10-Q 1 adc-20220331x10q.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, 2022, 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

 

70 E. Long Lake Road, Bloomfield Hills, Michigan

    

48304

(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 May 2, 2022, the Registrant had 75,174,452 shares of common stock issued and outstanding.

AGREE REALTY CORPORATION

Index to Form 10-Q

Page

PART I

Financial Information

Item 1:

Interim Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

1

Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2022 and 2021

3

Condensed Consolidated Statements of Equity for the three months ended March 31, 2022 and 2021

4

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021

6

Notes to Condensed Consolidated Financial Statements

7

Item 2:

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

33

Item 3:

Quantitative and Qualitative Disclosures about Market Risk

45

Item 4:

Controls and Procedures

46

PART II

Item 1:

Legal Proceedings

46

Item 1A:

Risk Factors

46

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

46

Item 3:

Defaults Upon Senior Securities

46

Item 4:

Mine Safety Disclosures

46

Item 5:

Other Information

46

Item 6:

Exhibits

47

SIGNATURES

48

AGREE REALTY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(Unaudited)

PART I.       FINANCIAL INFORMATION

Item 1.       Financial Statements

March 31, 

December 31, 

2022

2021

ASSETS

Real Estate Investments

  

Land

$

1,658,905

$

1,559,434

Buildings

 

3,286,755

 

3,034,391

Less accumulated depreciation

 

(253,180)

 

(233,862)

 

4,692,480

 

4,359,963

Property under development

 

39,218

 

7,148

Net Real Estate Investments

 

4,731,698

 

4,367,111

 

  

Real Estate Held for Sale, net

 

 

5,676

 

Cash and Cash Equivalents

 

24,888

 

43,252

 

  

Cash Held in Escrows

 

878

 

1,998

Accounts Receivable - Tenants, net

59,411

 

53,442

 

  

Lease Intangibles, net of accumulated amortization of

$198,936 and $180,532 at March 31, 2022 and December 31, 2021, respectively

 

716,509

 

672,020

 

Other Assets, net

 

105,206

 

83,407

 

  

Total Assets

$

5,638,590

$

5,226,906

See accompanying notes to Condensed Consolidated Financial Statements.

1

AGREE REALTY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(Unaudited)

March 31, 

December 31, 

2022

2021

LIABILITIES

  

Mortgage Notes Payable, net

$

32,249

$

32,429

  

Senior Unsecured Notes, net

1,495,650

 

1,495,200

  

Unsecured Revolving Credit Facility

320,000

 

160,000

  

Dividends and Distributions Payable

17,763

 

16,881

Accounts Payable, Accrued Expenses, and Other Liabilities

63,476

 

70,005

  

Lease Intangibles, net of accumulated amortization of

$31,184 and $29,726 at March 31, 2022 and December 31, 2021, respectively

33,711

 

33,075

  

Total Liabilities

1,962,849

 

1,807,590

  

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, 2022 and December 31, 2021

175,000

 

175,000

Common stock, $.0001 par value, 180,000,000 shares authorized, 75,174,580 and 71,285,311 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

8

7

Additional paid-in-capital

3,646,770

 

3,395,549

Dividends in excess of net income

(162,765)

 

(147,366)

Accumulated other comprehensive income (loss)

15,060

 

(5,503)

  

Total Equity - Agree Realty Corporation

3,674,073

 

3,417,687

Non-controlling interest

1,668

 

1,629

Total Equity

3,675,741

 

3,419,316

  

Total Liabilities and Equity

$

5,638,590

$

5,226,906

See accompanying notes to Condensed Consolidated Financial Statements.

2

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, 2022

    

March 31, 2021

Revenues

 

  

 

  

Rental income

$

98,312

$

77,760

Other

 

30

 

69

Total Revenues

 

98,342

 

77,829

 

  

 

  

Operating Expenses

 

  

 

  

Real estate taxes

 

7,611

 

5,696

Property operating expenses

 

4,477

 

3,541

Land lease expense

 

402

 

346

General and administrative

 

7,622

 

6,879

Depreciation and amortization

 

28,561

 

21,489

Provision for impairment

 

1,015

 

Total Operating Expenses

 

49,688

 

37,951

Gain (loss) on sale of assets, net

 

2,310

 

2,945

Gain (loss) on involuntary conversion, net

(25)

117

Income from Operations

 

50,939

 

42,940

 

  

 

  

Other (Expense) Income

 

  

 

  

Interest expense, net

 

(13,931)

 

(11,653)

Income tax (expense) benefit

(719)

(1,009)

Net Income

 

36,289

 

30,278

 

  

 

  

Less net income attributable to non-controlling interest

 

176

 

166

Net income attributable to Agree Realty Corporation

36,113

30,112

Less Series A preferred stock dividends

 

1,859

 

Net Income Attributable to Common Stockholders

$

34,254

$

30,112

 

  

 

  

Net Income Per Share Attributable to Common Stockholders

 

  

 

  

Basic

$

0.48

$

0.48

Diluted

$

0.48

$

0.48

 

  

 

  

Other Comprehensive Income

 

  

 

  

Net income

$

36,289

$

30,278

Amortization of interest rate swaps

82

500

Change in fair value and settlement of interest rate swaps

 

20,581

 

25,146

Total comprehensive income (loss)

 

56,952

 

55,924

Less comprehensive income (loss) attributable to non-controlling interest

 

276

 

304

 

  

 

  

Comprehensive Income (Loss) Attributable to Agree Realty Corporation

$

56,676

$

55,620

 

  

 

  

Weighted Average Number of Common Shares Outstanding - Basic

 

71,228,930

 

62,828,897

 

  

 

  

Weighted Average Number of Common Shares Outstanding - Diluted

 

71,336,103

 

62,940,360

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, 2021

7,000

$

175,000

71,285,311

$

7

$

3,395,549

$

(147,366)

$

(5,503)

$

1,629

$

3,419,316

Issuance of common stock, net of issuance costs

3,791,964

1

250,683

250,684

Repurchase of common shares

(28,117)

(1,745)

(1,745)

Issuance of stock under the 2020 Omnibus Incentive Plan

125,422

648

648

Stock-based compensation

1,635

1,635

Series A preferred dividends declared for the period

(1,859)

(1,859)

Dividends and distributions declared for the period

(49,653)

(237)

(49,890)

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

20,563

100

20,663

Net income

1,859

34,254

176

36,289

Balance, March 31, 2022

7,000

$

175,000

75,174,580

$

8

$

3,646,770

$

(162,765)

$

15,060

$

1,668

$

3,675,741

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

For the three months ended March 31, 2022

$

0.266

Cash dividends declared per common share:

For the three months ended March 31, 2022

$

0.681

See accompanying notes to Condensed Consolidated Financial Statements.

4

AGREE REALTY CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

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

(Unaudited)

Accumulated

Dividends in

Other

Common Stock

Additional

excess of net

Comprehensive

Non-Controlling

Total

  

Shares

  

Amount

  

Paid-In Capital

  

income

  

Income (Loss)

  

Interest

  

Equity

Balance, December 31, 2020

60,021,483

$

6

$

2,652,090

$

(91,343)

$

(36,266)

$

1,762

$

2,526,249

Issuance of common stock, net of issuance costs

4,028,410

258,105

258,105

Repurchase of common shares

(27,594)

(1,780)

(1,780)

Issuance of restricted stock under the 2020 Omnibus Incentive Plan

128,066

298

298

Forfeiture of restricted stock

(4,587)

(92)

(92)

Stock-based compensation

1,293

1,293

Dividends and distributions declared for the period

(39,906)

(215)

(40,121)

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

25,506

140

25,646

Net income

30,112

166

30,278

Balance, March 31, 2021

64,145,778

$

6

$

2,909,914

$

(101,137)

$

(10,760)

$

1,853

$

2,799,876

Cash dividends declared per common share:

For the three months ended March 31, 2021

$

0.621

See accompanying notes to Condensed Consolidated Financial Statements.

5

AGREE REALTY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Three Months Ended

    

March 31, 2022

    

March 31, 2021

Cash Flows from Operating Activities

 

  

 

  

Net income

$

36,289

$

30,278

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

 

 

Depreciation and amortization

 

28,561

 

21,489

Amortization from above (below) market lease intangibles, net

8,178

4,756

Amortization from financing and credit facility costs

 

1,061

 

425

Stock-based compensation

 

1,635

 

1,499

Provision for impairment

1,015

Gain (loss) on settlement of interest rate swaps

501

(Gain) loss on sale of assets

 

(2,310)

 

(2,945)

(Increase) decrease in accounts receivable

 

(5,980)

 

(2,932)

(Increase) decrease in other assets

 

(4,708)

 

6,803

Increase (decrease) in accounts payable, accrued expenses, and other liabilities

(2,274)

(14,079)

Net Cash Provided by Operating Activities

 

61,467

 

45,795

 

  

 

  

Cash Flows from Investing Activities

 

  

 

  

Acquisition of real estate investments and other assets

 

(413,098)

 

(397,044)

Development of real estate investments and other assets, net of reimbursements

 

(including capitalized interest of $112 in 2022 and $75 in 2021)

 

(33,291)

 

1,683

Payment of leasing costs

 

(45)

 

(240)

Net proceeds from sale of assets

 

7,643

 

8,422

Net Cash Used in Investing Activities

 

(438,791)

 

(387,179)

 

  

 

  

Cash Flows from Financing Activities

 

 

  

Proceeds from common stock offerings, net

250,684

258,105

Repurchase of common shares

 

(1,745)

 

(1,780)

Unsecured revolving credit facility borrowings (repayments), net

 

160,000

 

146,000

Payments of mortgage notes payable

 

(209)

 

(195)

Payment of Series A preferred dividends

(1,859)

Payment of common stock dividends

 

(48,771)

 

(60,957)

Distributions to non-controlling interest

 

(237)

 

(359)

Payments for financing costs

 

(23)

 

(16)

Net Cash Provided by Financing Activities

 

357,840

 

340,798

 

  

 

  

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

 

(19,484)

 

(586)

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

 

45,250

 

7,955

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

$

25,766

$

7,369

 

  

 

  

Supplemental Disclosure of Cash Flow Information

 

  

 

  

Cash paid for interest (net of amounts capitalized)

$

13,367

$

15,836

Cash paid for income tax

$

1,336

$

1,794

 

 

  

Supplemental Disclosure of Non-Cash Investing and Financing Activities

 

  

 

  

Lease right of use assets added under new ground leases

$

$

6,302

Series A preferred dividends declared and unpaid

$

620

$

Common stock dividends and limited partners' distributions declared and unpaid

$

17,143

$

13,350

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

$

411

$

7,179

See accompanying notes to Condensed Consolidated Financial Statements.

6

AGREE REALTY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(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 99.5% common equity interest as of March 31, 2022. 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 a 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 (see Note 6– Common and Preferred Stock), providing guaranteed income and distributions to the Company equal to the dividends payable on that stock. 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 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 and Principles of Consolidation

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, 2022 may not be indicative of the results that may be expected for the year ending December 31, 2022.  Amounts as of December 31, 2021 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, 2021.

The unaudited Condensed Consolidated Financial Statements include the accounts of the Company, the Operating Partnership and its wholly owned subsidiaries. The Company, as the sole general partner, held 99.5% of the Operating Partnership’s common equity as of March 31, 2022 and December 31, 2021, as well as the Series A preferred equity interest.  All material intercompany accounts and transactions have been eliminated, including the Company’s Series A preferred equity interest in the Operating Partnership.

7

At March 31, 2022 and December 31, 2021, the non-controlling interest in the Operating Partnership consisted of a 0.5% ownership interest in the Operating Partnership held by the Company’s founder and chairman. The Operating Partnership Common Units may, under certain circumstances, be exchanged for shares of common stock. 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 75,522,199 shares of common stock outstanding at March 31, 2022.

Significant Risks and Uncertainties

One of the most significant risks and uncertainties continues to be the potential adverse effect of the ongoing pandemic of the novel coronavirus, or COVID-19, and its variants.  The outbreak of COVID-19 has significantly, adversely impacted economic activity and has contributed to significant volatility and negative pressure in financial markets.  Although the duration and severity of this pandemic are still uncertain, there is reason to believe that the success of vaccination efforts and therapeutics in the U.S. will have a positive impact on businesses, as federal, state and local restrictions are lifted. However, the virus’s variants, its surges and resurgences in the population, and challenges related to vaccine immunization are still having a very fluid and continuously evolving impact on businesses and consumers.

The COVID-19 pandemic could still have material and adverse effects on our financial condition, results of operations and cash flows in the near term due to, but not limited to, the following:

reduced economic activity severely impacting our tenants’ businesses, financial condition and liquidity and  may cause tenants to be unable to fully meet their obligations to us.  Certain tenants have sought to modify such obligations and may seek additional relief and additional tenants may seek modifications of such obligations, resulting in increases in uncollectible receivables and reductions in rental income;
the negative financial impact of the pandemic which could impact our future compliance with financial covenants of our credit facility and other debt agreements; and
weaker economic conditions which could cause us to recognize impairment in value of our tangible or intangible assets.

During the quarter ended March 31, 2022, the Company collected substantially all rent payments originally contracted for in the period. However, the extent to which the COVID-19 pandemic impacts our operations and those of our tenants will still depend on future developments which are uncertain, including the scope, severity and remaining duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.

The Company continues to closely monitor the impact of the COVID-19 pandemic on all aspects of its business and geographies. However, as a result of the many uncertainties surrounding the COVID-19 pandemic, we are not able to fully predict the impact that it ultimately will have on our financial condition, results of operations and cash flows.

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 are classified as real estate held for sale based on specific criteria as outlined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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. The Company did not classify any operating properties as real estate held for sale

8

at March 31, 2022 and classified one operating property as real estate held for sale as of December 31, 2021, the assets for which are separately presented in the Condensed Consolidated Balance Sheets.  

Real estate held for sale consisted of the following as of March 31, 2022 and December 31, 2021 (presented in thousands):

    

March 31, 2022

    

December 31, 2021

Land

$

$

4,485

Lease intangibles - asset

1,213

 

 

5,698

Accumulated depreciation and amortization, net

 

 

(22)

Total Real Estate Held for Sale, net

$

$

5,676

Subsequent to quarter-end, a property that did not qualify as held for sale as of March 31, 2022 was sold at a price of $14.0 million, which approximated its carrying value.

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, buildings 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.

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 unless the Company believes it is reasonably certain that the tenant will renew the lease for an option term, in which case the Company amortizes the value attributable to the renewal over the renewal period.  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.

9

The following schedule summarizes the Company’s amortization of lease intangibles for the three months ended March 31, 2022 and 2021 (presented in thousands):

Three Months Ended

    

    

March 31, 2022

    

March 31, 2021

Lease intangibles (in-place)

$

8,795

$

5,915

Lease intangibles (above-market)

 

9,636

 

6,401

Lease intangibles (below-market)

 

(1,458)

 

(1,645)

Total

$

16,973

$

10,671

The following schedule represents estimated future amortization of lease intangibles as of March 31, 2022 (presented in thousands):

2022

Year Ending December 31, 

    

(remaining)

    

2023

    

2024

    

2025

    

2026

    

Thereafter

    

Total

Lease intangibles (in-place)

$

29,842

  

$

37,665

  

$

35,021

  

$

32,596

  

$

30,157

$

156,469

  

$

321,750

Lease intangibles (above-market)

 

29,583

  

 

37,186

  

 

33,120

  

 

30,631

  

 

28,868

 

235,371

  

 

394,759

Lease intangibles (below-market)

 

(4,359)

 

(5,186)

 

(4,516)

 

(4,080)

 

(3,726)

 

(11,844)

 

(33,711)

Total

$

55,066

  

$

69,665

  

$

63,625

  

$

59,147

  

$

55,299

$

379,996

  

$

682,798

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 and an expectation to sell assets before the end of the previously estimated life. 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.

Cash and Cash Equivalents and Cash Held in Escrows

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 and checking accounts.  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”) and funds restricted through a mortgage agreement.  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. The Company had $24.0 million and $44.0 million in cash and cash equivalents and cash held in escrow as of March 31, 2022 and December 31, 2021, respectively, in excess of the FDIC insured limit.

10

Per the requirements of ASU 2016-18 (Topic 230, Statement of Cash Flows) 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, 2022

    

December 31, 2021

Cash and cash equivalents

$

24,888

$

43,252

Cash held in escrow

 

878

 

1,998

Total of cash and cash equivalents and cash held in escrow

$

25,766

$

45,250

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, 2022 and December 31, 2021 was $44.0 million and $40.9 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. The Company’s assessment has specifically included the impact of the COVID-19 pandemic, which represents a material risk to collectability (see Significant Risks and Uncertainties above).  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, 2022, the Company has three tenants where collection is no longer 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 potentially uncollectible charges under these tenant leases had an immaterial impact to Rental Income and Net Income for the three months ended March 31, 2022.

In addition to the tenant-specific collectability assessment performed, the Company also recognizes 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. As of March 31, 2022 and December 31, 2021, this allowance was $0.8 million.

The Company’s leases provide for reimbursement from tenants for common area maintenance (“CAM”), 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, 2022 and December 31, 2021 was $7.7 million and $9.1 million, respectively.

The Company has adopted the practical expedient in FASB ASC 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

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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 stock, 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 the 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 by the weighted average shares of common stock 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, 2022

    

March 31, 2021

Net income attributable to Agree Realty Corporation

$

36,113

$

30,112

Less: Series A preferred stock dividends

(1,859)

Net income attributable to common stockholders

34,254

30,112

Less: Income attributable to unvested restricted shares

(110)

(103)

Net income used in basic and diluted earnings per share

$

34,144

$

30,009

Weighted average number of common shares outstanding

  

71,471,247

  

63,048,905

Less: Unvested restricted stock

  

(242,317)

  

(220,008)

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

  

71,228,930

  

62,828,897

  

  

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

  

71,228,930

  

62,828,897

Effect of dilutive securities:

Share-based compensation

  

58,190

  

62,454

2020 ATM Forward Equity Offerings

49,009

2021 ATM Forward Equity Offerings

980

December 2021 Forward Offering

48,003

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