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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 June 30, 2021, 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 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)

(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

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 23, 2021, the Registrant had 68,922,312 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 June 30, 2021 and December 31, 2020

1

Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2021 and 2020

3

Condensed Consolidated Statements of Equity for the three and six months ended June 30, 2021 and 2020

4

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020

6

Notes to Condensed Consolidated Financial Statements

7

Item 2:

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

34

Item 3:

Quantitative and Qualitative Disclosures about Market Risk

48

Item 4:

Controls and Procedures

49

PART II

Item 1:

Legal Proceedings

49

Item 1A:

Risk Factors

49

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

49

Item 3:

Defaults Upon Senior Securities

49

Item 4:

Mine Safety Disclosures

49

Item 5:

Other Information

49

Item 6:

Exhibits

50

SIGNATURES

51

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, 

2021

2020

ASSETS

Real Estate Investments

  

Land

$

1,354,486

$

1,094,550

Buildings

 

2,693,704

 

2,371,553

Less accumulated depreciation

 

(200,395)

 

(172,577)

 

3,847,795

 

3,293,526

Property under development

 

6,199

 

10,653

Net Real Estate Investments

 

3,853,994

 

3,304,179

 

  

Real Estate Held for Sale, net

 

1,245

 

1,199

 

Cash and Cash Equivalents

 

177,046

 

6,137

 

  

Cash Held in Escrows

 

11,335

 

1,818

Accounts Receivable - Tenants

46,882

 

37,808

 

  

Lease Intangibles, net of accumulated amortization of

$150,435 and $125,995 at June 30, 2021 and December 31, 2020, respectively

 

601,545

 

473,592

 

Other Assets, net

 

72,476

 

61,450

 

  

Total Assets

$

4,764,523

$

3,886,183

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)

June 30, 

December 31, 

2021

2020

LIABILITIES

  

Mortgage Notes Payable, net

$

32,782

$

33,122

  

Unsecured Term Loans, net

 

237,849

  

Senior Unsecured Notes, net

1,494,399

 

855,328

  

Unsecured Revolving Credit Facility

 

92,000

  

Dividends and Distributions Payable

15,029

 

34,545

Accounts Payable, Accrued Expenses, and Other Liabilities

68,196

 

71,390

  

Lease Intangibles, net of accumulated amortization of

$26,771 and $24,651 at June 30, 2021 and December 31, 2020, respectively

33,966

 

35,700

  

Total Liabilities

1,644,372

 

1,359,934

  

EQUITY

  

Common stock, $.0001 par value, 180,000,000 and 90,000,000 shares

 

authorized, 68,910,373 and 60,021,483 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

7

6

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

 

Additional paid-in-capital

3,248,264

 

2,652,090

Dividends in excess of net income

(121,619)

 

(91,343)

Accumulated other comprehensive income (loss)

(8,257)

 

(36,266)

  

Total Equity - Agree Realty Corporation

3,118,395

 

2,524,487

Non-controlling interest

1,756

 

1,762

Total Equity

3,120,151

 

2,526,249

  

Total Liabilities and Equity

$

4,764,523

$

3,886,183

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

Six Months Ended

    

June 30, 2021

    

June 30, 2020

    

June 30, 2021

    

June 30, 2020

Revenues

 

  

 

  

 

  

 

  

Rental income

$

82,494

$

57,476

$

160,253

$

113,259

Other

 

52

 

59

 

121

 

85

Total Revenues

 

82,546

 

57,535

 

160,374

 

113,344

 

  

 

  

 

  

 

  

Operating Expenses

 

  

 

  

 

  

 

  

Real estate taxes

 

6,158

 

4,840

 

11,855

9,542

Property operating expenses

 

3,214

 

1,860

 

6,755

4,195

Land lease expense

 

389

 

325

 

736

652

General and administrative

 

6,241

 

4,587

 

13,118

9,244

Depreciation and amortization

 

23,188

 

15,607

 

44,676

29,740

Provision for impairment

 

 

1,128

 

1,128

Total Operating Expenses

 

39,190

 

28,347

 

77,140

 

54,501

 

  

 

  

 

  

 

  

Income from Operations

 

43,356

 

29,188

 

83,234

 

58,843

 

  

 

  

 

  

 

  

Other (Expense) Income

 

  

 

  

 

  

 

  

Interest expense, net

 

(12,549)

 

(8,479)

 

(24,202)

(18,149)

Gain (loss) on sale of assets, net

 

6,767

 

4,952

 

9,712

6,597

Income tax (expense) benefit

(485)

(260)

(1,494)

(520)

Gain (loss) on early extinguishment of term loans and settlement of related interest rate swaps

(14,614)

(14,614)

Other (expense) income

 

(14)

 

23

 

103

 

23

Net Income

 

22,461

 

25,424

 

52,739

 

46,794

 

  

 

  

 

  

 

  

Less net income attributable to non-controlling interest

 

114

 

166

 

280

 

308

 

  

 

  

 

  

 

Net Income Attributable to Agree Realty Corporation

$

22,347

$

25,258

$

52,459

$

46,486

 

  

 

  

 

  

 

  

Net Income Per Share Attributable to Agree Realty Corporation

 

  

 

  

 

  

 

  

Basic

$

0.34

$

0.47

$

0.82

$

0.94

Diluted

$

0.34

$

0.47

$

0.82

$

0.93

 

  

 

  

 

  

 

  

Other Comprehensive Income

 

  

 

  

 

  

 

  

Net income

$

22,461

$

25,424

$

52,739

$

46,794

Realized gain (loss) on settlement of interest rate swaps

287

(17)

787

(33)

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

 

2,230

 

(2,244)

 

27,376

 

(35,269)

Total comprehensive income (loss)

 

24,978

 

23,163

 

80,902

 

11,492

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

 

128

 

151

 

294

 

42

 

  

 

  

 

  

 

  

Comprehensive Income (Loss) Attributable to Agree Realty Corporation

$

24,850

$

23,012

$

80,608

$

11,450

 

  

 

  

 

  

 

  

Weighted Average Number of Common Shares Outstanding - Basic

 

64,835,984

 

52,726,230

 

63,838,070

 

49,082,616

 

  

 

  

 

  

 

Weighted Average Number of Common Shares Outstanding - Diluted

 

65,185,604

 

53,266,740

 

64,079,697

 

49,423,546

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, 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)

Other comprehensive income (loss) - change in fair value 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

Issuance of common stock, net of issuance costs

4,764,450

1

336,875

336,876

Issuance of stock under the 2020 Omnibus Incentive Plan

496

22

22

Forfeiture of restricted stock

(351)

Stock-based compensation

1,453

1,453

Dividends and distributions declared for the period

(42,829)

(225)

(43,054)

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

2,503

14

2,517

Net income

22,347

114

22,461

Balance, June 30, 2021

68,910,373

$

7

$

3,248,264

$

(121,619)

$

(8,257)

$

1,756

$

3,120,151

Cash dividends declared per common share:

For the three months ended March 31, 2021

$

0.621

For the three months ended June 30, 2021

$

0.651

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, 2019

45,573,623

$

5

$

1,752,912

$

(57,094)

$

(6,492)

$

2,231

$

1,691,562

Issuance of common stock, net of issuance costs

1,400,251

104,615

104,615

Repurchase of common shares

(20,707)

(1,627)

(1,627)

Issuance of restricted stock under the 2014 Omnibus Incentive Plan

48,942

Stock-based compensation

1,014

1,014

Dividends and distributions declared for the period

(26,677)

(203)

(26,880)

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

(32,799)

(243)

(33,042)

Net income

21,229

141

21,370

Balance, March 31, 2020

47,002,109

$

5

$

1,856,914

$

(62,542)

$

(39,291)

$

1,926

$

1,757,012

Issuance of common stock, net of issuance costs

6,851,695

437,100

437,100

Repurchase of common shares

(51)

(3)

(3)

Forfeiture of restricted stock

(2,661)

Stock-based compensation

1,224

1,224

Dividends and distributions declared for the period

(32,311)

(209)

(32,520)

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

(2,253)

(8)

(2,261)

Net income

25,258

166

25,424

Balance, June 30, 2020

53,851,092

$

5

$

2,295,235

$

(69,595)

$

(41,544)

$

1,875

$

2,185,976

Cash dividends declared per common share:

For the three months ended March 31, 2020

$

0.585

For the three months ended June 30, 2020

$

0.600

See accompanying notes to Condensed Consolidated Financial Statements.

5

AGREE REALTY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Six Months Ended

    

June 30, 2021

    

June 30, 2020

Cash Flows from Operating Activities

 

  

 

  

Net income

$

52,739

$

46,794

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

 

 

Depreciation and amortization

 

44,676

 

29,740

Amortization from above (below) market lease intangibles, net

10,015

7,588

Amortization from financing and credit facility costs

 

948

 

647

Stock-based compensation

 

2,974

 

2,238

Provision for impairment

1,128

(Gain) loss on settlement of interest rate swaps

16,748

(33)

(Gain) loss on sale of assets

 

(9,712)

 

(6,597)

Write-off of unamortized finance costs upon debt extinguishment

1,250

(Increase) decrease in accounts receivable

 

(9,381)

 

(8,125)

(Increase) decrease in other assets

 

2,113

 

(435)

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

5,576

(5,166)

Net Cash Provided by Operating Activities

 

117,946

 

67,779

 

  

 

  

Cash Flows from Investing Activities

 

  

 

  

Acquisition of real estate investments and other assets

 

(741,353)

 

(504,390)

Development of real estate investments, net of reimbursements

 

(including capitalized interest of $163 in 2021, $55 in 2020)

 

(28,748)

 

(6,961)

Payment of leasing costs

 

(296)

 

(388)

Net proceeds from sale of assets

 

35,377

 

42,599

Net Cash Used in Investing Activities

 

(735,020)

 

(469,140)

 

  

 

  

Cash Flows from Financing Activities

 

 

  

Proceeds from common stock offerings, net

 

594,980

 

541,715

Repurchase of common shares

 

(1,780)

 

(1,630)

Unsecured revolving credit facility borrowings (repayments), net

 

(92,000)

 

(89,000)

Payments of mortgage notes payable

 

(393)

 

(3,238)

Payments of unsecured term loans

 

(240,000)

 

Senior unsecured notes proceeds

 

640,623

 

Dividends paid

 

(102,110)

 

(51,488)

Distributions to non-controlling interest

 

(582)

 

(407)

Payments for financing costs

 

(1,238)

 

(364)

Net Cash Provided by Financing Activities

 

797,500

 

395,588

 

  

 

  

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

 

180,426

 

(5,773)

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

 

7,955

 

42,157

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

$

188,381

$

36,384

 

  

 

  

Supplemental Disclosure of Cash Flow Information

 

  

 

  

Cash paid for interest (net of amounts capitalized)

$

18,822

$

17,930

Cash paid for income tax

$

1,794

$

841

 

 

  

Supplemental Disclosure of Non-Cash Investing and Financing Activities

 

  

 

  

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

$

6,302

$

Dividends and limited partners’ distributions declared and unpaid

$

15,029

$

32,519

Accrual of development, construction and other real estate investment costs

$

(1,825)

$

1,787

See accompanying notes to Condensed Consolidated Financial Statements.

6

AGREE REALTY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

(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% interest as of June 30, 2021. There is a one-for-one relationship between the limited partnership interests in the Operating Partnership (“Operating Partnership Units”) owned by the Company and shares of Company common stock outstanding.  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 and six months ended June 30, 2021 may not be indicative of the results that may be expected for the year ending December 31, 2021.  Amounts as of December 31, 2020 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, 2020.

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% and 99.4% of the Operating Partnership as of June 30, 2021 and December 31, 2020, respectively.  All material intercompany accounts and transactions have been eliminated.

At June 30, 2021 and December 31, 2020, the non-controlling interest in the Operating Partnership consisted of a 0.5% and 0.6% ownership interest in the Operating Partnership held by the Company’s founder and chairman, respectively. The Operating Partnership 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 Units held by others for cash based on the current trading price of its shares. Assuming the exchange of all non-controlling Operating Partnership Units, there would have been 69,257,992 shares of common stock outstanding at June 30, 2021.

7

Significant Risks and Uncertainties

Currently, one of the most significant risks and uncertainties continues to be the potential adverse effect of the current pandemic of the novel coronavirus, or COVID-19.  The COVID-19 pandemic has had repercussions across regional and global economies and financial markets. The outbreak of COVID-19 in many countries, including the United States, has significantly adversely impacted economic activity and has contributed to significant volatility and negative pressure in financial markets.  The COVID-19 pandemic had resulted in a number of our tenants temporarily closing their stores and requesting rent deferrals or rent abatements during this pandemic. Although the duration and severity of this pandemic are still uncertain, there is reason to believe that the success of vaccination efforts in the U.S. is leading to a decline in COVID-19 cases and having a positive impact on businesses, as federal, state and local restrictions are lifted and individuals begin returning to pre-pandemic activities.

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 which 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 June 30, 2021, the Company collected substantially all rent payments originally contracted for in the period. However, the extent to which the COVID-19 pandemic continues to impact our operations and those of our tenants will still depend on future developments which are still 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 still 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 classified one operating property as real estate held for sale at June 30, 2021 and December 31, 2020, the assets for which are separately presented in the Condensed Consolidated Balance Sheets.  

8

Real estate held for sale consisted of the following as of June 30, 2021 and December 31, 2020 (in thousands):