Company Quick10K Filing
Quick10K
Agree Realty
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$66.05 38 $2,540
10-Q 2019-06-30 Quarter: 2019-06-30
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 2019-07-26 Other Events, Exhibits
8-K 2019-07-19 Earnings, Officers, Exhibits
8-K 2019-07-01 Other Events
8-K 2019-06-14 Enter Agreement, Off-BS Arrangement
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
AYR Aircastle 1,470
AFC Allied Capital 205
EDUC Educational Development 68
BBII Brisset Beer 0
NTVA Nexien BioPharma 0
STRI STR Holdings 0
SYTE Enterprise Diversified 0
BEAG Blue Eagle Lithium 0
SFRX Seafarer Exploration 0
AVDX Avant Diagnostics 0
ADC 2019-06-30
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-20190630ex101bbeb56.htm
EX-10.2 adc-20190630ex102b3b902.htm
EX-10.3 adc-20190630ex103f575e2.htm
EX-10.4 adc-20190630ex104a24909.htm
EX-31.1 adc-20190630ex311512b80.htm
EX-31.2 adc-20190630ex31218e525.htm
EX-32.1 adc-20190630ex32169ad44.htm
EX-32.2 adc-20190630ex322c55a8d.htm

Agree Realty Earnings 2019-06-30

ADC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

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Table of Contents

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 June 30, 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

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

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 July 19, 2019, the Registrant had 41,967,223 shares of common stock issued and outstanding.

Table of Contents

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 June 30, 2019 and December 31, 2018

1

Condensed Consolidated Statements of Income and Comprehensive Income for the three and six months ended June 30, 2019 and 2018

3

Condensed Consolidated Statements of Equity for the three and six months ended June 30, 2019 and 2018

4

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 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

29

Item 3:

Quantitative and Qualitative Disclosures about Market Risk

39

Item 4:

Controls and Procedures

42

PART II

Item 1:

Legal Proceedings

43

Item 1A:

Risk Factors

43

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

43

Item 3:

Defaults Upon Senior Securities

43

Item 4:

Mine Safety Disclosures

43

Item 5:

Other Information

43

Item 6:

Exhibits

44

SIGNATURES

45

Table of Contents

AGREE REALTY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(Unaudited)

PART I.       FINANCIAL INFORMATION

Item 1.       Financial Statements

June 30, 

December 31, 

2019

2018

ASSETS

Real Estate Investments

  

Land

$

638,946

$

553,704

Buildings

 

1,375,773

 

1,194,985

Less accumulated depreciation

 

(112,951)

 

(100,312)

 

1,901,768

 

1,648,377

Property under development

 

16,950

 

12,957

Net Real Estate Investments

 

1,918,718

 

1,661,334

 

  

Real Estate Held for Sale, net

 

2,074

 

 

Cash and Cash Equivalents

 

5,520

 

53,955

 

  

Cash Held in Escrows

 

16,909

 

20

Accounts Receivable - Tenants

24,914

 

21,547

 

  

Lease intangibles, net of accumulated amortization of

$74,995 and $62,543 at June 30, 2019 and December 31, 2018, respectively

 

307,303

 

280,153

 

  

Other Assets, net

 

29,005

 

11,180

 

  

Total Assets

$

2,304,443

$

2,028,189

See accompanying notes to condensed consolidated financial statements.

1

Table of Contents

AGREE REALTY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(Unaudited)

June 30, 

December 31, 

2019

2018

LIABILITIES

  

Mortgage Notes Payable, net

$

59,670

$

60,926

  

Unsecured Term Loans, net

237,980

 

256,419

  

Senior Unsecured Notes, net

384,143

 

384,064

  

Unsecured Revolving Credit Facility

54,000

 

19,000

  

Dividends and Distributions Payable

24,119

 

21,031

Accounts Payable, Accrued Expenses, and Other Liabilities

48,700

 

21,045

  

Lease intangibles, net of accumulated amortization of

$17,426 and $15,177 at June 30, 2019 and December 31, 2018, respectively

27,908

 

27,218

  

Total Liabilities

836,520

 

789,703

  

EQUITY

  

Common stock, $.0001 par value, 90,000,000 shares authorized, 41,967,282 and 37,545,790 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively

4

 

4

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

 

Additional paid-in-capital

1,522,644

 

1,277,592

Dividends in excess of net income

(51,298)

 

(42,945)

Accumulated other comprehensive income (loss)

(5,711)

 

1,424

  

Total Equity - Agree Realty Corporation

1,465,639

 

1,236,075

Non-controlling interest

2,284

 

2,411

Total Equity

1,467,923

 

1,238,486

  

Total Liabilities and Equity

$

2,304,443

$

2,028,189

See accompanying notes to condensed consolidated financial statements.

2

Table of Contents

AGREE REALTY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

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

(Unaudited)

Three Months Ended

Six Months Ended

    

June 30, 2019

    

June 30, 2018

    

June 30, 2019

    

June 30, 2018

Revenues

 

  

 

  

 

  

 

  

Rental Income

$

44,875

$

33,076

$

87,219

$

65,308

Other

 

45

 

92

 

49

 

138

Total Revenues

 

44,920

 

33,168

 

87,268

 

65,446

 

  

 

  

 

  

 

  

Operating Expenses

 

  

 

  

 

  

 

  

Real estate taxes

 

3,720

 

2,624

 

7,342

 

5,001

Property operating expenses

 

1,496

 

1,238

 

3,235

 

2,755

Land lease expense

 

372

 

176

 

568

 

339

General and administrative

 

3,880

 

3,110

 

7,914

 

6,018

Depreciation and amortization

 

10,836

 

8,046

 

20,700

 

15,806

Provision for impairment

 

1,193

 

1,163

 

1,609

 

1,163

Total Operating Expenses

 

21,497

 

16,357

 

41,368

 

31,082

 

  

 

  

 

  

 

  

Income from Operations

 

23,423

 

16,811

 

45,900

 

34,364

 

  

 

  

 

  

 

  

Other (Expense) Income

 

  

 

  

 

  

 

  

Interest expense, net

 

(7,455)

 

(5,961)

 

(15,012)

 

(11,426)

Gain (loss) on sale of assets, net

 

2,949

 

2,434

 

6,376

 

7,032

Income tax expense

(195)

(216)

(26)

(266)

Net Income

 

18,722

 

13,068

 

37,238

 

29,704

 

  

 

  

 

  

 

  

Less Net Income Attributable to Non-Controlling Interest

 

158

 

145

 

327

 

329

 

  

 

  

 

 

Net Income Attributable to Agree Realty Corporation

$

18,564

$

12,923

$

36,911

$

29,375

 

  

 

  

 

  

 

  

Net Income Per Share Attributable to Agree Realty Corporation

 

  

 

  

 

  

 

  

Basic

$

0.45

$

0.42

$

0.94

$

0.95

Diluted

$

0.45

$

0.41

$

0.92

$

0.94

 

  

 

  

 

  

 

  

Other Comprehensive Income

 

  

 

  

 

  

 

  

Net income

$

18,722

$

13,068

$

37,238

$

29,704

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

 

(3,794)

 

792

 

(7,199)

 

2,712

Total Comprehensive Income

 

14,928

 

13,860

 

30,039

 

32,416

Less Comprehensive Income Attributable to Non-Controlling Interest

 

125

 

154

 

264

 

359

 

  

 

  

 

  

 

  

Comprehensive Income Attributable to Agree Realty Corporation

$

14,803

$

13,706

$

29,775

$

32,057

 

  

 

  

 

  

 

  

Weighted Average Number of Common Shares Outstanding - Basic

 

40,612,372

 

30,821,185

 

39,058,743

 

30,811,383

 

  

 

  

 

  

 

  

Weighted Average Number of Common Shares Outstanding - Diluted

 

41,141,659

 

31,222,221

 

39,745,337

 

31,036,694

See accompanying notes to condensed consolidated financial statements.

3

Table of Contents

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

Issuance of common stock, net of issuance costs

3,512,500

186,667

186,667

Stock-based compensation

1,025

1,025

Dividends and distributions declared for the period

(23,922)

(197)

(24,119)

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

(3,761)

(33)

(3,794)

Net income

18,564

158

18,722

Balance, June 30, 2019

41,967,282

$

4

$

1,522,644

$

(51,298)

$

(5,711)

$

2,284

$

1,467,923

Cash dividends declared per:

Common shares - for the three months ended March 31, 2019

$

0.555

Common shares - for the three months ended June 30, 2019

$

0.570

See accompanying notes to condensed consolidated financial statements.

4

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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

Issuance of common stock, net of issuance costs

(339)

(339)

Stock-based compensation

686

686

Dividends and distributions declared for the period

(16,759)

(187)

(16,946)

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

783

9

792

Net income

12,924

144

13,068

Balance, June 30, 2018

31,033,259

$

3

$

935,828

$

(32,284)

$

4,057

$

2,520

$

910,124

Cash dividends declared per:

Common shares - for the three months ended March 31, 2018

$

0.520

Common shares - for the three months ended June 30, 2018

$

0.540

See accompanying notes to condensed consolidated financial statements.

5

Table of Contents

AGREE REALTY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Six Months Ended

    

June 30, 2019

    

June 30, 2018

Cash Flows from Operating Activities

 

  

 

  

Net income

$

37,238

$

29,704

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

 

 

  

Depreciation and amortization

 

20,700

 

15,806

Amortization from above (below) lease intangibles, net

6,501

4,756

Amortization from financing and credit facility costs

 

650

 

500

Stock-based compensation

 

1,938

 

1,288

Provision for impairment

1,609

1,163

Settlement of interest rate swap

802

(Gain) loss on sale of assets

 

(6,376)

 

(7,032)

(Increase) decrease in accounts receivable

 

(3,837)

 

(4,143)

(Increase) decrease in other assets

 

(963)

 

(754)

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

(663)

(4,250)

Net Cash Provided by Operating Activities

 

57,599

 

37,038

 

  

 

  

Cash Flows from Investing Activities

 

  

 

  

Acquisition of real estate investments and other assets

 

(320,930)

 

(199,608)

Development of real estate investments and other assets

 

(including capitalized interest of $203 in 2019 and $292 in 2018)

 

(10,363)

 

(8,818)

Payment of leasing costs

 

(224)

 

(10)

Net proceeds from sale of assets

 

26,803

 

30,385

Net Cash Used In Investing Activities

 

(304,714)

 

(178,051)

 

  

 

  

Cash Flows from Financing Activities

 

 

  

Proceeds (costs) from common stock offerings, net

 

244,512

 

(432)

Repurchase of common shares

 

(1,398)

 

(1,074)

Unsecured revolving credit facility borrowings (repayments), net

 

35,000

 

152,000

Payments of mortgage notes payable

 

(1,353)

 

(26,267)

Payments of unsecured term loans

 

(18,543)

 

(381)

Dividends paid

 

(42,180)

 

(32,260)

Distributions to Non-Controlling Interest

 

(386)

 

(361)

Payments for financing costs

 

(83)

 

(8)

Net Cash Provided by Financing Activities

 

215,569

 

91,217

 

  

 

  

Net Increase (Decrease) in Cash and Cash Equivalents

 

(31,546)

 

(49,796)

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

$

22,429

$

8,986

 

  

 

  

Supplemental Disclosure of Cash Flow Information

 

  

 

  

Cash paid for interest (net of amounts capitalized)

$

15,510

$

10,842

Cash paid for income tax

$

748

$

368

 

  

 

  

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

$

24,119

$

16,946

Accrual of development, construction and other real estate investment costs

$

6,588

$

570

See accompanying notes to condensed consolidated financial statements.

6

Table of Contents

AGREE REALTY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 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 99.2% interest as of June 30, 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 and six months ended June 30, 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.

7

Table of Contents

Reclassifications

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 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.  The Company incurred amortization of capitalized above- and below-market lease intangibles of $3.2 million and $2.5 million for the three months ended June 30, 2019 and 2018, respectively and $6.5 million and $4.8 million for the six months ended June 30, 2019 and 2018, respectively.

Certain other reclassifications have been made to prior year financial statements to conform to classifications used in the current year. These reclassifications had no impact on net income or shareholders’ equity as previously reported.

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 classified one operating property as held for sale at June 30, 2019, the assets for which are separately presented in the Condensed Consolidated Balance Sheet.

Real estate held for sale consisted of the following as of June 30, 2019 and December 31, 2018 (in thousands):

    

June 30, 2019

    

December 31, 2018

Land

$

1,104

$

-

Building

 

2,043

 

-

 

3,147

 

-

Accumulated depreciation and amortization

 

(1,073)

 

-

Total Real Estate Held for Sale, net

$

2,074

$

-

8

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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).

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 $21.3 million and $52.7 million in cash and cash held in escrow as of June 30, 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 June 30, 2019 and December 31, 2018 was $2.7 million and $3.3 million, respectively.

In addition, many of the Company’s leases contain escalations for which we recognize revenue on a straight-line basis over the non-cancelable lease term. This method results in revenue in the early years of a lease being higher than actual cash received, creating a straight-line rental income receivable asset which is included in the Accounts Receivable - Tenants line item in our condensed consolidated balance sheets. The balance of straight-line rental income receivables at June 30, 2019 and December 31, 2018 was $19.4 million and $16.7 million, respectively. To the extent any of the

9

Table of Contents

tenants under these leases becomes unable to pay its contractual cash rents, the Company may be required to write-off the straight-line 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.

The following schedule summarizes the Company’s amortization of deferred expenses for the three and six months ended June 30, 2019 and 2018 (in thousands):

Three months ended

Six Months Ended

    

June 30, 2019

    

June 30, 2018

    

June 30, 2019

    

June 30, 2018

Deferred Financing Costs

$

143

$

101

$

285

$

202

Leasing Costs

 

81

 

41

 

161

 

84

Lease Intangibles (In-place)

 

2,392

 

2,014

 

4,443

 

4,006

Lease Intangibles (Above-Market)

4,360

3,619

8,734

6,963

Lease Intangibles (Below-Market)

 

(1,135)

 

(1,106)

 

(2,233)

 

(2,207)

Total

$

5,841

$

4,669

$

11,390

$

9,048

The following schedule represents estimated future amortization of deferred expenses as of June 30, 2019 (in thousands):

 

2019

Year Ending December 31, 

    

(remaining)

    

2020

    

2021

    

2022

    

2023

    

Thereafter

    

Total

Deferred Financing Costs

$

271

  

$

542

  

$

28

  

$

  

$

$

  

$

841

Leasing Costs

 

161

  

 

402

  

 

383

  

 

371

  

 

313

 

1,085