expenses 750,594 645,778
Land lease payments 369,480 315,613
General and administrative 859,225 811,591
Depreciation and amortization 1,906,982 1,836,984
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TOTAL OPERATING EXPENSES 4,750,108 4,483,296
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INCOME FROM OPERATIONS 7,550,919 7,133,756
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OTHER INCOME (EXPENSE)
Interest expense, net (3,597,288) (3,416,779)
Equity in net income of unconsolidated entities 347,160 175,179
Gain on sale of assets 138,543 -
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TOTAL OTHER EXPENSE (3,111,585) (3,241,600)
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INCOME BEFORE MINORITY INTEREST 4,439,334 3,892,156
MINORITY INTEREST (587,340) (516,893)
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NET INCOME $ 3,851,994 $ 3,375,263
======================================================================================================================
EARNINGS PER SHARE $ .87 $ .77
======================================================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,416,869 4,396,955
======================================================================================================================
See accompanying notes to consolidated financial statements.
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AGREE REALTY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED Three Months Ended
JUNE 30, 2001 June 30, 2000
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REVENUES
Minimum rents $ 5,458,858 $ 5,223,220
Percentage rents 6,831 11,749
Operating cost reimbursements 642,749 558,685
Management fees and other 10,422 10,510
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TOTAL REVENUES 6,118,860 5,804,164
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OPERATING EXPENSES
Real estate taxes 432,231 427,710
Property operating expenses 313,791 235,365
Land lease payments 184,740 174,948
General and administrative 477,170 419,696
Depreciation and amortization 954,807 937,342
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TOTAL OPERATING EXPENSES 2,362,739 2,195,061
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INCOME FROM OPERATIONS 3,756,121 3,609,103
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OTHER INCOME (EXPENSE)
Interest expense, net (1,747,326) (1,758,259)
Equity in net income of unconsolidated entities 173,580 173,579
Gain on sale of assets 138,543 -
- ------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSE (1,435,203) (1,584,680)
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INCOME BEFORE MINORITY INTEREST 2,320,918 2,024,423
MINORITY INTEREST (307,066) (268,851)
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NET INCOME $ 2,013,852 $ 1,755,572
========================================================================================================================
EARNINGS PER SHARE $ .46 $ .40
========================================================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,416,869 4,395,240
========================================================================================================================
See accompanying notes to consolidated financial statements.
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AGREE REALTY CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
Unearned
Common Stock Additional Compensation -
------------------------------- Paid-In Restricted
Shares Amount Capital Deficit Stock
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BALANCE, January 1, 2001 4,394,669 $ 440 $ 63,632,433 $ (11,663,446) $ (542,341)
Issuance of shares under
Stock Incentive Plan 27,291 2 375,249 - (305,250)
Shares redeemed under the
stock Incentive Plan (5,091) - (70,000) - -
Vesting of restricted stock - - - - 134,000
Dividends declared for the period
January 1, 2001 to June 30, 2001 - - - (4,063,518) -
Net income for the period
January 1, 2001 to June 30, 2001 - - - 3,851,994 -
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BALANCE, June 30, 2001 4,416,869 $ 442 $ 63,937,682 $ (11,874,970) $ (713,591)
==================================================================================================================================
See accompanying notes to consolidated financial statements.
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AGREE REALTY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED Six Months Ended
JUNE 30, 2001 June 30, 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,851,994 $ 3,375,263
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation 1,869,190 1,795,337
Amortization 226,290 217,647
Stock based-compensation 134,000 118,000
Gain on sale of assets (138,543) -
Equity in net income of unconsolidated entities (347,160) (175,179)
Minority interests 587,340 516,893
Decrease in accounts receivable 393,999 374,798
Decrease (increase) in other assets 168,545 (153,876)
Decrease in accounts payable (351,513) (349,511)
Increase (decrease) in accrued interest (55,980) 11,941
Increase (decrease) in tenant deposits (1,220) 1,453
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NET CASH PROVIDED BY OPERATING ACTIVITIES 6,336,942 5,732,766
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CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of real estate investments (including capitalized interest of
$100,000 in 2001 and $119,400 in 2000) (2,101,217) (4,649,632)
Distributions from unconsolidated entities 347,160 347,158
Proceeds from sale of assets 200,000 -
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NET CASH USED IN INVESTING ACTIVITIES (1,554,057) (4,302,474)
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CASH FLOWS FROM FINANCING ACTIVITIES
Dividends and limited partners' distributions paid (4,672,970) (4,650,889)
Repayment of capital expenditure payables (1,040,673) (1,112,044)
Line-of-credit net borrowings 800,000 3,200,000
Payments of mortgages payable (693,107) (647,095)
Redemption of restricted stock (70,000) (56,000)
Payment of leasing costs (45,186) (38,111)
Payments on construction loan (26,900) -
Payment for financing costs (500) -
Construction loan proceeds - 994,284
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NET CASH USED IN FINANCING ACTIVITIES (5,749,336) (2,309,855)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (966,451) (879,563)
CASH AND CASH EQUIVALENTS, beginning of period 1,119,072 1,064,241
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CASH AND CASH EQUIVALENTS, end of period $ 152,621 $ 184,678
=================================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest (net of amounts capitalized) $ 3,468,845 $ 3,236,548
=================================================================================================================================
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Dividends and limited partners' distributions declared and unpaid $ 2,341,591 $ 2,331,379
Real estate investments financed with accounts payable $ 1,077,427 $ 480,280
Shares issued under Stock Incentive Plan $ 375,251 $ 471,202
=================================================================================================================================
See accompanying notes to consolidated financial statements.
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AGREE REALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF The accompanying unaudited 2001 consolidated
PRESENTATION 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, 2000 has been derived
from the audited consolidated financial statements at
that date. Operating results for the six months ended
June 30, 2001 are not necessarily indicative of the
results that may be expected for the year ending
December 31, 2001, 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, 2000.
2. EARNINGS PER Earnings per share has been computed by dividing the
SHARE income by the weighted average number of common
shares outstanding. The per share amounts reflected
in the consolidated statements of income are
presented in accordance with Statement of Financial
Accounting Standards (SFAS) No. 128 "Earnings per
Share"; the amounts of the Company's "basic" and
"diluted" earnings per share (as defined in SFAS No.
128) are the same.
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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 its Predecessors. The Company commenced its operations on
April 22, 1994. The assets of the Company are held by, and all operations are
conducted through, Agree Limited Partnership (the "Operating Partnership"), of
which the Company is the sole general partner and held an 86.77% interest as of
June 30, 2001. The Company is operating so as to qualify as a real estate
investment trust ("REIT") for federal income tax purposes.
The following should be read in conjunction with the Consolidated Financial
Statements of Agree Realty Corporation, including the respective notes thereto,
which are included in this Form 10-Q.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 2001 TO SIX MONTHS ENDED JUNE 30, 2000
Minimum rental income increased $555,000, or 5%, to $10,839,000 in 2001,
compared to $10,284,000 in 2000. The increase was the result of the development
of three properties in 2000 and one property in 2001.
Percentage rental income increased $28,000, or 27%, to $131,000 in 2001,
compared to $103,000 in 2000. The increase was the result of increased tenant
sales.
Operating cost reimbursements, which represent additional rent required by
substantially all of the Company's leases to cover the tenants' proportionate
share of real estate taxes and property operating expenses, increased $102,000,
or 8%, to $1,309,000 in 2001, compared to $1,207,000 in 2000. Operating cost
reimbursements increased due to the net increase in real estate taxes and
property operating expenses.
Management fees and other income remained constant at $22,000 in 2001 and 2000.
Real estate taxes decreased $9,000, or 1%, to $864,000 in 2001 compared to
$873,000 in 2000. The decrease is the result of general assessment changes.
Property operating expenses (shopping center maintenance, insurance and
utilities) increased $105,000, or 16%, to $751,000 in 2001 compared to $646,000
in 2000. The increase was the result of increased snow removal costs of $40,000;
an increase in shopping center maintenance costs of $50,000; an increase in
insurance costs of $3,000 and an increase in utilities of $12,000 in 2001 versus
2000.
Land lease payments increased $53,000, or 17%, to $369,000 in 2001 compared to
$316,000 in 2000. The increase is the result of the Company leasing land for its
Petoskey, Michigan development completed in 2000.
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AGREE REALTY CORPORATION
PART I
General and administrative expenses increased $47,000, or 6%, to $859,000 in
2001 compared to $812,000 in 2000. General and administrative expenses as a
percentage of rental income remained constant at 7.8% for 2001 and 2000.
Depreciation and amortization increased $70,000, or 4%, to $1,907,000 in 2001
compared to $1,837,000 in 2000. The increase was the result of the development
of three properties in 2000 and one property in 2001.
Interest expense increased $180,000, or 5%, to $3,597,000 in 2001, from
$3,417,000 in 2000. The increase in interest expense was the result of the
Company's additional borrowing to finance its development of properties and
increased rates on variable rate notes payable.
Equity in net income of unconsolidated entities increased $172,000 to $347,000
in 2001 compared to $175,000 in 2000 as a result of depreciation expense no
longer being allocated to the Company pursuant to the agreements relating to the
Joint ventures in which the Company holds interests ranging from 8% to 20%.
The Company recognized a gain on the sale of an asset of $139,000 in 2001. There
was no such gain in 2000.
The Company's income before minority interest increased $547,000 as a result of
the foregoing factors.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 2001 TO THREE MONTHS ENDED JUNE 30,
2000
Rental income increased $236,000, or 5%, to $5,459,000 in 2001, compared to
$5,223,000 in 2000. The increase was the result of the development of two
properties in 2000 and one property in 2001.
Percentage rental income decreased $5,000, or 42%, to $7,000 in 2001, compared
to $12,000 in 2000. The decrease was the result of decreased tenant sales.
Operating cost reimbursements increased $84,000, or 15%, to $643,000 in 2001,
compared to $559,000 in 2000. Operating cost reimbursements increased due to the
increase in real estate taxes and property operating expenses.
Management fees and other income remained relatively constant at $10,000 in 2001
compared to $11,000 in 2000.
Real estate taxes increased $4,000, or 1%, to $432,000 in 2001 compared to
$428,000 in 2000. The increase is the result of general assessment increases.
Property operating expenses (shopping center maintenance, insurance and
utilities) increased $79,000, or 33%, to $314,000 in 2001 compared $235,000 in
2000. The increase was the result of decreased snow removal costs of ($7,000);
an increase in shopping center maintenance of $82,000; an increase in utility
costs of $2,000 and an increase in insurance cost of $2,000.
Land lease payments increased $10,000, or 6%, to $185,000 in 2001 compared to
$175,000 in 2000. The increase is the result of the Company leasing land for its
Petoskey, Michigan development completed in 2000.
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AGREE REALTY CORPORATION
PART I
General and administrative expenses increased $57,000, or 14%, to $477,000 in
2001 compared to $420,000 in 2000. The increase was primarily the result of an
increase in compensation-related expenses. General and administrative expenses
as a percentage of rental income increased from 8.0% for 2000 to 8.7% in 2001.
Depreciation and amortization increased $18,000, or 2%, to $955,000 in 2001
compared to $937,000 in 2000. The increase was the result of the development and
acquisition of two properties in 2000 and one property in 2001.
Interest expense decreased $11,000, or 1%, to $1,747,000 in 2001, from
$1,758,000 in 2000. The decrease in interest expense was the result of decreased
rates on variable rate notes payable.
Equity in net income of unconsolidated entities remained constant at $174,000 in
2001 and 2000.
The Company recognized a gain on the sale of an asset of $139,000 in 2001. There
was no such gain in 2000.
The Company's income before minority interest increased $296,000 as a result of
the foregoing factors.
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AGREE REALTY CORPORATION
PART I
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 Investments Trusts, Inc. ("NAREIT") to mean net
income computed in accordance with generally accepted accounting principles
("GAAP"), excluding gains (or losses) from debt restructuring and sales of
property, plus real estate related depreciation and amortization, and after
adjustments for unconsolidated entities in which the REIT holds an interest. 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 cash
flow as a measure of liquidity.
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AGREE REALTY CORPORATION
PART I
The following tables illustrate the calculation of FFO for the six months and
three months ended June 30, 2001 and 2000:
Six Months Ended June 30, 2001 2000
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Net income before minority interest $ 4,439,334 $ 3,892,156
Depreciation of real estate assets 1,862,285 1,788,924
Amortization of leasing costs 33,270 35,085
Amortization of stock awards 134,000 118,000
Gain on sale of assets (138,543) -
Depreciation of real estate assets held in unconsolidated entities - 171,980
-------------------------------------------------------------------------------- ----------------- -------------------
FUNDS FROM OPERATIONS $ 6,330,346 $ 6,006,145
================================================================================ ================= ===================
WEIGHTED AVERAGE SHARES AND OP UNITS OUTSTANDING 5,090,416 5,070,502
================================================================================ ================= ===================
Three Months Ended June 30, 2001 2000
-------------------------------------------------------------------------------- ----------------- -------------------
Net income before minority interest $ 2,320,918 $ 2,024,423
Depreciation of real estate assets 931,229 912,650
Amortization of leasing costs 17,839 17,992
Gain of sale of assets (138,543) -
Amortization of stock awards 67,000 59,000
-------------------------------------------------------------------------------- ----------------- -------------------
FUNDS FROM OPERATIONS $ 3,198,443 $ 3,014,065
================================================================================ ================= ===================
WEIGHTED AVERAGE SHARES AND OP UNITS OUTSTANDING 5,090,416 5,068,787
================================================================================ ================= ===================
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AGREE REALTY CORPORATION
PART I
FORWARD-LOOKING STATEMENTS
Management has included herein certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities and Exchange Act of 1934, as amended. When used,
statements which are not historical in nature including the words "anticipate,"
"estimate," "should," "expect," "believe," "intend" and similar expressions are
intended to identify forward-looking statements. Such statements are, by their
nature, subject to certain risks and uncertainties. Risks and other factors that
might cause such a difference include, but are not limited to, the effect of
economic and market conditions; risks that the Company's acquisition and
development projects will fail to perform as expected; financing risks, such as
the inability to obtain debt or equity financing on favorable terms; the level
and volatility of interest rates; loss or bankruptcy of one or more of the
Company's major retail tenants; and failure of the Company's properties to
generate additional income to offset increases in operating expenses.
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, 2001, the Company declared a quarterly
dividend of $.46 per share. The dividend was paid on July 12, 2001, to holders
of record on June 29, 2001.
As of June 30, 2001, the Company had total mortgage indebtedness of $51,426,663
with a weighted average interest rate of 6.95%. Future scheduled annual
maturities of mortgages payable for the years ending June 30 are as follows:
2002 - $1,438,474; 2003 - $1,561,984; 2004 - $1,673,060; 2005 - $1,792,040; and
2006 - $2,419,486. This mortgage debt is all fixed rate debt.
In addition, the Operating Partnership has in place a $50 million line of Credit
Facility (the "Credit Facility") which is guaranteed by the Company. The loan
matures in August 2003 and can be extended by the Company for an additional
three years. Advances under the Credit Facility bear interest within a range of
one-month to six-month LIBOR plus 150 basis points to 213 basis points or the
bank's prime rate, 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 most
of the Company's Properties which are not otherwise encumbered and properties to
be acquired or developed. As of June 30, 2001, $35,158,232 was outstanding under
the Credit Facility.
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AGREE REALTY CORPORATION
PART I
The Company also has in place a $5 million line of credit (the "Line of
Credit"), which matures on February 19, 2002, and which the Company expects to
renew for an additional 12-month period. The Line of Credit bears interest at
the bank's prime rate less 50 basis points or 175 basis points in excess of the
one-month LIBOR rate, at the option of the Company. The purpose of the Line of
Credit is to provide working capital to the Company and fund land options and
start-up costs associated with new projects. As of June 30, 2001, $1,000,000 was
outstanding borrowings under the Line of Credit.
The Company's wholly owned subsidiaries have obtained construction financing of
approximately $16,100,000 to fund the development of four retail properties. The
notes require quarterly interest payments, based on a weighted average interest
rate based on LIBOR, computed by the lender. The notes mature on October 16,
2002 and are secured by the underlying land and buildings. As of June 30, 2001,
$14,896,962 was outstanding under these notes.
The Company has received funding from an unaffiliated third party for the
construction of certain of its Properties. Advances under this agreement bear no
interest and are secured by the specific land and buildings being developed. As
of June 30, 2001, $1,690,140 was outstanding under this arrangement.
The Company has one development project under construction that will add an
additional 14,490 square feet of retail space to the Company's portfolio. The
project is expected to be completed during the third quarter of 2001. Additional
Company funding required for this project is estimated to be $525,000 and will
come from the Credit Facility. Management expects the development of this
project to have a positive effect on cash generated by operating activities and
Funds from Operations.
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
may obtain additional funds for future development or acquisitions through other
borrowings or the issuance of additional shares of capital stock. The Company
intends to incur additional debt in a manner consistent with its policy of
maintaining a ratio of total debt (including construction and acquisition
financing) to total market capitalization of 65% or less.
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AGREE REALTY CORPORATION
PART I
The Company plans to begin construction of additional pre-leased developments
and may acquire additional properties, which will initially be financed by the
Credit Facility and Line of Credit. Management intends to periodically refinance
short-term construction and acquisition financing with long-term debt and/or
equity. Upon completion of refinancing, the Company intends to lower the ratio
of total debt to market capitalization to 50% or less. Nevertheless, the Company
may operate with debt levels or ratios 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.
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AGREE REALTY CORPORATION
PART I
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate risk primarily through its borrowing
activities. There is inherent rollover risk for borrowings as they mature and
are renewed at current market rates. The extent of this risk is not quantifiable
or predictable because of the variability of future interest rates and the
Company's future financing requirements.
Mortgages payable - As of June 30, 2001 the Company had four mortgages
outstanding. The first mortgage in the amount of $32,094,546 bears interest at
7.00%. The mortgage matures on November 15, 2005. The second mortgage in the
amount of $7,203,524 bears interest at 7.00%. The mortgage matures on April 1,
2013 and is subject to a rate review after the 7th year (April 1, 2006). The
third mortgage in the amount of $11,628,593 bears interest at 6.63%. The
mortgage matures on February 5, 2017. The fourth mortgage in the amount of
$500,000 bears interest at 10.00%. The mortgage matures October 5, 2005.
Construction loans - As of June 30, 2001 the Company had Construction loans
outstanding of $16,587,102. Under the terms of the construction loans the
Company bears no interest rate risk.
Notes Payable - As of June 30, 2001 the Company had $36,158,232 outstanding on
its Lines-of-Credit which were subject to interest at a variable interest rate
based on LIBOR.
The Company does not enter into financial instrument transactions for trading or
other speculative purposes or to manage interest rate exposure.
A 10% adverse change in interest rates on the portion of the Company's debt
bearing interest at variable rates would result in an annual increase in
interest expense of approximately $192,000.
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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 7, 2001, the Company held its Annual Meeting of Stockholders.
The following were the results of the meeting:
The stockholders elected Ellis Wachs as a Director until the annual
meeting of stockholders in 2004 or until a successor is elected and
qualified.
The vote was as follows:
Ellis Wachs
Votes cast for 4,129,555
Votes withheld 78,943
Not voting 208,371
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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)
(b) Reports on Form 8-K
None
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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, 2001
- -----------------------------------------------
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