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Agree Realty Corporation Reports Third Quarter 2017 Results

INCREASES 2017 ACQUISITION GUIDANCE TO $300 MILLION TO $325 MILLION

BLOOMFIELD HILLS, Mich., Oct. 23, 2017 /PRNewswire/ -- Agree Realty Corporation (ADC) (the "Company") today announced results for the quarter ended September 30, 2017.  All per share amounts included herein are on a diluted per common share basis unless otherwise stated.

Third Quarter 2017 Financial and Operating Highlights:

  • Invested $69.0 million in 19 retail net lease properties
  • Commenced two new development and Partner Capital Solutions ("PCS") projects
  • Increased rental revenue 22.6% to $27.3 million
  • Net Income per share attributable to the Company decreased 30.4% to $0.42
  • Net Income attributable to the Company decreased 14.7% to $12.2 million
  • Increased Funds from Operations ("FFO") per share 1.6% to $0.69
  • Increased FFO 23.2% to $20.0 million
  • Increased Adjusted Funds from Operations ("AFFO") per share 4.1% to $0.69
  • Increased AFFO 26.2% to $19.9 million
  • Declared a quarterly dividend of $0.505 per share, a 5.2% increase over the dividend per share declared in the third quarter of 2016
  • Maintained balance sheet strength; net-debt-to recurring EBITDA of 4.7 times

Financial Results

Total Rental Revenue

Total rental revenue, which includes minimum rents and percentage rents, for the three months ended September 30, 2017 increased 22.6% to $27.3 million, compared to total rental revenue of $22.3 million for the comparable period in 2016.

Total rental revenue for the nine months ended September 30, 2017 increased 26.0% to $76.7 million, compared to total rental revenue of $60.9 million for the comparable period in 2016.

Net Income

Net Income attributable to the Company for the three months ended September 30, 2017 decreased 14.7% to $12.2 million, compared to $14.3 million for the comparable period in 2016. Net Income per share attributable to the Company for the three months ended September 30, 2017 decreased 30.4% to $0.42, compared to $0.61 per share for the comparable period in 2016. The decrease in Net Income is primarily attributable to a decrease in gain on sale of assets relative to the prior period.

Net Income attributable to the Company for the nine months ended September 30, 2017 increased 28.5% to $41.6 million, compared to $32.4 million for the comparable period in 2016.  Net Income per share attributable to the Company for the nine months ended September 30, 2017 increased 4.2% to $1.52, compared to $1.46 per share for the comparable period in 2016.

Funds from Operations

FFO for the three months ended September 30, 2017 increased 23.2% to $20.0 million, compared to FFO of $16.2 million for the comparable period in 2016.  FFO per share for the three months ended September 30, 2017 increased 1.6% to $0.69, compared to FFO per share of $0.68 for the comparable period in 2016.

FFO for the nine months ended September 30, 2017 increased 29.0% to $55.0 million, compared to FFO of $42.6 million for the comparable period in 2016.  FFO per share for the nine months ended September 30, 2017 increased 5.7% to $2.00, compared to FFO per share of $1.90 for the comparable period in 2016.

Adjusted Funds from Operations

AFFO for the three months ended September 30, 2017 increased 26.2% to $19.9 million, compared to AFFO of $15.8 million for the comparable period in 2016.  AFFO per share for the three months ended September 30, 2017 increased 4.1% to $0.69, compared to AFFO per share of $0.66 for the comparable period in 2016.

AFFO for the nine months ended September 30, 2017 increased 29.8% to $54.8 million, compared to AFFO of $42.2 million for the comparable period in 2016.  AFFO per share for the nine months ended September 30, 2017 increased 6.4% to $2.00, compared to AFFO per share of $1.88 for the comparable period in 2016.

Dividend

The Company paid a cash dividend of $0.505 per share on October 13, 2017 to stockholders of record on September 29, 2017, a 5.2% increase over the $0.48 quarterly dividend declared in the third quarter of 2016.  The quarterly dividend represents payout ratios of approximately 73.4% of FFO per share and 73.6% of AFFO per share, respectively. 

CEO Comments

"We are pleased with our performance as our leading portfolio of net lease retail assets remains extremely stable at near full occupancy as we continue to execute our operating strategy and focus on tenants and real estate of the highest quality.  Our unique investment platforms and flexible balance sheet have positioned us to increase 2017 acquisition guidance to $300 million to $325 million," said Joey Agree, President & Chief Executive Officer of Agree Realty Corporation.

Portfolio Update

As of September 30, 2017, the Company's portfolio consisted of 425 properties located in 43 states and totaled 8.3 million square feet of gross leasable space.  Properties ground leased to tenants increased to 8.2% of annualized base rents.

The portfolio was approximately 99.7% leased, had a weighted-average remaining lease term of approximately 10.5 years, and generated approximately 45.2% of annualized base rents from investment grade retail tenants.

The following table provides a summary of the Company's portfolio as of September 30, 2017:

Property Type

 Number of
Properties


Annualized
Base Rent(1)


 Percent of
Annualized
Base Rent


Percent
Investment
Grade(2)


 Weighted
Average
Lease Term











Retail Net Lease

382


$101,763


90.3%


41.0%


10.5 yrs

Retail Net Lease Ground Leases

40


9,288


8.2%


84.6%


12.1 yrs

Total Retail Net Lease

422


$111,051


98.5%


45.4%


10.6 yrs

Total Portfolio

425


$112,792


100.0%


45.2%


10.5 yrs

 


Annualized base rent is in thousands; any differences are the result of rounding.

(1)

Represents annualized straight-line rent as of September 30, 2017.

(2)

Reflects tenants, or parent entities thereof, with investment grade credit ratings from Standard & Poor's, Moody's, Fitch and/or NAIC.

Acquisitions

Total acquisition volume for the third quarter of 2017 was approximately $54.9 million and included 14 assets net leased to notable retailers operating in the off-price retail, convenience stores, auto parts, tire and auto service, health and fitness and home improvement sectors.  The properties are located in 12 states and leased to tenants operating in nine retail sectors.  The properties were acquired at a weighted-average capitalization rate of 7.4% and had a weighted-average remaining lease term of approximately 11.2 years.

For the nine months ended September 30, 2017, total acquisition volume was approximately $238.8 million and included 61 high-quality retail net lease assets.  The properties are located in 25 states and leased to 45 diverse tenants who operate in 21 retail sectors.  The properties were acquired at a weighted-average capitalization rate of 7.6% and carried a weighted-average remaining lease term of approximately 11.9 years.

Dispositions

During the quarter, the Company sold four properties for gross proceeds of approximately $7.8 million. For the nine months ended September 30, 2017, the Company has disposed of seven properties for total gross proceeds of $30.4 million. The Company is maintaining its disposition guidance of $30 million to $50 million for the current year.

Development and Partner Capital Solutions  

The Company commenced two new development and PCS projects during the quarter, with anticipated costs totaling approximately $11.5 million. The projects include the Company's first project with Burger King franchisee TOMS King in North Ridgeville, Ohio, and the Company's third Camping World in Grand Rapids, Michigan.

During the quarter, Orchard Supply Hardware (Lowe's Companies, Inc.) commenced rent in Boynton Beach, Florida. Total project costs were approximately $3.9 million. Orchard Supply Hardware had previously executed a 15-year net lease.

Construction continued during the quarter on three projects with total anticipated costs of approximately $24.4 million. The projects include the Company's first PCS project with Art Van Furniture in Canton, Michigan, as well as the Company's first two development projects with Mister Car Wash located in Urbandale, Iowa and Bernalillo, New Mexico.

In the first nine months of 2017, the Company had nine development or PCS projects completed or under construction. Anticipated total costs are approximately $57.3 million and include the following completed or commenced projects:

Tenant


Location


Lease
Structure


Lease
Term


Actual or
Anticipated Rent
Commencement


Status












Camping World


Tyler, TX


Build-to-Suit


20 Years


Q1 2017


Completed

Burger King(1)


Heber, UT


Build-to-Suit


20 Years


Q1 2017


Completed

Camping World


Georgetown, KY


Build-to-Suit


20 Years


Q2 2017


Completed

Orchard Supply


Boynton Beach, FL


Build-to-Suit


15 Years


Q3 2017


Completed

Mister Car Wash


Urbandale, IA


Build-to-Suit


20 years


Q4 2017


Under Construction

Mister Car Wash


Bernalillo, NM


Build-to-Suit


20 years


Q4 2017


Under Construction

Art Van Furniture


Canton, MI


Build-to-Suit


20 years


Q1 2018


Under Construction

Burger King(2)


North Ridgeville, OH


Build-to-Suit


20 years


Q1 2018


Under Construction

Camping World


Grand Rapids, MI


Build-to-Suit


20 years


Q2 2018


Under Construction

 

(1)

Franchise restaurant operated by Meridian Restaurants Unlimited, LC.

(2)

Franchise restaurant operated by TOMS King, LLC.

Leasing

During the third quarter, the Company executed new leases, extensions or options on approximately 48,000 square feet of gross leasable area throughout the existing portfolio. In the first nine months of 2017, the Company executed new leases, extensions or options on approximately 480,000 square feet of gross lease area throughout the existing portfolio. The Company has no remaining lease maturities in 2017.

Top Tenants

The following table presents annualized base rents for all tenants that represent 1.5% or greater of the Company's total annualized base rent as of September 30, 2017:

Tenant


Annualized
Base Rent(1)


Percent of Annualized
Base Rent






Walgreens


$9,568


8.5%

Walmart


4,224


3.7%

Lowe's


4,215


3.7%

LA Fitness


3,713


3.3%

CVS


2,889


2.6%

Wawa


2,664


2.4%

Mister Car Wash


2,580


2.3%

Smart & Final


2,475


2.2%

Dollar General


2,415


2.1%

Tractor Supply


2,179


1.9%

Hobby Lobby


2,176


1.9%

Dave & Buster's


2,058


1.8%

Academy Sports


1,982


1.8%

Dollar Tree


1,939


1.7%

Burger King(2)


1,916


1.7%

Rite Aid


1,886


1.7%

24 Hour Fitness


1,759


1.6%

BJ's Wholesale


1,709


1.5%

Other(3)


60,445


53.6%

     Total Portfolio


$112,792


100.0%

 


Annualized base rent is in thousands; any differences are the result of rounding.

(1)

Represents annualized straight-line rent as of September 30, 2017.

(2)

Franchise restaurants operated by Meridian Restaurants Unlimited, LC.    

(3)

Includes tenants generating less than 1.5% of annualized base rent.

Retail Sectors

The following table presents annualized base rents for the Company's top retail sectors that represent 2.5% or greater of the Company's total annualized base rent as of September 30, 2017:

Sector


Annualized
Base Rent(1)


Percent of Annualized
Base Rent






Pharmacy


$14,933


13.2%

Grocery Stores


8,524


7.6%

Restaurants - Quick Service


6,726


6.0%

Health and Fitness


6,427


5.7%

Tire and Auto Service


6,164


5.5%

Home Improvement


5,551


4.9%

Convenience Stores


4,795


4.3%

General Merchandise


4,643


4.1%

Specialty Retail


4,261


3.8%

Off-Price Retail


4,013


3.6%

Auto Parts


3,762


3.3%

Warehouse Clubs


3,749


3.3%

Crafts and Novelties


3,521


3.1%

Farm and Rural Supply


3,361


3.0%

Sporting Goods


3,171


2.8%

Dollar Stores


3,145


2.8%

Health Services


3,066


2.7%

Theaters


2,978


2.6%

Other(2)


20,002


17.7%

     Total Portfolio


$112,792


100.0%

 


Annualized base rent is in thousands; any differences are the result of rounding.

(1)

Represents annualized straight-line rent as of September 30, 2017.

(2)

Includes sectors generating less than 2.5% of annualized base rent.

Geographic Diversification

The following table presents annualized base rents for all states that represent 2.5% or greater of the Company's total annualized base rent as of September 30, 2017:

State


Annualized
Base Rent(1)


Percent of Annualized
Base Rent






Michigan


$14,018


12.4%

Texas


9,937


8.8%

Florida


8,669


7.7%

Illinois


7,849


7.0%

Ohio


6,817


6.0%

Pennsylvania


4,646


4.1%

California


3,697


3.3%

Kentucky


3,640


3.2%

Louisiana


3,606


3.2%

Mississippi


3,283


2.9%

Wisconsin


3,258


2.9%

Missouri


3,099


2.7%

Kansas


2,979


2.6%

Georgia


2,859


2.5%

Other(2)


34,435


30.7%

     Total Portfolio


$112,792


100.0%

 


Annualized base rent is in thousands; any differences are the result of rounding.

(1)

Represents annualized straight-line rent as of September 30, 2017.

(2)

Includes states generating less than 2.5% of annualized base rent.

Lease Expiration

The following table presents contractual lease expirations within the Company's portfolio as of September 30, 2017, assuming no tenants exercise renewal options:

Year

 Leases


Annualized
Base Rent(1)


Percent of
Annualized
Base Rent


Gross
Leasable Area


Percent of Gross
Leasable Area











2017

0


$0


0.0%


0


0.0%

2018

11


1,549


1.4%


279


3.4%

2019

13


4,125


3.7%


286


3.5%

2020

18


2,552


2.3%


220


2.7%

2021

27


5,456


4.8%


330


4.0%

2022

24


4,307


3.8%


394


4.8%

2023

36


6,250


5.5%


597


7.2%

2024

36


9,285


8.2%


907


11.0%

2025

37


7,309


6.5%


556


6.7%

2026

45


6,372


5.6%


637


7.7%

Thereafter

236


65,587


58.2%


4,057


49.0%

     Total Portfolio

483


$112,792


100.0%


8,263


100.0%

 


Annualized base rent and gross leasable area (square feet) are in thousands; any differences are the result of rounding.

(1)

Represents annualized straight-line rent as of September 30, 2017.

Capital Markets and Balance Sheet

Capital Markets

During the three months ended September 30, 2017, the Company issued 589,093 shares of common stock under its at-the-market equity program ("ATM program") at an average price of $49.58, realizing gross proceeds of approximately $29.2 million.

Also within the quarter, the Company completed a private placement of $100 million principal amount of senior unsecured notes. The notes have a 12-year term, maturing on September 20, 2029, priced at fixed interest rate of 4.19%. The all-in pricing represented 165 basis points above the 12-year interpolated U.S. Treasury yield curve at the time of pricing.

Balance Sheet

As of September 30, 2017, the Company's net debt-to-recurring EBITDA was 4.7 times and its fixed charge coverage ratio was 4.1 times. The Company's total debt to total enterprise value was 25.2%.  Total enterprise value is calculated as the sum of total debt and the market value of the Company's outstanding shares of common stock, assuming conversion of operating partnership units into common stock.

For the three months ended September 30, 2017, the Company's fully diluted weighted-average shares outstanding were 28.7 million.  The basic weighted-average shares outstanding for the three months ended September 30, 2017 were 28.6 million.

For the three months ended September 30, 2017, the Company's fully diluted weighted-average shares and units outstanding were 29.0 million. The basic weighted-average shares and units outstanding for the three months ended September 30, 2017 were 28.9 million.

The Company's assets are held by, and its operations are conducted through, Agree Limited Partnership, of which the Company is the sole general partner.  As of September 30, 2017, there were 347,619 operating partnership units outstanding and the Company held a 98.8% interest in the operating partnership.

2017 Outlook

The Company's outlook for acquisition volume in 2017 is being increased to a range of $300 million to $325 million of high-quality retail net lease properties. The Company's acquisition guidance, which assumes continued growth in economic activity, moderate interest rate growth, positive business trends and other significant assumptions, is being increased from a previous range of $250 million to $275 million.  The Company's disposition guidance for 2017 remains between $30 million and $50 million.

Conference Call/Webcast

The Company will host its quarterly analyst and investor conference call on Tuesday, October 24, 2017 at 9:00 AM ET.  To participate in the conference call, please dial (866) 363-3979 approximately ten minutes before the call begins. 

Additionally, a webcast of the conference call will be available through the Company's website.  To access the webcast, visit www.agreerealty.com ten minutes prior to the start time of the conference call and go to the Invest section of the website.  A replay of the conference call webcast will be archived and available online through the Invest section of www.agreerealty.com.

About Agree Realty Corporation

Agree Realty Corporation is a publicly traded real estate investment trust primarily engaged in the acquisition and development of properties net leased to industry-leading retail tenants.  As of September 30, 2017, the Company owned and operated a portfolio of 425 properties, located in 43 states and containing approximately 8.3 million square feet of gross leasable space.  The common stock of Agree Realty Corporation is listed on the New York Stock Exchange under the symbol "ADC".  For additional information, please visit www.agreerealty.com.   

Forward-Looking Statements

This press release may contain certain "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Reform Act of 1995. Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may," "will," "should," "potential," "intend," "expect," "seek," "anticipate," "estimate," "approximately," "believe," "could," "project," "predict," "forecast," "continue," "assume," "plan," references to "outlook" or other similar words or expressions. Forward-looking statements are based on certain assumptions and can include future expectations, future plans and strategies, financial and operating projections and forecasts and other forward-looking information and estimates. These forward-looking statements are subject to various risks and uncertainties, many of which are beyond the Company's control, which could cause actual results to differ materially from such statements. These risks and uncertainties are described in greater detail in the Company's filings with the Securities and Exchange Commission, including, without limitation, the Company's Annual Report on Form 10-K for the year ended December 31, 2016 and in subsequent quarterly reports. Except as required by law, the Company disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

For further information about the Company's business and financial results, please refer to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" sections of the Company's SEC filings, including, but not limited to, its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, copies of which may be obtained at the Invest section of the Company's website at www.agreerealty.com.

All information in this press release is as of October 23, 2017. The Company undertakes no duty to update the statements in this press release to conform the statements to actual results or changes in the Company's expectations.

 

Agree Realty Corporation

Consolidated Balance Sheet

($ in thousands, except share and per-share data)



September 30, 2017


December 31, 2016

Assets:

(Unaudited)



Real Estate Investments:




  Land  

$                371,047


$               309,687

  Buildings

820,138


703,506

  Accumulated depreciation

(80,356)


(69,696)

  Property under development 

10,197


6,764

Net real estate investments

1,121,026


950,261

Real estate held for sale, net

9,003


-

Cash and cash equivalents

25,510


33,395

Cash held in escrows

1,779


-

Accounts receivable - tenants, net of allowance of $142 and $50 for
possible losses at September 30, 2017 and December 31, 2016,
respectively

15,634


11,535

Credit facility finance costs, net of accumulated amortization of $332 and
$1,262 at September 30, 2017 and December 31, 2016, respectively

1,275


1,552

Leasing costs, net of accumulated amortization of $772 and $677 at
September 30, 2017 and December 31, 2016, respectively

1,601


1,227

Lease intangibles, net of accumulated amortization of $36,875 and
$25,666 at September 30, 2017 and December 31, 2016, respectively

184,920


139,871

Interest rate swaps

1,232


1,409

Other assets

4,993


2,722

Total Assets

$               1,366,973


$              1,141,972





Liabilities:




Mortgage notes payable, net

$                  67,458


$                 69,067

Unsecured term loans, net

158,305


158,679

Senior unsecured notes, net

259,112


159,176

Unsecured revolving credit facility

-


14,000

Dividends and distributions payable

14,930


13,124

Deferred revenue

1,452


1,823

Accrued interest payable

2,759


2,210

Accounts payable and accrued expenses:




  Capital expenditures

145


677

  Operating

7,381


4,866

Lease intangibles, net of accumulated amortization of $10,246 and
$7,079 at September 30, 2017 and December 31, 2016, respectively

30,529


30,047

Interest rate swaps

1,284


1,994

Deferred income taxes

705


705

Tenant deposits

96


94

  Total Liabilities

544,156


456,462





Equity:




Common stock, $.0001 par value, 45,000,000 shares authorized,
29,215,835 and 26,164,977 shares issued and outstanding at
September 30, 2017 and December 31, 2016, respectively

3


3

Preferred stock, $.0001 par value per share, 4,000,000 shares authorized




  Series A junior participating preferred stock, $.0001 par value, 200,000
  authorized, no shares issued and outstanding

-


-

Additional paid-in capital

849,442


712,069

Dividends in excess of net income

(29,136)


(28,558)

Accumulated other comprehensive income (loss)

(10)


(536)

Equity - Agree Realty Corporation

820,299


682,978

  Non-controlling interest

2,518


2,532

  Total Equity

822,817


685,510

  Total Liabilities and Equity

$               1,366,973


$              1,141,972

 

 

Agree Realty Corporation

Consolidated Statements of Operations and Comprehensive Income

($ in thousands, except share and per share-data)

(Unaudited)










Three months ended
September 30,


Nine months ended
September 30,


2017


2016


2017


2016

Revenues








 Minimum rents

$      27,325


$      22,279


$      76,500


$      60,682

 Percentage rents

-


7


212


197

 Operating cost reimbursement

2,791


1,845


8,016


5,368

 Other income

271


30


299


(18)

   Total Revenues

30,387


24,161


85,027


66,229









Operating Expenses








 Real estate taxes

2,149


1,473


5,988


4,035

 Property operating expenses

931


169


2,641


1,669

 Land lease payments

163


163


490


490

 General and administrative

2,491


2,020


7,665


6,107

 Depreciation and amortization

8,228


6,151


22,956


16,901

   Total Operating Expenses

13,962


9,976


39,740


29,202









   Income from Operations

16,425


14,185


45,287


37,027









Other (Expense) Income








 Interest expense, net

(4,666)


(4,091)


(13,213)


(11,236)

 Gain on sale of assets, net

524


4,415


10,045


7,133

 Loss on debt extinguishment

-


(33)


-


(33)









   Net Income

12,283


14,476


42,119


32,891









Less Net Income attributable to non-controlling interest

118


213


501


506









   Net Income Attributable to Agree Realty Corporation

$       12,165


$       14,263


$       41,618


$       32,385









Net Income Per Share Attributable to Agree Realty Corporation








   Basic

$           0.42


$           0.61


$           1.53


$           1.47

   Diluted

$           0.42


$           0.61


$           1.52


$           1.46

















Other Comprehensive Income








 Net Income

$      12,283


$      14,476


$      42,119


$      32,891

 Other Comprehensive Income (Loss) - Gain (Loss) on Interest Rate Swaps

203


1,378


533


(3,236)

 Total Comprehensive Income

12,486


15,854


42,652


29,655

 Comprehensive Income Attributable to Non-Controlling Interest

(149)


(229)


(509)


(456)

   Comprehensive Income Attributable to Agree Realty Corporation

$      12,337


$      15,625


$      42,143


$      29,199









Weighted Average Number of Common Shares Outstanding - Basic

28,573,022


23,454,083


26,988,589


22,034,389

Weighted Average Number of Common Shares Outstanding - Diluted

28,656,684


23,563,331


27,069,352


22,127,329


 

 

Agree Realty Corporation

Reconciliation of Net Income to FFO and Adjusted FFO

($ in thousands, except share and per-share data)

(Unaudited)










Three months ended
September 30,


Nine months ended
September 30,


2017


2016


2017


2016









Net Income

$      12,283


$      14,476


$      42,119


$      32,891

Depreciation of real estate assets

5,101


3,947


14,286


10,904

Amortization of leasing costs

40


38


120


85

Amortization of lease intangibles

3,059


2,148


8,470


5,860

(Gain) loss on sale of assets, net

(524)


(4,415)


(10,045)


(7,133)

  Funds from Operations

$      19,959


$      16,194


$      54,950


$      42,607

Straight-line accrued rent

(860)


(857)


(2,545)


(2,162)

Deferred revenue recognition

-


(309)


-


(541)

Stock based compensation expense

622


555


1,898


1,864

Amortization of financing costs

142


122


426


361

Non-real estate depreciation

28


19


80


53

Debt extinguishment costs

-


33


-


33

  Adjusted Funds from Operations

$      19,891


$      15,757


$      54,809


$      42,215









Funds from Operations per common share - Basic

$          0.69


$          0.68


$          2.01


$          1.90

Funds from Operations per common share - Diluted

$          0.69


$          0.68


$          2.00


$          1.90









Adjusted Funds from Operations per common share - Basic

$          0.69


$          0.66


$          2.00


$          1.89

Adjusted Funds from Operations per common share - Diluted

$          0.69


$          0.66


$          2.00


$          1.88









Weighted Average Number of Common Shares and Units Outstanding - Basic

28,920,641


23,801,702


27,336,208


22,382,007

Weighted Average Number of Common Shares and Units Outstanding - Diluted

29,004,303


23,910,950


27,416,971


22,474,948

















Supplemental Information:








Scheduled principal repayments

$           797


$           748


$        2,343


$        2,196

Capitalized interest

143


14


297


27

Capitalized building improvements

34


376


76


405









Non-GAAP Financial Measures

Funds from Operations ("FFO")
The Company considers the non-GAAP measures of FFO and FFO per share/unit to be key supplemental measures of the Company's performance and should be considered along with, but not as alternatives to, net income or loss as a measure of the Company's operating performance. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most real estate industry investors consider FFO to be helpful in evaluating a real estate company's operations.

The White Paper on FFO approved by NAREIT in April 2002, as revised in 2011, defines FFO as net income or loss (computed in accordance with GAAP), excluding gains or losses from sales of properties and items classified by GAAP as extraordinary, plus real estate-related depreciation and amortization and impairment writedowns, and after comparable adjustments for the Company's portion of these items related to unconsolidated entities and joint ventures. The Company computes FFO consistent with standards established by NAREIT, which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than the Company.

The Company believes that excluding the effect of extraordinary items, real estate-related depreciation and amortization and impairments, which are based on historical cost accounting and which may be of limited significance in evaluating current performance, can facilitate comparisons of operating performance between periods and between REITs, even though FFO does not represent an amount that accrues directly to common shareholders. However, FFO may not be helpful when comparing the Company to non-REITs.

FFO does not represent cash generated from operating activities as determined by GAAP and should not be considered as alternatives to net income or loss, cash flows from operations or any other operating performance measure prescribed by GAAP. FFO is not a measurement of the Company's liquidity, nor is FFO indicative of funds available to fund the Company's cash needs, including its ability to make cash distributions. These measurements do not reflect cash expenditures for long-term assets and other items that have been and will be incurred. FFO may include funds that may not be available for management's discretionary use due to functional requirements to conserve funds for capital expenditures, property acquisitions, and other commitments and uncertainties. To compensate for this, management considers the impact of these excluded items to the extent they are material to operating decisions or the evaluation of the Company's operating performance.

Adjusted Funds from Operations
The Company presents adjusted FFO (including adjusted FFO per share/unit), which adjusts for certain additional items including straight-line accrued rent, deferred revenue recognition, stock based compensation expense, non-real estate depreciation and debt extinguishment costs and certain other items. The Company excludes these items as it believes it allows for meaningful comparisons with other REITs and between periods and is more indicative of the ongoing performance of its assets. As with FFO, the Company's calculation of adjusted FFO may be different from similar adjusted measures calculated by other REITs.

Any differences are a result of rounding.

 

 

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