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Form 8-K AGREE REALTY CORP For: Apr 25

April 27, 2016 6:04 AM EDT

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of report (Date of earliest event reported): April 25, 2016

 

AGREE REALTY CORPORATION

(Exact name of registrant as specified in its charter)

 

Maryland

(State of other jurisdiction of incorporation)

 

1-12928

(Commission file number)

38-3148187

(I.R.S. Employer Identification No.)

   

70 E. Long Lake Road

Bloomfield Hills, MI

(Address of principal executive offices)

 

48304

(Zip code)

 

(Registrant’s telephone number, including area code) (248) 737-4190

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
   
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
   
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
   
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

  

 

 

 

Item 2.02. Results of Operations and Financial Condition.

  

On April 25, 2016, Agree Realty Corporation issued a press release describing its results of operations for the first quarter ended March 31, 2016. The press release is furnished as Exhibit 99.1 to this report and is hereby incorporated by reference.

 

Item 9.01. Financial Statements and Exhibits.

 

(d) Exhibits

 

Exhibit Description
   
99.1 Press release, dated April 25, 2016, reporting the Company's results of operations for the first quarter ended March 31, 2016.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

  AGREE REALTY CORPORATION
       
       
  By: /s/ Matthew M. Partridge
    Name: Matthew M. Partridge
    Title: Executive Vice President, Chief Financial Officer and Secretary

 

Date: April 26, 2016 

 

 

 

 

EXHIBIT INDEX 

 

Exhibit Description
   
99.1 Press release, dated April 25, 2016, reporting the Company's results of operations for the first quarter ended March 31, 2016.

 

 

 

 

Exhibit 99.1

 

ADC stacked logo color  70 E. Long Lake Rd.
Bloomfield Hills, MI 48304
www.agreerealty.com

 

FOR IMMEDIATE RELEASE

 

 

AGREE REALTY CORPORATION REPORTS FIRST QUARTER 2016 RESULTS

 

Bloomfield Hills, MI, April 25, 2016 -- Agree Realty Corporation (NYSE: ADC) (the “Company”) today announced results for the quarter ended March 31, 2016. All per share amounts included herein are on a diluted per common share basis unless otherwise stated.

 

First Quarter 2016 Financial and Operating Highlights:

 

§Increased Funds from Operations (“FFO”) per share 8.5% to $0.61
§Increased FFO 27.2% to $12.7 million
§Increased Adjusted Funds from Operations (“AFFO”) per share 7.9% to $0.61
§Increased AFFO 26.5% to $12.7 million
§Increased rental revenue 28.2% to $18.7 million
§Invested in 13 retail net lease properties for $38.3 million
§Announced one new development project
§Declared dividends of $0.465 per share, an increase of 3.3% over dividends per share declared in the first quarter of 2015

 

Financial Results

 

Total Rental Revenue

 

Total rental revenue, which includes minimum rents and percentage rents, for the three months ended March 31, 2016 increased 28.2% to $18.7 million compared with total rental revenue of $14.6 million for the comparable period in 2015.

 

Funds from Operations

 

FFO for the three months ended March 31, 2016 increased 27.2% to $12.7 million compared with FFO of $10.0 million for the comparable period in 2015. FFO per share for the three months ended March 31, 2016 increased 8.5% to $0.61 compared with FFO per share of $0.56 for the comparable period in 2015.

 

Adjusted Funds from Operations

 

AFFO for the three months ended March 31, 2016 increased 26.5% to $12.7 million compared with AFFO of $10.1 million for the comparable period in 2015. AFFO per share for the three months ended March 31, 2016 increased 7.9% to $0.61 compared with AFFO per share of $0.57 for the comparable period in 2015.

 

Net Income

 

Net income attributable to the Company for the three months ended March 31, 2016 was $7.5 million, or $0.36 per share, compared with $6.4 million, or $0.37 per share, for the comparable period in 2015.

 

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Dividend

 

The Company paid a cash dividend of $0.465 per share on April 15, 2016 to stockholders of record on March 31, 2016, a 3.3% increase over the $0.45 quarterly dividend declared in the first quarter of 2015. The quarterly dividend represents payout ratios of approximately 76.5% of FFO and 76.1% of AFFO, respectively.

 

CEO Comments

 

“We had another strong quarter as we continue to execute our operating strategy,” said Joey Agree, President and Chief Executive Officer of Agree Realty Corporation. “During the quarter we invested in thirteen high-quality net lease properties with strong underlying real estate fundamentals located in a number of attractive markets. We have a robust pipeline of high-quality opportunities through our three distinct retail net lease investment platforms, which we are confident will produce superior risk-adjusted returns for our shareholders. With a strong balance sheet situated for continued growth, an industry-leading portfolio of retail net lease properties, and no lease expirations or debt maturities remaining in 2016, we are extremely well-positioned for the future.”

 

 

Portfolio Update

 

As of March 31, 2016, the Company’s portfolio consisted of 291 properties located in 42 states and totaling 5.4 million square feet of gross leasable space. Properties ground leased to tenants accounted for 8.4% of annualized base rent.

 

The portfolio was approximately 99.5% leased, had a weighted-average remaining lease term of approximately 11.2 years, and generated approximately 50.3% of annualized base rents from investment grade tenants.

 

The table below provides a summary of the Company’s portfolio as of March 31, 2016:

 

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   262   $66,726    89.3%   47.3%   11.1 yrs 
Retail Net Lease Ground Leases   26    6,287    8.4%   88.2%   13.5 yrs 
Total Retail Net Lease   288    73,013    97.7%   50.9%   11.3 yrs 
Total Portfolio   291   $74,766    100.0%   50.3%   11.2 yrs 

 

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

(1)Represents annualized straight-line rent as of March 31, 2016.
(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 first quarter of 2016 was approximately $33.3 million and included 12 assets net leased to a number of notable retailers operating in the entertainment retail, specialty retail, quick service restaurant, discount and auto service sectors. The properties are located in 9 states and leased to 13 distinct tenants operating across 9 retail sectors. These properties were acquired at a weighted-average cap rate of 7.9% and with a weighted-average remaining lease term of approximately 6.9 years.

 

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Development and Partner Capital Solutions

 

In the first quarter of 2016, the Company, through its development program, completed the previously announced Hobby Lobby project in Springfield, Ohio. The development was completed ahead of schedule at a total cost of approximately $5.0 million and is subject to a new 15-year lease.

 

In addition to the Company’s recently completed development, construction commenced on its previously announced Burger King in Farr West, Utah. This project is part of the previously announced partnership with Meridian Restaurants and has a total cost of approximately $1.6 million. Rent is expected to commence in the third quarter of 2016 and the Company will own a 100% fee simple interest in the property upon the project’s completion.

 

Subsequent to the end of the first quarter of 2016, the Company commenced the development of a new Burger King in Devils Lake, North Dakota. This property is also part of the previously announced partnership with Meridian Restaurants and is subject to a new 20-year lease.

 

Leasing

 

During the first quarter of 2016 the Company executed new leases, extensions or options on over 31,000 square feet of gross leasable area throughout the portfolio. Material new leases, extensions or options included a 24,153 square foot Staples in Davenport, Iowa. The Company has no remaining lease maturities in 2016.

 

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Top Tenants

 

The following table presents annualized base rents for all tenants that generated 1.5% or greater of the Company’s total annualized base rent as of March 31, 2016:

 

Tenant  Annualized
Base Rent (1)
   Percent of Annualized Base Rent 
         
Walgreens  $12,310    16.5%
Wal-Mart   3,924    5.2%
Wawa   2,465    3.3%
CVS   2,463    3.3%
Academy Sports   1,982    2.7%
Rite Aid   1,886    2.5%
Lowe's   1,846    2.5%
Dollar General   1,795    2.4%
24 Hour Fitness   1,759    2.4%
BJ's Wholesale   1,709    2.3%
LA Fitness   1,694    2.3%
Taco Bell(2)   1,537    2.1%
Dollar Tree   1,427    1.9%
Burger King(3)   1,241    1.7%
Kohl's   1,180    1.6%
AutoZone   1,163    1.6%
Dick's Sporting Goods   1,089    1.5%
Total Top Tenants  $41,470    55.8%

 

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

(1)Represents annualized straight-line rent as of March 31, 2016.
(2)Franchise restaurants operated by Charter Foods North, LLC.
(3)Franchise restaurants operated by Meridian Restaurants Unlimited, LC.

 

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Tenant Sectors

 

The following table presents annualized base rents for the Company’s top retail sectors that generated 2.5% or greater of the Company’s total annualized base rent as of March 31, 2016:

 

Sector  Annualized
Base Rent (1)
   Percent of Annualized Base Rent 
         
Pharmacy  $16,659    22.3%
Restaurants - Quick Service   5,702    7.6%
Specialty Retail   4,037    5.4%
General Merchandise   3,956    5.3%
Apparel   3,906    5.2%
Grocery Stores   3,843    5.1%
Warehouse Clubs   3,749    5.0%
Health & Fitness   3,562    4.8%
Sporting Goods   3,149    4.2%
Convenience Stores   2,599    3.5%
Restaurants - Casual Dining   2,388    3.2%
Dollar Stores   2,280    3.0%
Auto Parts   2,257    3.0%
Crafts and Novelties   1,977    2.6%
Home Improvement   1,846    2.5%
Other(2)   12,856    17.3%
Total Portfolio  $74,766    100.0%

 

Annualized base rent is in thousands; any differences are a result of rounding.
(1)Represents annualized straight-line rent as of March 31, 2016.
(2)Includes sectors generating less than 2.5% of annualized base rent.

 

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Lease Expiration

 

The following table presents contractual lease expirations within the Company’s portfolio as of March 31, 2016, assuming that no tenants exercise renewal options:

 

Year  Leases   Annualized Base Rent (1)   Percent of Annualized Base Rent   Gross Leasable Area   Percent of Gross Leasable Area 
                     
2016   0   $0    0.0%   0    0.0%
2017   10    1,700    2.3%   114    2.1%
2018   11    1,431    1.9%   245    4.5%
2019   12    4,326    5.8%   372    6.8%
2020   16    2,451    3.3%   232    4.3%
2021   22    4,812    6.4%   293    5.4%
2022   14    2,760    3.7%   266    4.9%
2023   24    3,808    5.1%   313    5.8%
2024   29    6,504    8.7%   544    10.0%
2025   30    5,886    7.9%   428    7.9%
Thereafter   164    41,088    54.9%   2,636    48.3%
Total Portfolio   332   $74,766    100.0%   5,443    100.0%

 

Annualized base rent and gross leasable area are in thousands; any differences are a result of rounding.

(1)Represents annualized straight-line rent as of March 31, 2016.

 

Capital Markets and Balance Sheet

 

Capital Markets

 

On March 11, 2016, the Company paid off an $8.6 million mortgage secured by three Wawa properties. The Company has no remaining debt maturities in 2016.

 

During the three months ended March 31, 2016, the Company issued 53,886 shares of common stock under its at-the-market equity program (“ATM program”), realizing gross proceeds of approximately $2.1 million.

 

Balance Sheet

 

As of March 31, 2016, the Company’s total debt to total enterprise value was approximately 30.3%. 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 March 31, 2016, the Company had 20.5 million fully diluted weighted-average shares outstanding. The Company had 20.4 million basic weighted-average shares outstanding for the three months ended March 31, 2016.

 

 6

 

 

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 March 31, 2016, there were 347,619 operating partnership units outstanding and the Company held a 98.3% interest in the operating partnership.

 

2016 Outlook

 

The Company’s outlook for acquisition volume in 2016, which assumes continued growth in economic activity, positive business trends and other significant assumptions, remains between $175 and $200 million of high-quality retail net lease properties.

 

Conference Call/Webcast

 

Agree Realty Corporation will host its quarterly analyst and investor conference call on Tuesday, April 26, 2016 at 9:00 AM EST. 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 primarily engaged in the acquisition and development of properties net leased to industry-leading retail tenants. The Company currently owns and operates a portfolio of 297 properties, located in 42 states and containing approximately 5.5 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, visit the Company’s home page at 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, 2015 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.

 

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All information in this press release is as of April 25, 2016. 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.

 

###

 

Contact:

 

Matthew M. Partridge

Chief Financial Officer

Agree Realty Corporation

(248) 737-4190

 

 8

 

 

Agree Realty Corporation

Consolidated Balance Sheet

($ in thousands, except per share data)

 

   March 31, 2016   December 31, 2015 
Assets:  (Unaudited)     
Real Estate Investments:          
Land  $236,700   $225,274 
Buildings   553,441    526,912 
Accumulated depreciation   (59,764)   (56,401)
Property under development   3,575    3,663 
Net real estate investments   733,952    699,448 
Cash and cash equivalents   3,711    2,712 
Accounts receivable - Tenants, net of allowance of $35 for possible losses at March 31, 2016 and December 31, 2015, respectively   7,807    7,418 
Unamortized Deferred Expenses:          
Credit facility financing Costs, net of accumulated amortization of $1,584 and $1,532 at March 31, 2016 and December 31, 2015, respectively   490    506 
Leasing costs, net of accumulated amortization of $575 and $554 at March 31, 2016 and December 31, 2015, respectively   682    664 
Lease intangibles, net of accumulated amortization of $12,263 and $10,578 at March 31, 2016 and December 31, 2015, respectively   76,651    76,552 
Other assets   2,260    2,570 
Total Assets  $825,553   $789,870 
           
Liabilities:          
Mortgage notes payable, net  $91,125   $100,359 
Unsecured Term Loans, net   99,421    99,156 
Senior Unsecured Notes, net   99,177    99,389 
Unsecured Revolving Credit Facility   60,000    18,000 
Dividends and Distributions Payable   9,812    9,758 
Deferred Revenue   425    541 
Accrued Interest Payable   1,977    963 
Accounts Payable and Accrued Expense:          
Capital Expenditures   28    122 
Operating   6,252    3,927 
Interest Rate Swaps   6,138    3,301 
Deferred Income Taxes   705    705 
Tenant Deposits   39    29 
Total Liabilities   375,099    336,250 
           
Stockholders' Equity:          
Common stock, $.0001 par value, 28,000,000 shares authorized, 20,754,264 and 20,637,301 shares issued and outstanding, respectively   2    2 
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   484,511    482,514 
Dividends in excess of net income   (30,452)   (28,262)
Accumulated other comprehensive loss   (6,018)   (3,130)
Total Stockholders' Equity - Agree Realty Corporation   448,043    451,124 
Non-controlling interest   2,411    2,496 
Total Stockholders' Equity   450,454    453,620 
Total Liabilities and Stockholders' Equity  $825,553   $789,870 

 

 9

 

 

Agree Realty Corporation

Consolidated Statements of Operations and Comprehensive Income

($ in thousands, except per share data)

 

   Three months ended
March 31,
 
   2016   2015 
   (Unaudited) 
Revenues          
Minimum rents  $18,491   $14,554 
Percentage rents   183    10 
Operating cost reimbursement   1,589    1,178 
Other income   (39)   1 
Total Revenues   20,224    15,743 
           
Operating Expenses          
Real estate taxes   1,123    763 
Property operating expenses   573    571 
Land lease payments   163    132 
General and administrative   2,045    1,668 
Depreciation and amortization   5,085    3,553 
Total Operating Expenses   8,989    6,687 
           
Income from Operations   11,235    9,056 
           
Other (Expense) Income          
Interest expense, net   (3,649)   (2,461)
Gain (loss) on sale of assets   -    79 
Loss on debt extinguishment   -    (180)
           
Net Income   7,586    6,494 
           
Less Net Income Attributable to Non-Controlling Interest   125    126 
           
Net Income Attributable to Agree Realty Corporation  $7,461   $6,368 
           
Net Income Per Share Attributable to Agree Realty Corporation          
Basic  $0.37   $0.37 
Diluted  $0.36   $0.37 
           
           
Other Comprehensive Income          
Net income  $7,586   $6,494 
Other Comprehensive Income (Loss)   (2,935)   (2,012)
Total Comprehensive Income   4,651    4,482 
Comprehensive Income Attributable to Non-Controlling Interest   (77)   (87)
Comprehensive Income Attributable to Agree Realty Corporation  $4,574   $4,395 
           
Weighted Average Number of Common Shares Outstanding - Basic   20,439    17,370 
Weighted Average Number of Common Shares Outstanding - Diluted   20,480    17,416 

 

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Agree Realty Corporation

Reconciliation of Net Income to FFO and Adjusted FFO

($ in thousands, except per share data)

(Unaudited)

 

   Three months ended
March 31,
 
   2016   2015 
         
Net income  $7,586   $6,494 
Depreciation of real estate assets   3,362    2,555 
Amortization of leasing costs   22    30 
Amortization of lease intangibles   1,686    953 
(Gain) loss on sale of assets   -    (79)
Funds from Operations  $12,656   $9,953 
Straight-line accrued rent   (649)   (598)
Deferred revenue recognition   (116)   (116)
Stock based compensation expense   708    524 
Amortization of financing costs   118    109 
Non-real estate depreciation   15    16 
Debt extinguishment costs   -    180 
Adjusted Funds from Operations  $12,732   $10,068 
           
FFO per common share - Basic  $0.61   $0.56 
FFO per common share - Diluted  $0.61   $0.56 
           
Adjusted FFO per common share - Basic  $0.61   $0.57 
Adjusted FFO per common share - Diluted  $0.61   $0.57 
           
Weighted Average Number of Common Shares and Units Outstanding - Basic   20,786    17,717 
Weighted Average Number of Common Shares and Units Outstanding - Diluted   20,828    17,764 
           
           
Supplemental Information:          
Scheduled principal repayments  $720   $677 
Capitalized interest   7    1 
Capitalized building improvements   -    - 

 

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Non-GAAP Financial Measures

 

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 an alternative 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. This measurement does 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 FFO

 

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.

 

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