Company Quick10K Filing
Quick10K
Agree Realty
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$66.05 38 $2,540
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-04-29 Other Events, Exhibits
8-K 2019-04-25 Amend Bylaw, Shareholder Vote, Exhibits
8-K 2019-04-22 Earnings, Exhibits
8-K 2019-02-21 Earnings, Exhibits
8-K 2018-12-27 Enter Agreement, Off-BS Arrangement, Regulation FD, Other Events, Exhibits
8-K 2018-12-17 Enter Agreement, Regulation FD, Exhibits
8-K 2018-12-11 Regulation FD, Exhibits
8-K 2018-12-10 Other Events
8-K 2018-12-04 Officers, Exhibits
8-K 2018-11-02 Enter Agreement, Regulation FD, Exhibits
8-K 2018-10-22 Earnings, Exhibits
8-K 2018-10-01 Other Events
8-K 2018-09-26 Enter Agreement, Off-BS Arrangement, Regulation FD, Exhibits
8-K 2018-09-04 Other Events, Exhibits
8-K 2018-07-18 Enter Agreement, Earnings, Off-BS Arrangement, Officers, Regulation FD, Exhibits
8-K 2018-07-02 Other Events
8-K 2018-05-31 Other Events, Exhibits
8-K 2018-05-18 Other Events, Exhibits
8-K 2018-05-15 Shareholder Vote
8-K 2018-05-03 Leave Agreement, Shareholder Rights
8-K 2018-04-23 Earnings, Exhibits
8-K 2018-03-19 Other Events, Exhibits
8-K 2018-03-13 Other Events, Exhibits
8-K 2018-01-03 Regulation FD, Exhibits
STOR Store Capital 7,530
NSP Insperity 4,830
GWB Great Western Bancorp 2,010
GNMK Genmark Diagnostics 428
CELC Celcuity 228
ETTX Entasis Therapeutics Holdings 89
AEYE Audioeye 76
GAC Great West Life & Annuity Insurance 0
FXE Invesco Currencyshares Euro Trust 0
GLNS Golden Star Resource 0
ADC 2019-03-31
Part I. Financial Information
Item 1. Financial Statements
Note 1 – Organization
Note 2 – Summary of Significant Accounting Policies
Note 3 – Leases
Note 4 – Real Estate Investments
Note 5 – Debt
Note 6 – Common and Preferred Stock
Note 7 – Dividends and Distribution Payable
Note 8 – Derivative Instruments and Hedging Activity
Note 10 – Fair Value Measurements
Note 11 – Equity Incentive Plan
Note 12 – Subsequent Events
Item 2. Management’S Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.1 adc-20190331ex101320760.htm
EX-31.1 adc-20190331ex3119862cb.htm
EX-31.2 adc-20190331ex31279f7ee.htm
EX-32.1 adc-20190331ex321935ce6.htm
EX-32.2 adc-20190331ex32276840a.htm

Agree Realty Earnings 2019-03-31

ADC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 adc-20190331x10q.htm 10-Q adc_Current Folio_10Q

 

 

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, 2019, or

 

 

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

 

Commission File Number 1‑12928

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)

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

 

 

Yes            ☒

No            ◻

 

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, 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 18, 2019, the Registrant had 38,467,282 shares of common stock, $0.0001 par value, 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, 2019 and December 31, 2018

1

 

 

 

 

Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2019 and 2018

3

 

 

 

 

Condensed Consolidated Statement of Equity for the three months ended March 31, 2019

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2 

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

28

 

 

 

Item 3 

Quantitative and Qualitative Disclosures about Market Risk

37

 

 

 

Item 4 

Controls and Procedures

38

 

 

 

PART II 

 

 

 

 

 

Item 1 

Legal Proceedings

39

 

 

 

Item 1A 

Risk Factors

39

 

 

 

Item 2 

Unregistered Sales of Equity Securities and Use of Proceeds

39

 

 

 

Item 3 

Defaults Upon Senior Securities

39

 

 

 

Item 4 

Mine Safety Disclosures

39

 

 

 

Item 5 

Other Information

39

 

 

 

Item 6 

Exhibits

40

 

 

 

SIGNATURES 

41

 

 

 


 

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, 

 

 

2019

 

2018

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Real Estate Investments

 

 

  

 

 

 

Land

 

$

588,295

 

$

553,704

Buildings

 

 

1,287,700

 

 

1,194,985

Less accumulated depreciation

 

 

(106,670)

 

 

(100,312)

 

 

 

1,769,325

 

 

1,648,377

Property under development

 

 

11,444

 

 

12,957

Net Real Estate Investments

 

 

1,780,769

 

 

1,661,334

 

 

 

  

 

 

 

Cash and Cash Equivalents

 

 

22,325

 

 

53,955

 

 

 

  

 

 

 

Cash Held in Escrows

 

 

3,024

 

 

20

 

 

 

 

 

 

 

Accounts Receivable - Tenants

 

 

23,695

 

 

21,547

 

 

 

  

 

 

 

Lease intangibles, net of accumulated amortization of

 

 

 

 

 

 

$68,985 and $62,543 at March 31, 2019 and December 31, 2018, respectively

 

 

289,928

 

 

280,153

 

 

 

  

 

 

 

Other Assets, net

 

 

30,596

 

 

11,180

 

 

 

  

 

 

 

Total Assets

 

$

2,150,337

 

$

2,028,189

 

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, 

 

 

2019

 

2018

LIABILITIES

  

 

 

 

 

 

Mortgage Notes Payable, net

 

$

60,303

 

$

60,926

 

 

 

  

 

 

 

Unsecured Term Loans, net

 

 

256,244

 

 

256,419

 

 

 

  

 

 

 

Senior Unsecured Notes, net

 

 

384,117

 

 

384,064

 

 

 

  

 

 

 

Unsecured Revolving Credit Facility

 

 

71,000

 

 

19,000

 

 

 

  

 

 

 

Dividends and Distributions Payable

 

 

21,535

 

 

21,031

 

 

 

 

 

 

 

Accounts Payable, Accrued Expenses, and Other Liabilities

 

 

39,843

 

 

21,045

 

 

 

  

 

 

 

Lease intangibles, net of accumulated amortization of

 

 

 

 

 

 

$16,291 and $15,177 at March 31, 2019 and December 31, 2018, respectively

 

 

27,873

 

 

27,218

 

 

 

  

 

 

 

Total Liabilities

 

 

860,915

 

 

789,703

 

 

 

  

 

 

 

EQUITY

 

 

  

 

 

 

Common stock, $.0001 par value, 45,000,000 shares authorized, 38,454,782 and 37,545,790 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively

 

 

 4

 

 

 4

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

 

 

 —

 

 

 —

Additional paid-in-capital

 

 

1,334,952

 

 

1,277,592

Dividends in excess of net income

 

 

(45,940)

 

 

(42,945)

Accumulated other comprehensive income

 

 

(1,950)

 

 

1,424

 

 

 

  

 

 

 

Total Equity - Agree Realty Corporation

 

 

1,287,066

 

 

1,236,075

Non-controlling interest

 

 

2,356

 

 

2,411

Total Equity

 

 

1,289,422

 

 

1,238,486

 

 

 

  

 

 

 

Total Liabilities and Equity

 

$

2,150,337

 

$

2,028,189

 

See accompanying notes to condensed consolidated financial statements.

2


 

AGREE REALTY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

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

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

    

March 31, 2019

    

March 31, 2018

Revenues

 

 

  

 

 

  

Rental Income

 

$

42,345

 

$

32,280

Other

 

 

 3

 

 

46

Total Revenues

 

 

42,348

 

 

32,326

 

 

 

  

 

 

  

Operating Expenses

 

 

  

 

 

  

Real estate taxes

 

 

3,622

 

 

2,377

Property operating expenses

 

 

1,739

 

 

1,516

Land lease expense

 

 

195

 

 

163

General and administrative

 

 

4,035

 

 

2,862

Depreciation and amortization

 

 

9,864

 

 

7,761

Provision for impairment

 

 

416

 

 

 —

Total Operating Expenses

 

 

19,871

 

 

14,679

 

 

 

  

 

 

  

Income from Operations

 

 

22,477

 

 

17,647

 

 

 

  

 

 

  

Other (Expense) Income

 

 

  

 

 

  

Interest expense, net

 

 

(7,558)

 

 

(5,465)

Gain (loss) on sale of assets, net

 

 

3,427

 

 

4,598

Income tax benefit (expense)

 

 

170

 

 

(50)

Other (expense) income

 

 

 —

 

 

(94)

Net Income

 

 

18,516

 

 

16,636

 

 

 

  

 

 

  

Less Net Income Attributable to Non-Controlling Interest

 

 

169

 

 

185

 

 

 

 

 

 

 

Net Income Attributable to Agree Realty Corporation

 

$

18,347

 

$

16,451

 

 

 

  

 

 

  

Net Income Per Share Attributable to Agree Realty Corporation

 

 

  

 

 

  

Basic

 

$

0.49

 

$

0.53

Diluted

 

$

0.48

 

$

0.53

 

 

 

  

 

 

  

Other Comprehensive Income

 

 

  

 

 

  

Net income

 

$

18,516

 

$

16,636

Other Comprehensive Income (Loss) - Change in Fair Value of Interest Rate Swaps

 

 

(3,405)

 

 

1,920

Total Comprehensive Income

 

 

15,111

 

 

18,556

Less Comprehensive Income Attributable to Non-Controlling Interest

 

 

138

 

 

206

 

 

 

  

 

 

  

Comprehensive Income Attributable to Agree Realty Corporation

 

$

14,973

 

$

18,350

 

 

 

  

 

 

  

Weighted Average Number of Common Shares Outstanding - Basic

 

 

37,487,851

 

 

30,801,471

 

 

 

  

 

 

  

Weighted Average Number of Common Shares Outstanding - Diluted

 

 

38,320,307

 

 

30,851,058

 

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

 

 

 

 

 

 

 

 

Common Stock

 

Additional

 

excess of net

 

Comprehensive

 

Non-Controlling

 

Total

 

    

Shares

    

Amount

    

Paid-In Capital

    

income

    

Income (Loss)

    

Interest

    

Equity

Balance, December 31, 2018

 

37,545,790

 

$

 4

 

$

1,277,592

 

$

(42,945)

 

$

1,424

 

$

2,411

 

$

1,238,486

Issuance of common stock, net of issuance costs

 

874,268

 

 

 —

 

 

57,845

 

 

 —

 

 

 —

 

 

 —

 

 

57,845

Repurchase of common shares

 

(21,868)

 

 

 —

 

 

(1,398)

 

 

 —

 

 

 —

 

 

 —

 

 

(1,398)

Issuance of restricted stock under the Omnibus Incentive Plan

 

56,592

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Stock-based compensation

 

 —

 

 

 —

 

 

913

 

 

 —

 

 

 —

 

 

 —

 

 

913

Dividends and distributions declared for the period

 

 —

 

 

 —

 

 

 —

 

 

(21,342)

 

 

 —

 

 

(193)

 

 

(21,535)

Other comprehensive income (loss) - change in fair value of interest rate swaps

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(3,374)

 

 

(31)

 

 

(3,405)

Net income

 

 —

 

 

 —

 

 

 —

 

 

18,347

 

 

 —

 

 

169

 

 

18,516

Balance, March 31, 2019

 

38,454,782

 

$

 4

 

$

1,334,952

 

$

(45,940)

 

$

(1,950)

 

$

2,356

 

$

1,289,422

 

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, 2017

 

31,004,900

 

$

 3

 

$

936,046

 

$

(28,763)

 

$

1,375

 

$

2,529

 

$

911,190

Issuance of common stock, net of issuance costs

 

 —

 

 

 —

 

 

(93)

 

 

 —

 

 

 —

 

 

 —

 

 

(93)

Repurchase of common shares

 

(22,071)

 

 

 —

 

 

(1,074)

 

 

 —

 

 

 —

 

 

 —

 

 

(1,074)

Issuance of restricted stock under the Omnibus Incentive Plan

 

50,841

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Forfeiture of restricted stock

 

(411)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Stock-based compensation

 

 —

 

 

 —

 

 

602

 

 

 —

 

 

 —

 

 

 —

 

 

602

Dividends and distributions declared for the period

 

 —

 

 

 —

 

 

 —

 

 

(16,137)

 

 

 —

 

 

(181)

 

 

(16,318)

Other comprehensive income (loss) - change in fair value of interest rate swaps

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,899

 

 

21

 

 

1,920

Net income

 

 —

 

 

 —

 

 

 —

 

 

16,451

 

 

 —

 

 

185

 

 

16,636

Balance, March 31, 2018

 

31,033,259

 

$

 3

 

$

935,481

 

$

(28,449)

 

$

3,274

 

$

2,554

 

$

912,863

 

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, 2019

    

March 31, 2018

Cash Flows from Operating Activities

 

 

  

 

 

  

Net income

 

$

18,516

 

$

16,636

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

 

 

 

 

 

  

Depreciation and amortization

 

 

9,864

 

 

7,761

Amortization from above (below) lease intangibles, net

 

 

3,276

 

 

2,243

Amortization from financing and credit facility costs

 

 

325

 

 

267

Stock-based compensation

 

 

913

 

 

602

Provision for impairment

 

 

416

 

 

 —

(Gain) loss on sale of assets

 

 

(3,427)

 

 

(4,598)

(Increase) decrease in accounts receivable

 

 

(2,148)

 

 

(2,817)

(Increase) decrease in other assets

 

 

(1,169)

 

 

83

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

 

 

(3,059)

 

 

(2,363)

Net Cash Provided by Operating Activities

 

 

23,507

 

 

17,814

 

 

 

  

 

 

  

Cash Flows from Investing Activities

 

 

  

 

 

  

Acquisition of real estate investments and other assets

 

 

(142,269)

 

 

(99,392)

Development of real estate investments and other assets

 

 

 

 

 

 

(including capitalized interest of $90 in 2019 and $144 in 2018)

 

 

(6,116)

 

 

(4,843)

Payment of leasing costs

 

 

(100)

 

 

(10)

Net proceeds from sale of assets

 

 

9,834

 

 

20,044

Net Cash Used In Investing Activities

 

 

(138,651)

 

 

(84,201)

 

 

 

  

 

 

  

Cash Flows from Financing Activities

 

 

 

 

 

  

Proceeds from common stock offerings, net

 

 

57,845

 

 

(93)

Repurchase of common shares

 

 

(1,398)

 

 

(1,074)

Unsecured revolving credit facility borrowings (repayments), net

 

 

52,000

 

 

62,000

Payments of mortgage notes payable

 

 

(672)

 

 

(25,630)

Payments of unsecured term loans

 

 

(190)

 

 

(190)

Dividends paid

 

 

(20,838)

 

 

(16,122)

Distributions to Non-Controlling Interest

 

 

(193)

 

 

(181)

Payments for financing costs

 

 

(36)

 

 

(1)

Net Cash Provided by Financing Activities

 

 

86,518

 

 

18,709

 

 

 

  

 

 

  

Net Increase (Decrease) in Cash and Cash Equivalents

 

 

(28,626)

 

 

(47,678)

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

 

 

53,975

 

 

58,782

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

 

$

25,349

 

$

11,104

 

 

 

  

 

 

  

Supplemental Disclosure of Cash Flow Information

 

 

  

 

 

  

Cash paid for interest (net of amounts capitalized)

 

$

6,902

 

$

6,226

Cash paid for income tax

 

$

646

 

$

324

 

 

 

  

 

 

  

Supplemental Disclosure of Non-Cash Investing and Financing Activities

 

 

  

 

 

  

Operating lease right of use assets added upon implementation of leases standard on January 1, 2019

 

$

7,505

 

$

 —

Additional operating lease right of use assets added under new ground leases after January 1, 2019

 

$

12,167

 

$

 —

Dividends and limited partners’ distributions declared and unpaid

 

$

21,535

 

$

16,318

 

See accompanying notes to condensed consolidated financial statements.

6


 

AGREE REALTY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(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 our common stock was listed on the New York Stock Exchange (“NYSE”) in 1994.

Our assets are held by, and all of our 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 99.1% interest as of March 31, 2019. Under the partnership agreement 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 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, 2019 may not be indicative of the results that may be expected for the year ending December 31, 2019. Amounts as of December 31, 2018 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 our Form 10‑K for the year ended December 31, 2018.

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 have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of (1) assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and (2) revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassification

The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification  842 Leases (“ASC 842”) using the modified retrospective approach as of January 1, 2019 and elected to apply the transition provisions of the standard at the beginning of the period of adoption.  The Company adopted the practical expedient in ASC 842 that alleviates the requirement to separately present lease and non-lease rental income. As a result, all income earned pursuant to tenant leases is reflected as one line, “Rental Income,” in the 2019 condensed consolidated statement of operations.  To

7


 

facilitate comparability, the Company has reclassified prior periods’ lease and non-lease income consistently with the classification employed in 2019.

The Company recognizes above- and below-market lease intangibles in connection with most acquisitions of real estate (see Accounting for Acquisitions of Real Estate below).  The capitalized above- and below-market lease intangibles are amortized over the remaining term of the related leases.  The Company historically presented this amortization as a component of Depreciation and Amortization expense within the Consolidated Statement of Income and Comprehensive Income.  During 2019, the Company changed this classification to recognize this amortization as an adjustment of Rental Income.  The prior period results have been reclassified to conform to the current year classification.  During the three months ended March 31, 2019 and 2018, the Company incurred $3.3 million and $2.2 million of amortization of capitalized above- and below-market lease intangibles, respectively.

Segment Reporting

The Company is primarily in the business of acquiring, developing and managing retail real estate which is considered to be one reportable segment. The Company has no other reportable segments.

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 held for sale based on specific criteria as outlined  in ASC 360, Property, Plant & Equipment. Properties classified as “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 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 had no real estate held for sale at March 31, 2019 and December 31, 2018.

Accounting for 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 a number of 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 intangible assets and liabilities of an acquired property, 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. In-place lease intangible assets are amortized to amortization expense over the remaining term of the related leases. 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. 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. Above- and below-market lease intangibles are amortized as a net reduction of rental income (see Reclassifications above).

8


 

Cash and Cash Equivalents

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 cash 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. We had $24.0 million and $52.7 million in cash and cash held in escrow as of March 31, 2019 and December 31, 2018, respectively, in excess of the FDIC insured limit.

Accounts Receivable – Tenants

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 the collectability with respect to any tenant changes,  beginning with the adoption of ASC 842 as of January 1, 2019, the Company recognizes an adjustment to rental income. Prior to the adoption of ASC 842, the Company recognized a provision for uncollectible amounts or a direct write-off of the specific rent receivable. The Company’s review of collectability of charges under its operating leases includes any accrued rental revenues related to the straight-line method of reporting rental revenue.

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 our operating cost reimbursements is estimated each period and is recognized as revenue in the period the recoverable costs are incurred and accrued. Receivables from operating cost reimbursements are included in our Accounts Receivable - Tenants line item in our condensed consolidated balance sheets. The balance of unbilled operating cost reimbursement receivable at March 31, 2019 and December 31, 2018 was $3.8 million and $3.3 million, respectively.

In addition, many of the Company’s leases contain rent escalations for which we recognize revenue on a straight-line basis over the non-cancelable lease term. This 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 our condensed consolidated balance sheets. The balance of straight-line rent receivables at March 31, 2019 and December 31, 2018 was $18.2 million and $16.7 million, respectively. To the extent any of the tenants under these leases becomes unable to pay its contractual cash rents, the Company may be required to write-off the straight-line rent receivable from the tenants, which would reduce rental income.

Sales Tax

The Company collects various taxes from tenants and remits these amounts, on a net basis, to the applicable taxing authorities.

Unamortized Deferred Expenses

Deferred expenses recognized as Lease Intangibles and within Other Assets, net on the condensed  consolidated balance sheets include debt financing costs related to the Company’s revolving credit facility, leasing costs and lease intangibles, and are amortized as follows: (i) debt financing costs related to the line of credit on a straight-line basis to interest expense over the term of the related loan, which approximates the effective interest method; (ii) leasing costs on a straight-line basis to amortization expense over the term of the related lease entered into; (iii) in-place lease intangibles on a straight-line basis to amortization expense over the remaining term of the related lease acquired; and (iv) above- and below- market lease intangibles on a straight-line basis as a net reduction of rental income over the remaining lease term. See Reclassifications above regarding changes in presentation relating to above-and below- market lease intangibles.

9


 

The following schedule summarizes the Company’s amortization of deferred expenses for the three months ended March 31, 2019 and 2018 (in thousands):

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

    

March 31, 2019

    

March 31, 2018

 

 

 

 

 

 

 

Deferred Financing Costs

 

$

 143

 

$

 101

Leasing Costs

 

 

 81

 

 

 43

Lease Intangibles (In-place)

 

 

 2,052

 

 

 1,992

Lease Intangibles (Above-Market)

 

 

 4,374

 

 

 3,344

Lease Intangibles (Below-Market)

 

 

(1,098)

 

 

(1,101)

Total

 

$

 5,552

 

$

 4,379

 

The following schedule represents estimated future amortization of deferred expenses as of March 31, 2019 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ending December 31, 

    

(remaining)

 

    

2020

    

2021

    

2022

    

2023

    

Thereafter

    

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred Financing Costs

 

$

 413

 

  

$

541

  

$

28

  

$

 —

  

$

 —

 

$

 —

  

$

982

Leasing Costs

 

 

 241

 

  

 

365

  

 

346

  

 

334

  

 

300

 

 

1,085

  

 

2,671

Lease Intangibles (In-place)

 

 

 7,001

 

  

 

8,805

  

 

8,295

  

 

7,482

  

 

6,806

 

 

38,401

  

 

76,790

Lease Intangibles (Above-Market)

 

 

 13,005

 

 

 

17,338

 

 

17,150

 

 

16,857

 

 

16,056

 

 

132,732

 

 

213,138

Lease Intangibles (Below-Market)

 

 

(3,397)

 

 

 

(4,432)

 

 

(4,109)

 

 

(3,210)

 

 

(2,639)

 

 

(10,086)

 

 

(27,873)

Total

 

$

 17,263

 

  

$

22,617

  

$

21,710

  

$

21,463

  

$

20,523

 

$

162,132

  

$

265,708

 

Earnings per Share

Basic earnings per share has been computed by dividing net income less net income attributable to unvested restricted shares by the weighted average number of common shares outstanding less unvested restricted shares. Diluted earnings per share is computed by dividing net income by the weighted average common shares and potentially dilutive common shares outstanding in accordance with the treasury stock method.

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

 

 

 

 

 

 

 

 

 

Three months ended

 

    

March 31, 2019

 

    

March 31, 2018

Net income attributable to Agree Realty Corporation

$

18,347

 

$

16,451

Less: Income attributable to unvested restricted shares

 

(96)

 

 

(112)

Net income used in basic and diluted earnings per share

$

18,251

 

$

16,339

 

 

 

 

 

 

Weighted average number of common shares outstanding

  

37,688,915

 

  

31,013,545

Less: Unvested restricted stock

  

(201,064)

 

  

(212,074)

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

  

37,487,851

 

  

30,801,471

 

  

 

 

  

 

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

  

37,487,851

 

  

30,801,471

Effect of dilutive securities: Share-based compensation

  

65,781

 

  

49,587

Effect of dilutive securities: September 2018 forward equity offering

  

766,675

 

  

 —

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

  

38,320,307

 

  

30,851,058

 

10


 

Forward Equity Sales

In September 2018, the Company entered into a forward sale agreement to sell an aggregate of 3,500,000 shares of our common stock at a public offering price of $55.20 per share, before issuance costs, underwriters’ discount, and further adjustments as provided for in the forward sale agreement. We are obligated to settle the forward sale agreement no later than September 3, 2019.

To account for the forward sale agreements, we considered the accounting guidance governing financial instruments and derivatives and concluded that our forward sale agreement was not a liability as it did not embody obligations to repurchase our shares nor did it embody obligations to issue a variable number of shares for which the monetary value was predominantly fixed, varying with something other than the fair value of the shares, or varying inversely in relation to our shares. We then evaluated whether the agreement met the derivatives and hedging guidance scope exception to be accounted for as an equity instrument, and concluded that the agreement can be classified as an equity contract based on the following assessment: (i) none of the agreement’s exercise contingencies was based on observable markets or indices besides those related to the market for our own stock price and operations; and (ii) none of the settlement provisions precluded the agreement from being indexed to our own stock.

We also considered the potential dilution resulting from the forward sale agreement on the earnings per share calculations. We use the treasury stock method to determine the dilution resulting from the forward sale agreement during the period of time prior to settlement. The impact to our weighted-average number of common shares – diluted for the three months ended March 31, 2019, was 766,675 weighted-average incremental shares.

Income Taxes (not presented in thousands)

The Company has made an election to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) and related regulations. The Company generally will not be subject to federal income taxes on amounts distributed to stockholders, providing it distributes 100% of its REIT taxable income and meets certain other requirements for qualifying as a REIT. For the periods ending March 31, 2019 and December 31, 2018, the Company believes it has qualified as a REIT. Notwithstanding the Company’s qualification for taxation as a REIT, the Company is subject to certain state taxes on its income and real estate.

The Company and its taxable REIT subsidiaries (“TRS”) have made a timely TRS election pursuant to the provisions of the REIT Modernization Act. A TRS is able to engage in activities resulting in income that previously would have been disqualified from being eligible REIT income under the federal income tax regulations. As a result, certain activities of the Company which occur within its TRS entity are subject to federal and state income taxes. All provisions for federal income taxes in the accompanying consolidated financial statements are attributable to the Company’s TRS.

As of December 31, 2018, the Company had accrued a deferred income tax liability in the amount of $475,000. This deferred income tax balance represented the federal and state tax effect of deferring income tax in 2007 on the sale of an asset under section 1031 of the Internal Revenue Code. This transaction was accrued within the TRS entities described above. During the three months ended March 31, 2019, the Company restructured its ownership of the TRS to which the deferred tax liability was related, resulting in a reversal of the previously accrued amount. The Company recognized total federal and state tax benefit (expense) of approximately $170,000 and ($50,000) for the three months ended March 31, 2019 and 2018, respectively.

Fair Values of Financial Instruments

The Company’s estimates of fair value of financial and non-financial assets and liabilities are based on the framework established in the fair value accounting guidance. The framework specifies a hierarchy of valuation inputs which was established to increase consistency, clarity and comparability in fair value measurements and related disclosures. The guidance describes a fair value hierarchy based upon three levels of inputs that may be used to measure fair value, two of which are considered observable and one that is considered unobservable. The following describes the three levels:

Level 1 –    Valuation is based upon quoted prices in active markets for identical assets or liabilities.

11


 

 

Level 2 –   Valuation is based upon inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 –    Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include option pricing models, discounted cash flow models and similar techniques.

 

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU No. ASU 2018‑13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018‑13”). These amendments modify the disclosure requirements in Topic 820 on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty. ASU 2018‑13 will be effective for all entities for fiscal years beginning after December 15, 2019, including interim periods in the year of adoption. Early adoption is permitted for any interim or annual period. The Company is in the process of determining the impact of the implementation of ASU 2018‑13, but does not believe it will have a material effect on the Company’s financial statements.

In June 2018, the FASB issued ASU No. 2018‑07, “Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” (“ASU 2018‑07”). These amendments expand the scope of Topic 718, Compensation—Stock Compensation, which currently only includes share-based payments to employees, to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned, and the ASU supersedes Subtopic 505‑50, Equity—Equity-Based Payments to Non-Employees. The Company adopted ASU 2018‑07 on January 1, 2019. The adoption did not have a material effect on its financial statements.

In August 2017, the FASB issued ASU No. 2017‑12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” (“ASU 2017‑12”). The objective of ASU 2017‑12 is to expand hedge accounting for both financial (interest rate) and commodity risks, and create more transparency around how economic results are presented, both on the face of the financial statements and in the footnotes. The Company adopted ASU 2017‑12 on January 1, 2019. The adoption did not have a material effect on the financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which changes how entities measure credit losses for most financial assets. This guidance requires an entity to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses”, which clarified that receivables arising from operating leases are within the scope of the leasing standard (Topic 842). This new standard will be effective for the Company on January 1, 2020. The Company is evaluating the impact this new standard would have on its consolidated financial statements, in the event any of its leases ever were to be classified as sales-type or direct finance leases and become subject to the provisions of ASU 2016-13.

In February 2016, the FASB issued ASU No. 2016-02 “Leases” (“ASU 2016-02”). The new standard creates ASC 842 and supersedes FASB ASC 840,  Leases, which the company adopted on January 1, 2019 along with related interpretations.  The adoption of the new Leases standard ASU 2016-02 generally had, and will have, the following impacts on the Company:

Topic 842 requires a lessee to recognize right of use the assets and lease obligation liabilities that arise from leases (operating and finance).  On January 1, 2019, the Company recognized $7.5 million of right of use assets and lease liabilities, within Other Assets and Accounts Payable, Accrued Expenses, and Other Liabilities on the

12


 

Condensed Consolidated Balance Sheet.  The Company was not required to reassess the classification of existing land leases and therefore these leases continue to be accounted for as operating leases.  In the event the Company modifies existing land leases or enters into new land leases after adoption of the new standard, such leases may be classified as finance leases.

Topic 842 requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases and operating leases. Based on its election of practical expedients, the Company’s existing retail leases, where it is the lessor, continue to be accounted for as operating leases under the new standard.  However, Topic 842 changed certain requirements regarding the classification of leases that could result in the Company recognizing certain long-term leases entered into or modified after January 1, 2019 as sales-type leases, as opposed to operating leases.

The Company elected an optional transition method that allows entities to initially apply Topic 842 at the adoption date (January 1, 2019) and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.  However, the Company ultimately did not have any cumulative-effect adjustment as of the adoption date.

The Company elected a practical expedient which  allows lessors to not separate non-lease components from the lease component when the timing and pattern of transfer for the lease components and non-lease components are the same and if the lease component is classified as an operating lease.  As a result, the Company now presents all rentals and reimbursements from tenants as a single line item Rental Income within the Condensed Consolidated Statement of Income and Comprehensive Income, and made certain reclassifications to prior periods for comparability. See Reclassifications above.

Under Topic 842, beginning on January 1, 2019, changes in the probability of collecting tenant rental income will result in direct adjustments of rental income and tenant receivables. The Company no longer will recognize any separate specific bad debt provision or allowance for doubtful accounts.  See Accounts Receivable – Tenants above.

The Company elected an optional transition method allowing entities to not evaluate under ASC 842 land easements that existed or expired before the adoption of ASC 842 and that were not previously accounted for as leases under ASC 840.

In connection with its adoption of Topic 842 the Company also began recognizing amortization of above- and below- market lease intangibles as a net reduction of Rental Income.  See Reclassifications above.

Note 3 – Leases

Tenant Leases

The Company is primarily focused on the ownership, acquisition, development and management of retail properties leased to industry leading tenants.  As of March 31, 2019, our portfolio was approximately 99.7% leased and had a weighted average remaining lease term (excluding extension options) of approximately 10.2 years. A significant majority of our properties are leased to national tenants and approximately 52.4% of our 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.

Substantially all of our tenants are subject to net lease agreements. A net lease typically requires the tenant to be responsible for minimum monthly rent and actual property operating expenses incurred, including property taxes, insurance and maintenance. In addition, our tenants are typically subject to future rent increases based on fixed amounts or increases in the consumer price index and certain leases provide for additional rent calculated as a percentage of the tenants’ gross sales above a specified level.  Certain of our properties are subject to leases under which we retain responsibility for specific costs and expenses of the property.

13


 

Our leases typically provide the tenant one or more multi-year renewal options to extend their leases, subject to generally the same terms and conditions, including rent increases, consistent with the initial lease term.  Additionally, some of our tenant leases provide the tenant options to terminate, usually upon certain conditions or events occurring, such as a sales threshold not being met.

The Company attempts to maximize the amount it expects to derive from the underlying real estate property following the end of the lease, to the extent it is not extended.  We maintain a proactive leasing and capital improvement program that, combined with the quality and locations of our properties, has made our properties attractive to tenants. We intend to continue to hold our properties for long-term investment and, accordingly, place a strong emphasis on the quality of construction and an on-going program of regular and preventative maintenance.  However, the residual value of a real estate property is still subject to various market-specific, asset-specific, and tenant-specific risks and characteristics.  As the classification of a lease is dependent on the fair value of its cash flows at lease commencement, the residual value of a property represents a significant assumption in our accounting for tenant leases.  Similarly, the exercise of options is also subject to these same risks, making a tenant’s lease term another significant variable in a lease’s cash flows.

The Company has elected the practical expedient in ASC Topic 842 on not separating non-lease components from associated lease components.  The lease and non-lease components combined as a result of this election largely include tenant rentals and maintenance charges, respectively. The Company applies the accounting requirements of ASC Topic 842 to the combined component.

The following table includes information regarding the Company’s operating leases for which it is the lessor, for the three months ended March 31, 2019 and as of period end. (presented in thousands)

 

 

 

 

 

 

Three months ended

 

    

March 31, 2019

Total Lease Payments

 

$

 44,361

Less: Variable Lease Payments

 

 

 5,587

Total Non-Variable Lease Payments

 

$

 38,774

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ending December 31, 

    

(remaining)

 

    

2020

    

2021

    

2022

    

2023

    

Thereafter

    

Total

Lease Payments Receivable

 

$

 121,564

 

  

$

161,339

  

$

158,423

  

$

154,964

  

$

150,561

 

$

998,473

  

$