10-Q 1 adc-20240331x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Mark One

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2024, or

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period fromto

Commission File Number 001-12928

AGREE REALTY CORPORATION

(Exact name of registrant as specified in its charter)

Maryland

    

38-3148187

(State or other jurisdiction of incorporation or

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

Organization)

 

32301 Woodward Avenue, Royal Oak, Michigan

    

48073

(Address of principal executive offices)

(Zip Code)

(248) 737-4190

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:  

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, $0.0001 par value

ADC

New York Stock Exchange

Depositary Shares, each representing one-thousandth of a share of 4.25% Series A Cumulative Redeemable Preferred Stock, $0.0001 par value

ADCPrA

New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer 

Smaller reporting company

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

No

As of April 22, 2024, the Registrant had 100,625,948 shares of common stock issued and outstanding.

AGREE REALTY CORPORATION

Index to Form 10-Q

Page

PART I

Financial Information

Item 1:

Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023

1

Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2024 and 2023

2

Condensed Consolidated Statements of Equity for the three months ended March 31, 2024 and 2023

3

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023

5

Notes to Condensed Consolidated Financial Statements

6

Item 2:

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

Item 3:

Quantitative and Qualitative Disclosures about Market Risk

40

Item 4:

Controls and Procedures

42

PART II

Other Information

Item 1:

Legal Proceedings

42

Item 1A:

Risk Factors

42

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

42

Item 3:

Defaults Upon Senior Securities

43

Item 4:

Mine Safety Disclosures

43

Item 5:

Other Information

43

Item 6:

Exhibits

44

SIGNATURES

46

PART I.       FINANCIAL INFORMATION

Item 1.       Financial Statements

AGREE REALTY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per-share data)

(Unaudited)

March 31, 

December 31, 

2024

2023

ASSETS

Real Estate Investments

Land

$

2,305,313

$

2,282,354

Buildings

 

4,937,878

 

4,861,692

Less accumulated depreciation

 

(463,827)

 

(433,958)

 

6,779,364

 

6,710,088

Property under development

 

42,109

 

33,232

Net Real Estate Investments

 

6,821,473

 

6,743,320

Real Estate Held for Sale, net

 

5,416

 

3,642

Cash and Cash Equivalents

 

6,314

 

10,907

Cash Held in Escrows

 

9,120

 

3,617

Accounts Receivable - Tenants, net

91,301

 

82,954

Lease Intangibles, net of accumulated amortization of $383,456 and $360,061 at March 31, 2024 and December 31, 2023, respectively

840,984

854,088

Other Assets, net

 

94,057

 

76,308

 

  

Total Assets

$

7,868,665

$

7,774,836

LIABILITIES

  

Mortgage Notes Payable, net

$

42,666

$

42,811

Unsecured Term Loan, net

346,947

 

346,798

Senior Unsecured Notes, net

1,794,874

 

1,794,312

Unsecured Revolving Credit Facility

330,000

 

227,000

Dividends and Distributions Payable

25,561

 

25,534

Accounts Payable, Accrued Expenses, and Other Liabilities

112,385

 

101,401

Lease Intangibles, net of accumulated amortization of $42,684 and $42,813 at March 31, 2024 and December 31, 2023, respectively

36,757

36,827

Total Liabilities

2,689,190

 

2,574,683

  

EQUITY

  

Preferred stock, $.0001 par value per share, 4,000,000 shares authorized, 7,000 shares Series A outstanding, at stated liquidation value of $25,000 per share, at March 31, 2024 and December 31, 2023

175,000

 

175,000

Common stock, $.0001 par value, 180,000,000 shares authorized, 100,628,975 and 100,519,355 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

10

 

10

Additional paid-in-capital

5,354,362

 

5,354,120

Dividends in excess of net income

(378,205)

 

(346,473)

Accumulated other comprehensive income

27,430

 

16,554

Total Equity - Agree Realty Corporation

5,178,597

 

5,199,211

Non-controlling interest

878

 

942

Total Equity

5,179,475

 

5,200,153

  

Total Liabilities and Equity

$

7,868,665

$

7,774,836

See accompanying notes to condensed consolidated financial statements.

1

AGREE REALTY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(In thousands, except share and per-share data)

(Unaudited)

Three Months Ended

    

March 31, 2024

    

March 31, 2023

    

Revenues

 

  

 

  

 

Rental income

$

149,422

$

126,609

Other

 

31

 

9

Total Revenues

 

149,453

 

126,618

 

  

 

  

Operating Expenses

 

  

 

  

Real estate taxes

 

10,701

 

9,432

Property operating expenses

 

7,373

 

6,782

Land lease expense

 

415

 

430

General and administrative

 

9,515

 

8,821

Depreciation and amortization

 

48,463

 

40,646

Provision for impairment

 

4,530

 

Total Operating Expenses

 

80,997

 

66,111

Gain on sale of assets, net

 

2,096

 

Loss on involuntary conversion, net

(55)

Income from Operations

 

70,497

 

60,507

 

  

 

  

Other (Expense) Income

 

  

 

  

Interest expense, net

 

(24,451)

 

(17,998)

Income and other tax expense

(1,149)

(783)

Other income

 

117

 

48

Net Income

 

45,014

 

41,774

 

  

 

  

Less net income attributable to non-controlling interest

 

155

 

160

Net income attributable to Agree Realty Corporation

44,859

41,614

Less Series A preferred stock dividends

 

1,859

 

1,859

Net Income Attributable to Common Stockholders

$

43,000

$

39,755

 

  

 

  

Net Income Per Share Attributable to Common Stockholders

 

  

 

  

Basic

$

0.43

$

0.44

Diluted

$

0.43

$

0.44

 

 

  

Other Comprehensive Income

 

  

 

  

Net income

$

45,014

$

41,774

Amortization of interest rate swaps

(629)

(629)

Change in fair value and settlement of interest rate swaps

 

11,543

 

Total comprehensive income

 

55,928

 

41,145

Less comprehensive income attributable to non-controlling interest

 

193

 

158

 

  

 

  

Comprehensive Income Attributable to Agree Realty Corporation

$

55,735

$

40,987

 

  

 

  

Weighted Average Number of Common Shares Outstanding - Basic

 

100,284,588

 

90,028,255

 

 

Weighted Average Number of Common Shares Outstanding - Diluted

 

100,336,600

 

90,548,172

See accompanying notes to condensed consolidated financial statements.

2

AGREE REALTY CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(In thousands, except share and per-share data)

(Unaudited)

Accumulated

Dividends in

Other

Preferred Stock

Common Stock

Additional

excess of net

Comprehensive

Non-Controlling

Total

  

Shares

  

Amount

  

Shares

  

Amount

  

Paid-In Capital

  

income

  

Income (Loss)

  

Interest

  

Equity

Balance, December 31, 2023

7,000

$

175,000

100,519,355

$

10

$

5,354,120

$

(346,473)

$

16,554

$

942

$

5,200,153

Repurchase of common shares

(37,957)

(2,183)

(2,183)

Issuance of stock under the 2020 Omnibus Incentive Plan

147,656

Forfeiture of restricted stock

(79)

Stock-based compensation

2,425

2,425

Series A preferred dividends declared for the period

(1,859)

(1,859)

Common stock dividends and distributions declared for the period

(74,732)

(257)

(74,989)

Amortization, changes in fair value, and settlement of interest rate swaps

10,876

38

10,914

Net income

1,859

43,000

155

45,014

Balance, March 31, 2024

7,000

$

175,000

100,628,975

$

10

$

5,354,362

$

(378,205)

$

27,430

$

878

$

5,179,475

Cash dividends declared per depositary share of Series A preferred stock:

For the three months ended March 31, 2024

$

0.266

Cash dividends declared per common share:

For the three months ended March 31, 2024

$

0.741

See accompanying notes to condensed consolidated financial statements.

3

AGREE REALTY CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(In thousands, except share and per-share data)

(Unaudited)

Accumulated

Dividends in

Other

Preferred Stock

Common Stock

Additional

excess of net

Comprehensive

Non-Controlling

Total

  

Shares

  

Amount

  

Shares

  

Amount

  

Paid-In Capital

  

income

  

Income (Loss)

  

Interest

  

Equity

Balance, December 31, 2022

7,000

$

175,000

90,173,424

$

9

$

4,658,570

$

(228,132)

$

23,551

$

1,392

$

4,630,390

Issuance of common stock, net of issuance costs

2,945,000

195,133

195,133

Repurchase of common shares

(35,578)

(2,607)

(2,607)

Issuance of restricted stock under the 2020 Omnibus Incentive Plan

128,993

Forfeiture of restricted stock

(13,760)

Stock-based compensation

1,831

1,831

Series A preferred dividends declared for the period

(1,859)

(1,859)

Dividends and distributions declared for the period

(65,939)

(250)

(66,189)

Amortization, changes in fair value, and settlement of interest rate swaps

(627)

(2)

(629)

Net income

1,859

39,755

160

41,774

Balance, March 31, 2023

7,000

$

175,000

93,198,079

$

9

$

4,852,927

$

(254,316)

$

22,924

$

1,300

$

4,797,844

Cash dividends declared per depositary share of Series A preferred stock:

For the three months ended March 31, 2023

$

0.266

Cash dividends declared per common share:

For the three months ended March 31, 2023

$

0.720

See accompanying notes to Condensed consolidated financial statements.

4

AGREE REALTY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Three Months Ended

    

March 31, 2024

    

March 31, 2023

Cash Flows from Operating Activities

 

  

 

  

Net income

$

45,014

$

41,774

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

Depreciation and amortization

 

48,463

 

40,646

Amortization from above (below) market lease intangibles, net

8,295

8,611

Amortization from financing costs, credit facility costs and debt discount

 

1,269

 

1,113

Stock-based compensation

 

2,425

 

1,831

Straight-line accrued rent

(2,847)

(3,039)

Provision for impairment

4,530

Gain on sale of assets

 

(2,096)

 

Increase in accounts receivable

 

(5,676)

 

(2,209)

Increase in other assets

 

(11,661)

 

(10,024)

Increase in accounts payable, accrued expenses, and other liabilities

15,426

15,468

Net Cash Provided by Operating Activities

 

103,142

 

94,171

 

  

 

  

Cash Flows from Investing Activities

 

  

 

  

Acquisition of real estate investments and other assets

 

(128,343)

 

(303,382)

Development of real estate investments and other assets, net of reimbursements (including capitalized interest of $304 in 2024 and $539 in 2023)

 

(18,431)

 

(27,687)

Payment of leasing costs

 

(307)

 

(38)

Net proceeds from sale of assets

 

21,116

 

Net Cash Used in Investing Activities

 

(125,965)

 

(331,107)

 

  

 

  

Cash Flows from Financing Activities

 

 

  

Proceeds from common stock offerings, net

195,133

Repurchase of common shares

 

(2,183)

 

(2,607)

Unsecured revolving credit facility borrowings

 

200,000

 

385,000

Unsecured revolving credit facility repayments

 

(97,000)

 

(289,000)

Payments of mortgage notes payable

 

(235)

 

(221)

Payment of Series A preferred dividends

(1,859)

(1,859)

Payment of common stock dividends

 

(74,705)

 

(65,198)

Distributions to non-controlling interest

 

(258)

 

(266)

Payments for financing costs

 

(27)

 

(15)

Net Cash Provided by Financing Activities

 

23,733

 

220,967

 

  

 

  

Net Increase (Decrease) in Cash and Cash Equivalents and Cash Held in Escrow

 

910

 

(15,969)

Cash and cash equivalents and cash held in escrow, beginning of period

 

14,524

 

28,909

Cash and cash equivalents and cash held in escrow, end of period

$

15,434

$

12,940

 

  

 

  

Supplemental Disclosure of Cash Flow Information

 

  

 

  

Cash paid for interest (net of amounts capitalized)

$

12,361

$

7,044

Cash paid for income tax

$

2,686

$

279

 

 

Supplemental Disclosure of Non-Cash Investing and Financing Activities

 

  

 

  

Series A preferred dividends declared and unpaid

$

620

$

620

Common stock dividends and limited partners' distributions declared and unpaid

$

24,941

$

22,451

Change in accrual of development, construction and other real estate investment costs

$

12,626

$

(6,459)

See accompanying notes to condensed consolidated financial statements.

5

AGREE REALTY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

(Unaudited)

Note 1 – Organization

Agree Realty Corporation (the “Company”), a Maryland corporation, is a fully integrated real estate investment trust (“REIT”) primarily focused on the ownership, acquisition, development and management of retail properties net leased to industry leading tenants. The Company was founded in 1971 by its current Executive Chairman, Richard Agree, and its common stock was listed on the New York Stock Exchange in 1994.

The Company’s assets are held by, and all of its operations are conducted through, directly or indirectly, Agree Limited Partnership (the “Operating Partnership”), of which Agree Realty Corporation is the sole general partner and in which it held a 99.7% common equity interest as of March 31, 2024 and December 31, 2023. There is a one-for-one relationship between the limited partnership interests in the Operating Partnership (“Operating Partnership Common Units”) owned by the Company and shares of Company common stock outstanding. The Company also owns 100% of the Series A preferred equity interest in the Operating Partnership. This preferred equity interest corresponds on a one-for-one basis to the Company’s Series A Preferred Stock (Refer to Note 6 – Common and Preferred Stock), providing income and distributions to the Company equal to the dividends payable on that stock.

As of March 31, 2024 and December 31, 2023, the non-controlling interest in the Operating Partnership consisted of a 0.3% common ownership interest in the Operating Partnership held by the Company’s founder and Executive Chairman. The Operating Partnership Common Units may, under certain circumstances, be exchanged for shares of common stock on a one-for-one basis. The Company, as sole general partner of the Operating Partnership, has the option to settle exchanged Operating Partnership Common Units held by others for cash based on the current trading price of its shares. Assuming the exchange of all non-controlling Operating Partnership Common Units, there would have been 100,976,594 shares of common stock outstanding at March 31, 2024.

As of March 31, 2024, the Company owned 2,161 properties, with a total gross leasable area (“GLA”) of approximately 44.9 million square feet. As of March 31, 2024, the Company’s portfolio was approximately 99.6% leased and had a weighted average remaining lease term (excluding extension options) of approximately 8.2 years. A significant majority of its properties are leased to national tenants and approximately 68.8% of its annualized base rent was derived from tenants, or parent entities thereof, with an investment grade credit rating from S&P Global Ratings, Moody’s Investors Service, Fitch Ratings or the National Association of Insurance Commissioners.

The terms “Agree Realty,” the “Company,” “Management,” “we,” “our” or “us” refer to Agree Realty Corporation and all of its consolidated subsidiaries, including the Operating Partnership.

Note 2 – Summary of Significant Accounting Policies

Basis of Accounting

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) 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 GAAP for audited financial statements. The unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the results for the interim period presented. Operating results for the three months ended March 31, 2024 may not be indicative of the results that may be expected for the year ending December 31, 2024.  

6

Amounts as of December 31, 2023 included in the condensed consolidated financial statements have been derived from the audited consolidated financial statements as of that date. The unaudited condensed consolidated financial statements, included herein, should be read in conjunction with the audited consolidated financial statements and notes thereto, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations, in the Company’s Form 10-K for the year ended December 31, 2023.

Consolidation

Under the agreement of limited partnership of the Operating Partnership, the Company, as the sole general partner, has exclusive responsibility and discretion in the management and control of the Operating Partnership. The Company consolidates the Operating Partnership under the guidance set forth in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, Consolidation, and as a result, the unaudited condensed consolidated financial statements include the accounts of the Company, the Operating Partnership and its wholly owned subsidiaries. All material intercompany accounts and transactions are eliminated, including the Company’s Series A preferred equity interest in the Operating Partnership.

Real Estate Investments

The Company records the acquisition of real estate at cost, including acquisition and closing costs. For properties developed by the Company, all direct and indirect costs related to planning, development and construction, including interest, real estate taxes and other miscellaneous costs incurred during the construction period, are capitalized for financial reporting purposes and recorded as property under development until construction has been completed.  

Assets Held for Sale

Assets are classified as real estate held for sale based on specific criteria as outlined in FASB ASC Topic 360, Property, Plant & Equipment. Properties classified as real estate held for sale are recorded at the lower of their carrying value or their fair value, less anticipated selling costs. Any properties classified as held for sale are not depreciated. Assets are generally classified as real estate held for sale once management has actively engaged in marketing the asset and has received a firm purchase commitment that is expected to close within one year.

Acquisitions of Real Estate

The acquisition of property for investment purposes is typically accounted for as an asset acquisition. The Company allocates the purchase price to land, building, assumed debt, if any, and identified intangible assets and liabilities, based in each case on their relative estimated fair values and without giving rise to goodwill. Intangible assets and liabilities represent the value of in-place leases and above- or below-market leases. In making estimates of fair values, the Company may use various sources, including data provided by independent third parties, as well as information obtained by the Company as a result of its due diligence, including expected future cash flows of the property and various characteristics of the markets where the property is located.

In allocating the fair value of the identified tangible and intangible assets and liabilities of an acquired property, land is valued based upon comparable market data or independent appraisals.  Buildings are valued on an as-if vacant basis based on a cost approach utilizing estimates of cost and the economic age of the building or an income approach utilizing various market data. In-place lease intangibles are valued based on the Company’s estimates of costs related to tenant acquisition and the carrying costs that would be incurred during the time it would take to locate a tenant if the property were vacant, considering current market conditions and costs to execute similar leases at the time of the acquisition. Above- and below-market lease intangibles are recorded based on the present value of the difference between the contractual amounts to be paid pursuant to the leases at the time of acquisition and the Company’s estimate of current market lease rates for the property.  In the case of sale-leaseback transactions, it is typically assumed that the lease is not in-place prior to the close of the transaction.

7

Depreciation and Amortization

Land, buildings and improvements are recorded and stated at cost.  The Company’s properties are depreciated using the straight-line method over the estimated remaining useful life of the assets, which are generally 40 years for buildings and 10 to 20 years for improvements. Properties classified as held for sale and properties under development or redevelopment are not depreciated.  Major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives.

In-place lease intangible assets and the capitalized above- and below-market lease intangibles are amortized over the non-cancelable term of the lease as well as any option periods included in the estimated fair value.  In-place lease intangible assets are amortized to amortization expense and above- and below-market lease intangibles are amortized as a net adjustment to rental income.  In the event of early lease termination, the remaining net book value of any above- or below-market lease intangible is recognized as an adjustment to rental income.

The following schedule summarizes the Company’s amortization of lease intangibles for the three months ended March 31, 2024 and 2023 (presented in thousands):

Three Months Ended

    

March 31, 2024

    

March 31, 2023

    

Lease intangibles (in-place)

$

15,853

$

13,624

Lease intangibles (above-market)

 

9,685

 

10,113

Lease intangibles (below-market)

 

(1,389)

 

(1,502)

Total

$

24,149

$

22,235

The following schedule represents estimated future amortization of lease intangibles as of March 31, 2024 (presented in thousands):

2024

Year Ending December 31, 

    

(remaining)

    

2025

    

2026

    

2027

    

2028

    

Thereafter

    

Total

Lease intangibles (in-place)

$

47,426

  

$

60,071

  

$

56,623

  

$

50,990

  

$

44,568

$

191,886

  

$

451,564

Lease intangibles (above-market)

 

28,122

  

 

35,494

  

 

33,765

  

 

31,170

  

 

27,696

 

233,173

  

 

389,420

Lease intangibles (below-market)

 

(3,908)

 

(4,876)

 

(4,522)

 

(4,173)

 

(3,354)

 

(15,924)

 

(36,757)

Total

$

71,640

  

$

90,689

  

$

85,866

  

$

77,987

  

$

68,910

$

409,135

  

$

804,227

Impairments

The Company reviews real estate investments and related lease intangibles for possible impairment when certain events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable through operations plus estimated disposition proceeds. Events or changes in circumstances that may occur include, but are not limited to, significant changes in real estate market conditions, estimated residual values, the Company’s ability or expectation to re-lease properties that are vacant or become vacant or a change in the anticipated holding period for a property.

Management determines whether an impairment in value has occurred by comparing the estimated future cash flows (undiscounted and without interest charges), including the residual value of the real estate, to the carrying cost of the individual asset.

Impairments are measured to the extent the current book value exceeds the estimated fair value of the asset less disposition costs for any assets classified as held for sale.

The valuation of impaired assets is determined using valuation techniques including discounted cash flow analysis, analysis of recent comparable sales transactions and purchase offers received from third parties, which are Level 3 inputs. The Company may consider a single valuation technique or multiple valuation techniques, as appropriate, when estimating the fair value of its real estate.  Estimating future cash flows is highly subjective and estimates can differ materially from actual results.

8

Cash and Cash Equivalents and Cash Held in Escrow

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents consist of deposit, checking, and money market accounts.  The account balances periodically exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance coverage, and as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. Cash held in escrows primarily relates to proposed like-kind exchange transactions pursued under Section 1031 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). The Company had $14.3 million and $13.4 million in cash and cash equivalents and cash held in escrow as of March 31, 2024 and December 31, 2023, respectively, in excess of the FDIC insured limit.

The following table provides a reconciliation of cash and cash equivalents and cash held in escrow, both as reported within the condensed consolidated balance sheets, to the total of the cash and cash equivalents and cash held in escrow as reported within the condensed consolidated statements of cash flows (presented in thousands):

    

March 31, 2024

    

December 31, 2023

Cash and cash equivalents

$

6,314

$

10,907

Cash held in escrow

 

9,120

 

3,617

Total of cash and cash equivalents and cash held in escrow

$

15,434

$

14,524

Revenue Recognition and Accounts Receivable

The Company leases real estate to its tenants under long-term net leases which are accounted for as operating leases. Under this method, leases that have fixed and determinable rent increases are recognized on a straight-line basis over the lease term. Rental increases based upon changes in the consumer price indexes, or other variable factors, are recognized only after changes in such factors have occurred and are then applied according to the lease agreements. Certain leases also provide for additional rent based on tenants’ sales volumes. These rents are recognized when determinable after the tenant exceeds a sales breakpoint.

Recognizing rent escalations on a straight-line method results in rental revenue in the early years of a lease being higher than actual cash received, creating a straight-line rent receivable asset which is included in the accounts receivable - tenants line item in the condensed consolidated balance sheets. The balance of straight-line rent receivables at March 31, 2024 and December 31, 2023 was $68.6 million and $65.9 million, respectively. To the extent any of the tenants under these leases become unable to pay their contractual cash rents, the Company may be required to write down the straight-line rent receivable from those tenants, which would reduce rental income.

The Company reviews the collectability of charges under its tenant operating leases on a regular basis, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area where the property is located. In the event that collectability with respect to any tenant changes, the Company recognizes an adjustment to rental revenue. The Company’s review of collectability of charges under its operating leases also includes any accrued rental revenue related to the straight-line method of reporting rental revenue.

As of March 31, 2024, the Company had three leases across three tenants where collection is not considered probable. For these tenants, the Company is recording rental income on a cash basis and has written off any outstanding receivables, including straight-line rent receivables. Adjustments to rental revenue related to tenants accounted for on the cash basis resulted in an increase to rental income of $0.1 million for the three months ended March 31, 2024, due to the receipt of amounts previously considered uncollectible.

In addition to the tenant-specific collectability assessment performed, the Company may also recognize a general allowance, as a reduction to rental revenue, for its operating lease receivables which are not expected to be fully collectible based on the potential for settlement of arrears. The Company had no general allowance at March 31, 2024 and December 31, 2023.

9

The Company’s leases provide for reimbursement from tenants for common area maintenance, insurance, real estate taxes and other operating expenses. A portion of the Company’s operating cost reimbursement revenue is estimated each period and is recognized as rental revenue in the period the recoverable costs are incurred and accrued, and the related revenue is earned. The balance of unbilled operating cost reimbursement receivable at March 31, 2024 and December 31, 2023 was $10.1 million and $14.0 million, respectively. Unbilled operating cost reimbursement receivable is reflected in accounts receivable – tenants, net in the condensed consolidated balance sheets.

The Company has adopted the practical expedient in FASB ASC Topic 842, Leases (“ASC 842”) that allows lessors to combine non-lease components with the lease components when the timing and patterns of transfer for the lease and non-lease components are the same and the lease is classified as an operating lease.  As a result, all rentals and reimbursements pursuant to tenant leases are reflected as one-line, rental income, in the condensed consolidated statement of operations and comprehensive income.

Earnings per Share

Earnings per share of common stock has been computed pursuant to the guidance in the FASB ASC Topic 260, Earnings Per Share.  The guidance requires the classification of the Company’s unvested restricted common shares (“restricted shares”), which contain rights to receive non-forfeitable dividends, as participating securities requiring the two-class method of computing net income per share of common stock.  In accordance with the two-class method, earnings per share has been computed by dividing net income less net income attributable to unvested restricted shares by the weighted average number of shares of common stock outstanding less unvested restricted shares. Diluted earnings per share is computed by dividing net income less net income attributable to unvested restricted shares by the weighted average shares of common shares and potentially dilutive securities in accordance with the treasury stock method.

The following is a reconciliation of the numerator and denominator used in the computation of basic and diluted net earnings per share of common stock for each of the periods presented (presented in thousands, except for share data):

Three Months Ended

    

    

March 31, 2024

    

March 31, 2023

Net income attributable to Agree Realty Corporation

$

44,859

$

41,614

Less: Series A preferred stock dividends

(1,859)

(1,859)

Net income attributable to common stockholders

43,000

39,755

Less: Income attributable to unvested restricted shares

(120)

(106)

Net income used in basic and diluted earnings per share

$

42,880

$

39,649

Weighted average number of common shares outstanding

  

100,565,173

  

90,273,864

Less: Unvested restricted shares

  

(280,585)

  

(245,609)

Weighted average number of common shares outstanding used in basic earnings per share

  

100,284,588

  

90,028,255

  

  

Weighted average number of common shares outstanding used in basic earnings per share

  

100,284,588

  

90,028,255

Effect of dilutive securities:

Share-based compensation

  

52,012

  

71,925

ATM Forward Equity Offerings

147,104

September 2022 Forward Equity Offering