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,~~September 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~~001-12928

AGREE REALTY CORPORATION

(Exact name of registrant as specified in its charter)


Maryland		38-3148187
State or other jurisdiction of incorporation or		(I.R.S. Employer Identification No.)
organization
70 E. Long Lake Road, Bloomfield Hills, Michigan		48304
(Address of principal executive offices)		(Zip Code)

(248) 737-4190

(Registrant's telephone number, including area code)

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


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $0.0001 par value	ADC	New York Stock Exchange
Depositary Shares, each representing one-thousandth of a share of 4.25% Series A Cumulative Redeemable Preferred Stock, $0.0001 par value	ADCPrA	New York Stock Exchange

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


Yes	☒	No	◻

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


Yes	☒	No	◻

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


Large Accelerated Filer	☒	Accelerated Filer	◻	Non-accelerated Filer	◻	Smaller reporting company	☐	Emerging growth company	☐

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

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


Yes	☐	No	☒

As of ~~April 30,~~October 29, 2021, the Registrant had ~~64,145,608~~69,779,748 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 ~~March 31,~~September 30, 2021 and December 31, 2020	1

	Condensed Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020	3

	Condensed Consolidated Statements of Equity for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020	4

	Condensed Consolidated Statements of Cash Flows for the ~~three~~nine months ended ~~March 31,~~September 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	3235

Item 3:	Quantitative and Qualitative Disclosures about Market Risk	4450

Item 4:	Controls and Procedures	4751

PART II

Item 1:	Legal Proceedings	4751

Item 1A:	Risk Factors	4751

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	4751

Item 3:	Defaults Upon Senior Securities	4751

Item 4:	Mine Safety Disclosures	4751

Item 5:	Other Information	4751

Item 6:	Exhibits	4852

SIGNATURES		4953

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


	March 31,		December 31,		September 30,		December 31,
	2021		2020		2021		2020
ASSETS
Real Estate Investments
Land	$	1,215,065	$	1,094,550	$	1,459,526	$	1,094,550
Buildings		2,534,818		2,371,553		2,863,568		2,371,553
Less accumulated depreciation		(185,946)		(172,577)		(216,775)		(172,577)
		3,563,937		3,293,526		4,106,319		3,293,526
Property under development		11,088		10,653		7,728		10,653
Net Real Estate Investments		3,575,025		3,304,179		4,114,047		3,304,179

Real Estate Held for Sale, net		13,549		1,199		5,571		1,199

Cash and Cash Equivalents		7,369		6,137		91,881		6,137

Cash Held in Escrows		—		1,818		10,927		1,818

Accounts Receivable - Tenants		40,700		37,808		52,854		37,808

Lease Intangibles, net of accumulated amortization of
$138,188 and $125,995 at March 31, 2021 and December 31, 2020, respectively		545,376		473,592
Lease Intangibles, net of accumulated amortization of
$164,517 and $125,995 at September 30, 2021 and December 31, 2020, respectively						645,594		473,592

Other Assets, net		96,383		61,450		76,626		61,450

Total Assets	$	4,278,402	$	3,886,183	$	4,997,500	$	3,886,183

See accompanying notes to Condensed Consolidated Financial Statements.

Table of Contents

AGREE REALTY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(Unaudited)

March 31,

December 31,

2021

2020
LIABILITIES


Mortgage Notes Payable, net

$
32,953

$
33,122



Unsecured Term Loans, net

237,955

237,849



Senior Unsecured Notes, net

855,454

855,328



Unsecured Revolving Credit Facility

238,000

92,000



Dividends and Distributions Payable

13,324

34,545

Accounts Payable, Accrued Expenses, and Other Liabilities

66,186

71,390



Lease Intangibles, net of accumulated amortization of

$26,030 and $24,651 at March 31, 2021 and December 31, 2020, respectively

34,654

35,700



Total Liabilities

1,478,526

1,359,934



EQUITY



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

authorized, 64,145,778 and 60,021,483 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

6

6
Preferred Stock, $.0001 par value per share, 4,000,000 shares authorized

—

—
Additional paid-in-capital

2,909,914

2,652,090
Dividends in excess of net income

(101,137)

(91,343)
Accumulated other comprehensive income (loss)

(10,760)

(36,266)



Total Equity - Agree Realty Corporation

2,798,023

2,524,487
Non-controlling interest

1,853

1,762
Total Equity

2,799,876

2,526,249



Total Liabilities and Equity

$
4,278,402

$
3,886,183


	September 30,		December 31,
	2021		2020
LIABILITIES
Mortgage Notes Payable, net	$	32,607	$	33,122

Unsecured Term Loans, net		—		237,849

Senior Unsecured Notes, net		1,494,747		855,328

Unsecured Revolving Credit Facility		—		92,000

Dividends and Distributions Payable		15,507		34,545

Accounts Payable, Accrued Expenses, and Other Liabilities		80,494		71,390

Lease Intangibles, net of accumulated amortization of
$28,303 and $24,651 at September 30, 2021 and December 31, 2020, respectively		32,544		35,700

Total Liabilities		1,655,899		1,359,934

EQUITY
Preferred Stock, $.0001 par value per share, 4,000,000 shares authorized,
7,000 shares Series A outstanding, at stated liquidation value of $25,000 per share, at September 30, 2021, 0 shares issued and outstanding at December 31, 2020		175,000		—
Common stock, $.0001 par value, 180,000,000 and 90,000,000 shares
authorized, 69,779,748 and 60,021,483 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively		7		6
Additional paid-in-capital		3,300,227		2,652,090
Dividends in excess of net income		(130,455)		(91,343)
Accumulated other comprehensive income (loss)		(4,893)		(36,266)

Total Equity - Agree Realty Corporation		3,339,886		2,524,487
Non-controlling interest		1,715		1,762
Total Equity		3,341,601		2,526,249

Total Liabilities and Equity	$	4,997,500	$	3,886,183

See accompanying notes to Condensed Consolidated Financial Statements.

Table of Contents

AGREE REALTY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

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

(Unaudited)

Three Months Ended


March 31, 2021

March 31, 2020


Revenues





Rental income

$
77,760

$
55,783

Other

69

26

Total Revenues

77,829

55,809





Operating Expenses





Real estate taxes

5,696

4,702

Property operating expenses

3,541

2,335

Land lease expense

346

328

General and administrative

6,879

4,658

Depreciation and amortization

21,489

14,132

Total Operating Expenses

37,951

26,155





Income from Operations

39,878

29,654





Other (Expense) Income





Interest expense, net

(11,653)

(9,669)

Gain (loss) on sale of assets, net

2,945

1,645

Gain (loss) on involuntary conversion of assets, net

117

—

Income tax (expense) benefit

(1,009)

(260)

Net Income

30,278

21,370





Less net income attributable to non-controlling interest

166

141





Net Income Attributable to Agree Realty Corporation

$
30,112

$
21,229





Net Income Per Share Attributable to Agree Realty Corporation





Basic

$
0.48

$
0.47

Diluted

$
0.48

$
0.46





Other Comprehensive Income





Net income

$
30,278

$
21,370

Realized gain (loss) on settlement of interest rate swaps

500

(17)

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

25,146

(33,025)

Total comprehensive income (loss)

55,924

(11,672)

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

304

(109)





Comprehensive Income (Loss) Attributable to Agree Realty Corporation

$
55,620

$
(11,563)





Weighted Average Number of Common Shares Outstanding - Basic

62,828,897

45,436,191





Weighted Average Number of Common Shares Outstanding - Diluted

62,940,360

45,565,054

~~See accompanying notes to Condensed Consolidated Financial Statements.~~

~~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, 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

Cash dividends declared per common share:

For the three months ended March 31, 2021

$
0.621


	Three Months Ended				Nine Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Revenues
Rental income	$	87,469	$	63,701	$	247,722	$	176,960
Other		68		109		189		193
Total Revenues		87,537		63,810		247,911		177,153

Operating Expenses
Real estate taxes		6,957		5,516		18,812		15,058
Property operating expenses		3,189		2,108		9,944		6,303
Land lease expense		400		325		1,135		977
General and administrative		5,687		4,756		18,806		13,999
Depreciation and amortization		24,488		17,327		69,164		47,067
Provision for impairment		—		2,868		—		3,996
Total Operating Expenses		40,721		32,900		117,861		87,400
Gain (loss) on sale of assets, net		3,470		970		13,182		7,567
Income from Operations		50,286		31,880		143,232		97,320

Other (Expense) Income
Interest expense, net		(13,066)		(10,158)		(37,267)		(28,307)
Income tax (expense) benefit		(390)		(306)		(1,884)		(826)
Gain (loss) on early extinguishment of term loans and settlement of related interest rate swaps		—		—		(14,614)		—
Other (expense) income		—		—		103		23
Net Income		36,830		21,416		89,570		68,210

Less net income attributable to non-controlling interest		167		136		447		444
Net income attributable to Agree Realty Corporation		36,663		21,280		89,123		67,766
Less Series A preferred stock dividends		289		—		289		—
Net Income Attributable to Common Stockholders	$	36,374	$	21,280	$	88,834	$	67,766

Net Income Per Share Attributable to Common Stockholders
Basic	$	0.52	$	0.39	$	1.35	$	1.33
Diluted	$	0.52	$	0.39	$	1.34	$	1.32

Other Comprehensive Income
Net income	$	36,830	$	21,416	$	89,570	$	68,210
Realized gain (loss) on settlement of interest rate swaps		82		—		869		—
Other comprehensive income (loss) - change in fair value and settlement of interest rate swaps		3,300		1,420		30,676		(33,883)
Total comprehensive income (loss)		40,212		22,836		121,115		34,327
Less comprehensive income (loss) attributable to non-controlling interest		185		152		465		187

Comprehensive Income (Loss) Attributable to Agree Realty Corporation	$	40,027	$	22,684	$	120,650	$	34,140

Weighted Average Number of Common Shares Outstanding - Basic		69,102,500		53,721,956		65,623,720		50,637,569

Weighted Average Number of Common Shares Outstanding - Diluted		69,591,848		54,555,672		65,952,113		51,151,462

See accompanying notes to Condensed Consolidated Financial Statements.

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, 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

—

—

—

—

—

—
Forfeiture of restricted stock

—

—

—

—

—

—

—
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

Cash dividends declared per common share:

For the three months ended March 31, 2020

$
0.585


											Accumulated
									Dividends in		Other
	Preferred Stock			Common Stock			Additional		excess of net		Comprehensive		Non-Controlling		Total
	Shares	Amount		Shares	Amount		Paid-In Capital		income		Income (Loss)		Interest		Equity
Balance, December 31, 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	—		—	—		—		336,875		—		—		—		336,876
Repurchase of common shares	—		—	—		—		—		—		—		—		—
Issuance of stock under the 2020 Omnibus Incentive Plan	—		—	—		—		22		—		—		—		22
Forfeiture of restricted stock	—		—	—		—		—		—		—		—		—
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	—	$	—	64,145,778	$	6	$	3,248,264	$	(121,619)	$	(8,257)	$	1,756	$	3,120,151
Issuance of Series A preferred stock, net of issuance costs	7,000		175,000	—		—		(4,715)		—		—		—		170,285
Issuance of common stock, net of issuance costs	—		—	885,912		—		55,878		—		—		—		55,878
Repurchase of common shares	—		—	(369)		—		(27)		—		—		—		(27)
Issuance of stock under the 2020 Omnibus Incentive Plan	—		—	5,891		—		—		—		—		—		—
Forfeiture of restricted stock	—		—	(22,059)		—		(468)		—		—		—		(468)
Stock-based compensation	—		—	—		—		1,295		—		—		—		1,295
Series A preferred dividends declared for the period	—		(289)	—		—		—		—		—		—		(289)
Common dividends and distributions declared for the period			—	—		—		—		(45,210)		—		(226)		(45,436)
Other comprehensive income (loss) - change in fair value and settlement of interest rate swaps	—		—	—		—		—		—		3,364		18		3,382
Net income	—		289	—		—		—		36,374		—		167		36,830
Balance, September 30, 2021	7,000	$	175,000	65,015,153	$	6	$	3,300,227	$	(130,455)	$	(4,893)	$	1,715	$	3,341,601

Cash dividends declared per depositary share of Series A preferred stock:
For the three months ended March 31, 2021		$	—
For the three months ended June 30, 2021		$	—
For the three months ended September 30, 2021		$	0.041

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
For the three months ended September 30, 2021					$	0.651

See accompanying notes to Condensed Consolidated Financial Statements.

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, 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
Issuance of common stock, net of issuance costs	1,515,000		1		87,870		—		—		—		87,871
Repurchase of common shares	(108)		—		(7)		—		—		—		(7)
Issuance of stock under the 2020 Omnibus Incentive Plan	4,541		—		—		—		—		—		—
Stock-based compensation	—		—		1,233		—		—		—		1,233
Dividends and distributions declared for the period	—		—		—		(32,312)		—		(210)		(32,522)
Other comprehensive income (loss) - change in fair value and settlement of interest rate swaps	—		—		—		—		1,404		16		1,420
Net income	—		—		—		21,280		—		136		21,416
Balance, September 30, 2020	55,370,525	$	6	$	2,384,331	$	(80,627)	$	(40,140)	$	1,817	$	2,265,387

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
For the three months ended September 30, 2020		$	0.600

See accompanying notes to Condensed Consolidated Financial Statements.

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AGREE REALTY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Three Months Ended


March 31, 2021

March 31, 2020
Cash Flows from Operating Activities




Net income

$
30,278

$
21,370
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

21,489

14,132
Amortization from above (below) market lease intangibles, net

4,756

3,809
Amortization from financing and credit facility costs

425

323
Stock-based compensation

1,499

1,014
Settlement of interest rate swaps

501

(17)
(Gain) loss on sale of assets

(2,945)

(1,645)
(Increase) decrease in accounts receivable

(2,932)

(1,284)
(Increase) decrease in other assets

6,803

50
Increase (decrease) in accounts payable, accrued expenses, and other liabilities

(14,079)

(9,056)
Net Cash Provided by Operating Activities

45,795

28,696




Cash Flows from Investing Activities




Acquisition of real estate investments and other assets

(397,044)

(229,586)
Development of real estate investments, net of reimbursements

(including capitalized interest of $75 in 2021, $25 in 2020)

1,683

(1,217)
Payment of leasing costs

(240)

(189)
Net proceeds from sale of assets

8,422

24,383
Net Cash Used in Investing Activities

(387,179)

(206,609)




Cash Flows from Financing Activities


Proceeds from common stock offerings, net

258,105

104,615
Repurchase of common shares

(1,780)

(1,627)
Unsecured revolving credit facility borrowings (repayments), net

146,000

153,000
Payments of mortgage notes payable

(195)

(3,005)
Dividends paid

(60,957)

(24,811)
Distributions to non-controlling interest

(359)

(203)
Payments for financing costs

(16)

(73)
Net Cash Provided by Financing Activities

340,798

227,896




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

(586)

49,983
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

$
7,369

$
92,140




Supplemental Disclosure of Cash Flow Information




Cash paid for interest (net of amounts capitalized)

$
15,836

$
9,669
Cash paid for income tax

$
1,794

$
760


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

$
13,350

$
26,880
Accrual of development, construction and other real estate investment costs

$
7,179

$
3,034


	Nine Months Ended
	September 30, 2021		September 30, 2020
Cash Flows from Operating Activities
Net income	$	89,570	$	68,210
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		69,164		47,067
Amortization from above (below) market lease intangibles, net		16,630		11,552
Amortization from financing and credit facility costs		1,581		1,029
Stock-based compensation		3,481		3,471
Provision for impairment		—		3,996
Gain (loss) on settlement of interest rate swaps		16,748		(23,169)
(Gain) loss on sale of assets		(13,182)		(7,567)
Write-off of unamortized finance costs upon debt extinguishment		1,250		—
(Increase) decrease in accounts receivable		(15,649)		(13,484)
(Increase) decrease in other assets		(1,513)		(1,364)
Increase (decrease) in accounts payable, accrued expenses, and other liabilities		17,887		1,114
Net Cash Provided by Operating Activities		185,967		90,855

Cash Flows from Investing Activities
Acquisition of real estate investments and other assets		(1,082,860)		(964,974)
Development of real estate investments, net of reimbursements
(including capitalized interest of $200 in 2021, $109 in 2020)		(32,730)		(14,343)
Payment of leasing costs		(438)		(388)
Net proceeds from sale of assets		46,831		45,983
Net Cash Used in Investing Activities		(1,069,197)		(933,722)

Cash Flows from Financing Activities
Proceeds from Series A preferred stock offering, net		170,285		—
Proceeds from common stock offerings, net		650,859		629,586
Repurchase of common shares		(1,807)		(1,637)
Unsecured revolving credit facility borrowings (repayments), net		(92,000)		(69,000)
Payments of mortgage notes payable		(594)		(3,474)
Payments of unsecured term loans		(240,000)		—
Senior unsecured notes proceeds		640,623		349,745
Payment of common stock dividends		(147,133)		(83,798)
Distributions to non-controlling interest		(809)		(615)
Payments for financing costs		(1,341)		(3,867)
Net Cash Provided by Financing Activities		978,083		816,940

Net Increase (Decrease) in Cash and Cash Equivalents and Cash Held in Escrow		94,853		(25,927)
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	$	102,808	$	16,230

Supplemental Disclosure of Cash Flow Information
Cash paid for interest (net of amounts capitalized)	$	30,799	$	25,351
Cash paid for income tax	$	1,794	$	1,137

Supplemental Disclosure of Non-Cash Investing and Financing Activities
Additional lease right of use assets added under new ground leases after January 1, 2019	$	6,302	$	—
Series A preferred dividends declared and unpaid	$	289	$	—
Common stock dividends and limited partners' distributions declared and unpaid	$	15,507	$	32,522
Change in accrual of development, construction and other real estate investment costs	$	(1,731)	$	7,665

See accompanying notes to Condensed Consolidated Financial Statements.

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AGREE REALTY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~March 31,~~September 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% common equity interest as of ~~March 31,~~September 30, 2021. There is a one-for-one relationship between the limited partnership interests in the Operating Partnership (“Operating Partnership Common Units”) owned by the Company and shares of Company common stock outstanding. The Company also owns a Series A preferred equity interest in the Operating Partnership. This preferred equity interest corresponds to the Company’s Series A Preferred Stock (Note 6), providing guaranteed income and distributions to the Company equal to the dividends payable on that stock. Under the agreement of limited partnership of the Operating Partnership, the Company, as the sole general partner, has exclusive responsibility and discretion in the management and control of the Operating Partnership.

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

Note 2 – Summary of Significant Accounting Policies

Basis of Accounting and Principles of Consolidation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for audited financial statements. The unaudited Condensed Consolidated Financial Statements reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the results for the interim period presented. Operating results for the three and nine months ended ~~March 31,~~September 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~~Partnership’s common equity as of ~~March 31,~~September 30, 2021 and December 31, 2020, ~~respectively.~~respectively, as well as the Series A preferred equity interest. All material intercompany accounts and transactions have been ~~eliminated.~~eliminated, including the Company’s Series A preferred equity interest in the Operating Partnership.

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At ~~March 31,~~September 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 Common Units may, under certain circumstances, be exchanged for shares of common stock. The Company as sole general partner of the Operating Partnership has the option to settle exchanged Operating Partnership Common Units held by others for cash based on the current trading price of its shares. Assuming the exchange of all non-controlling Operating Partnership Common Units, there would have been ~~64,493,397~~70,127,367 shares of common stock outstanding at ~~March 31,~~September 30, 2021.

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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.~~COVID-19, and its variants. 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 ~~has~~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. will lead to a decline in COVID-19 cases and have a positive impact on businesses, as federal, state and local restrictions are lifted and individuals return to pre-pandemic activities.

The ~~ongoing~~ 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 ~~March 31,~~September 30, 2021, the Company collected ~~over 99% of~~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 ~~highly~~ uncertain, ~~and cannot be predicted with confidence,~~ 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

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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 ~~4 and 1~~3 operating properties as real estate held for sale at ~~March 31,~~September 30, 2021 and December 31, 2020, ~~respectively,~~ the assets for which are separately presented in the Condensed Consolidated Balance Sheets.

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


	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Land	$	6,338	$	313	$	974	$	313
Building		7,530		1,019		3,973		1,019
Lease intangibles - asset		1,895		132		1,792		132
Lease intangibles - (liability)		(1,168)		(285)		0		(285)
		14,595		1,179		6,739		1,179
Accumulated depreciation and amortization, net		(1,046)		20		(1,168)		20
Total Real Estate Held for Sale, net	$	13,549	$	1,199	$	5,571	$	1,199

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. Above- and below-market lease intangibles are recorded based on the present value of the difference between the contractual amounts to be paid pursuant to the leases at the time of acquisition and the Company’s estimate of current market lease rates for the property. In the case of sale-leaseback transactions, it is typically assumed that the lease is not in-place prior to the close of the transaction.

Depreciation and Amortization

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

In-place lease intangible assets and the capitalized above- and below-market lease intangibles are amortized over the non-cancelable term of the lease unless the Company believes it is reasonably certain that the tenant will renew the lease for an option term, in which case the Company amortizes the value attributable to the renewal over the renewal period. In-place lease intangible assets are amortized to amortization expense and above- and below-market lease intangibles are amortized as a net adjustment to rental income. In the event of early lease termination, the remaining net book value of any above- or below-market lease intangible is recognized as an adjustment to rental income.

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The following schedule summarizes the Company’s amortization of lease intangibles for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020 (in thousands):


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31, 2021		March 31, 2020		September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Lease intangibles (in-place)	$	5,915	$	3,508	$	7,170	$	4,408	$	19,853	$	11,971
Lease intangibles (above-market)		6,401		5,051		8,146		5,338		21,391		15,607
Lease intangibles (below-market)		(1,645)		(1,242)		(1,531)		(1,374)		(4,760)		(4,055)
Total	$	10,671	$	7,317	$	13,785	$	8,372	$	36,484	$	23,523

The following schedule represents estimated future amortization of lease intangibles as of ~~March 31,~~September 30, 2021 (in thousands):


	2021														2021
Year Ending December 31,	(remaining)		2022		2023		2024		2025		Thereafter		Total		(remaining)		2022		2023		2024		2025		Thereafter		Total
Lease intangibles (in-place)	$	18,846	$	23,341	$	21,742	$	20,028	$	18,301	$	112,078	$	214,336	$	8,018	$	30,075	$	28,016	$	25,494	$	23,642	$	140,967	$	256,212
Lease intangibles (above-market)		20,068		25,843		24,847		23,154		22,242		214,886		331,040		9,100		35,604		33,454		29,637		28,758		252,829		389,382
Lease intangibles (below-market)		(4,575)		(5,175)		(4,465)		(3,796)		(3,365)		(13,278)		(34,654)		(1,552)		(5,306)		(4,596)		(3,925)		(3,489)		(13,676)		(32,544)
Total	$	34,339	$	44,009	$	42,124	$	39,386	$	37,178	$	313,686	$	510,722	$	15,566	$	60,373	$	56,874	$	51,206	$	48,911	$	380,120	$	613,050

Impairments

The Company reviews real estate investments and related lease intangibles for possible impairment when certain events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable through operations plus estimated disposition proceeds. Events or changes in circumstances that may occur include, but are not limited to, significant changes in real estate market conditions, estimated residual values and an expectation to sell assets before the end of the previously estimated life. Impairments are measured to the extent the current book value exceeds the estimated fair value of the asset less disposition costs for any assets classified as held for sale.

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

Cash and Cash Equivalents and Cash Held in Escrows

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents consist of cash and money market accounts. Cash held in escrows primarily relates to delayed like-kind exchange transactions pursued under Section 1031 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). The account balances of cash and cash held in escrow periodically exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance coverage, and as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Company had ~~$6.6~~$101.6 million and $7.0 million in cash and cash held in escrow as of ~~March 31,~~September 30, 2021 and December 31, 2020, respectively, in excess of the FDIC insured limit.

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Per the requirements of ASU 2016-18 (Topic 230, Statement of Cash Flows) the following table provides a reconciliation of cash and cash equivalents and cash held in escrow, both as reported within the Condensed Consolidated Balance Sheets, to the total of the cash, cash equivalents and cash held in escrow as reported within the Condensed Consolidated Statements of Cash Flows (dollars in thousands):

March 31, 2021

December 31, 2020
Cash and cash equivalents

$
7,369

$
6,137
Cash held in escrow

—

1,818
Total of cash and cash equivalents and cash held in escrow

$
7,369

$
7,955


	September 30, 2021		December 31, 2020
Cash and cash equivalents	$	91,881	$	6,137
Cash held in escrow		10,927		1,818
Total of cash and cash equivalents and cash held in escrow	$	102,808	$	7,955

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Revenue Recognition and Accounts Receivable

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

Recognizing rent escalations on a straight-line method results in rental revenue in the early years of a lease being higher than actual cash received, creating a straight-line rent receivable asset which is included in the Accounts Receivable - Tenants line item in the Condensed Consolidated Balance Sheets. The balance of straight-line rent receivables at ~~March 31,~~September 30, 2021 and December 31, 2020 was ~~$32.4~~$37.9 million and $29.8 million, respectively. To the extent any of the tenants under these leases become unable to pay their contractual cash rents, the Company may be required to write down the straight-line rent receivable from those tenants, which would reduce rental income.

The Company reviews the collectability of charges under its tenant operating leases on a regular basis, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area where the property is located. The Company’s assessment has specifically included the impact of the COVID-19 pandemic, which represents a material risk to collectability (see Significant Risks and Uncertainties above). In the event that collectability with respect to any tenant changes, the Company recognizes an adjustment to rental revenue. The Company’s review of collectability of charges under its operating leases also includes any accrued rental revenue related to the straight-line method of reporting rental revenue. As of ~~March 31,~~September 30, 2021, the Company has 54 tenants where collection is no longer considered probable. For these tenants, the Company is recording rental income on a cash basis and has written off any outstanding receivables, including straight-line rent receivables. These tenants had an immaterial impact to Rental Income and Net Income for the three ~~month period~~and nine months ended ~~March 31,~~September 30, 2021.

The Company’s leases provide for reimbursement from tenants for common area maintenance (“CAM”), insurance, real estate taxes and other operating expenses. A portion of the Company’s operating cost reimbursement revenue is estimated each period and is recognized as rental revenue in the period the recoverable costs are incurred and accrued. The balance of unbilled operating cost reimbursement receivable at ~~March 31,~~September 30, 2021 and December 31, 2020 was ~~$5.9~~$10.0 million and $4.1 million, respectively.

The Company has adopted the practical expedient in FASB ASC Topic 842, Leases (“ASC 842”) that allows lessors to combine 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 the lease component is classified as an operating lease. As a result, all rentals and reimbursements earned pursuant to tenant leases are reflected as one line, “Rental Income,” in the Condensed Consolidated Statement of Operations and Comprehensive Income.

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Rent Concessions – COVID-19

The Company has provided lease concessions to certain tenants in response to the impact of COVID-19, in the form of rent deferrals. The Company has made an election to account for such lease concessions consistent with how those concessions would be accounted for under ASC 842 if enforceable rights and obligations for those concessions had already existed in the leases. This election is available for concessions related to the effects of the COVID-19 pandemic that do not result in a substantial increase in our rights as lessor, including concessions that result in the total payments required by the modified lease being substantially the same as or less than total payments required by the original lease.

Substantially all of the Company’s concessions to date provide for a deferral of payments with no substantive changes to the consideration in the original lease. These deferrals affect the timing, but not the amount, of the lease payments. The Company is accounting for these deferrals as if no changes to the lease were made. Under this accounting, the Company

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increases its lease receivable as tenant payments accrue and continues to recognize rental income. As of ~~March, 31,~~September 30, 2021, the Company has ~~$1.6~~$0.8 million of deferred rent receivables outstanding, net of repayments that have occurred, relating to COVID-19 lease concessions.

Sales Tax

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

Earnings per Share

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

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


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31, 2021		March 31, 2020		September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Net income attributable to Agree Realty Corporation	$	30,112	$	21,229	$	36,663	$	21,280	$	89,123	$	67,766
Less: Series A preferred stock dividends						(289)		0		(289)		0
Net income attributable to common stockholders						36,374		21,280		88,834		67,766
Less: Income attributable to unvested restricted shares		(103)		(81)		(106)		(69)		(280)		(233)
Net income used in basic and diluted earnings per share	$	30,009	$	21,148	$	36,268	$	21,211	$	88,554	$	67,533

Weighted average number of common shares outstanding		63,048,905		45,615,400		69,304,906		53,902,541		65,826,126		50,818,154
Less: Unvested restricted stock		(220,008)		(179,209)		(202,406)		(180,585)		(202,406)		(180,585)
Weighted average number of common shares outstanding used in basic earnings per share		62,828,897		45,436,191		69,102,500		53,721,956		65,623,720		50,637,569

Weighted average number of common shares outstanding used in basic earnings per share		62,828,897		45,436,191		69,102,500		53,721,956		65,623,720		50,637,569
Effect of dilutive securities:
Share-based compensation		62,454		69,069		110,389		85,380		101,931		87,111
2019 ATM Forward Equity Offerings		—		57,158		0		0		0		19,053
2020 ATM Forward Equity Offerings		49,009		2,636		268,011		22,515		178,321		16,934
April 2020 Forward Equity Offerings						0		725,821		0		390,795
2021 ATM Forward Equity Offerings						110,948		0		48,141		0
Weighted average number of common shares outstanding used in diluted earnings per share		62,940,360		45,565,054		69,591,848		54,555,672		65,952,113		51,151,462

For the three months ended ~~March 31,~~September 30, 2021, ~~3,397 shares of common stock related to the 2020 at-the-market (“ATM”) forward equity offerings, 664 shares of common stock related to the 2021 ATM forward equity offerings, and 6,920~~9 shares of restricted common stock (“restricted shares”) granted in 2020 were anti-dilutive and were not included in the computation of diluted earnings per share.

~~For the three months ended March 31, 2020, 57,163~~ There were 0 anti-dilutive shares of common stock related to the ~~2019~~2020 at-the-market (“ATM”) forward equity offerings and the 2021 ATM forward equity offerings ~~29,418~~for the three months ended September 30, 2021.

For the nine months ended September 30, 2021, 200 shares of restricted common stock granted in 2020 were anti-dilutive and were not included in the computation of diluted earnings per share. There were 0 anti-dilutive shares of common stock related to the 2020 ATM forward equity offerings and ~~4,719~~the 2021 ATM forward equity offerings for the nine months ended September 30, 2021.

For the three months ended September 30, 2020, 4,510 shares of common stock related to the 2020 ATM forward equity offerings, 3,139 restricted shares granted in 2020, and 6,390 performance units granted in 2020 were anti-dilutive and were not included in the computation of diluted earnings per share.

For the nine months ended September 30, 2020, 22,820 shares of common stock related to the 2019 ATM forward equity offerings, 34,899 shares of common stock related to the 2020 ATM forward equity offerings, 2,355 restricted shares granted in 2020, and 5,887 performance units granted in 2020 were anti-dilutive and were not included in the computation of diluted earnings per share.

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Forward Equity Sales

The Company occasionally sells shares of common stock through forward sale agreements to enable the Company to set the price of such shares upon pricing the offering (subject to certain adjustments) while delaying the issuance of such shares and the receipt of the net proceeds by the Company.

To account for the forward sale agreements, the Company considers the accounting guidance governing financial instruments and derivatives. To date, the Company has concluded that its forward sale agreements are not liabilities as they do not embody obligations to repurchase its shares nor do they embody obligations to issue a variable number of shares for which the monetary value are predominantly fixed, varying with something other than the fair value of the shares, or varying inversely in relation to its shares. The Company then evaluates whether the agreements meet the derivatives and hedging guidance scope exception to be accounted for as equity instruments. The Company has concluded that the agreements are classifiable as equity contracts based on the following assessments: (i) none of the agreements’ exercise contingencies are based on observable markets or indices besides those related to the market for the Company’s own stock price and operations; and (ii) none of the settlement provisions precluded the agreements from being indexed to its own stock.

The Company also considers the potential dilution resulting from the forward sale agreements on the earnings per share calculations. The Company uses the treasury stock method to determine the dilution resulting from the forward sale agreements during the period of time prior to settlement.

Equity Offering Costs

Underwriting commissions and offering costs of equity offerings have been reflected as a reduction of additional paid-in-capital in our Condensed Consolidated Balance Sheets.

Income Taxes

The Company has made an election to be taxed as a REIT under Sections 856 through 860 of 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 covered in the Condensed Consolidated Financial Statements, the Company believes it has qualified as a REIT. Accordingly, no provision has been made for federal income taxes. Notwithstanding its qualification for taxation as a REIT, the Company is subject to certain state taxes on its income and real estate.

Earnings and profits that determine the taxability of distributions to stockholders differ from net income reported for financial reporting purposes due to differences in the estimated useful lives and methods used to compute depreciation and the carrying value (basis) of the investments in properties for tax purposes, among other things.

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 entities are subject to federal and state income taxes. All provisions for federal income taxes in the accompanying Condensed Consolidated Financial Statements are attributable to the Company’s TRS.

The Company regularly analyzes its various federal and state filing positions and only recognizes the income tax effect in its financial statements when certain criteria regarding uncertain income tax positions have been met. The Company believes that its income tax positions would more likely than not be sustained upon examination by all relevant taxing authorities. Therefore, no provisions for uncertain income tax positions have been recorded in the Condensed Consolidated Financial Statements.

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Management’s Responsibility to Evaluate Our Ability to Continue as a Going Concern

When preparing financial statements for each annual and interim reporting period, management has the responsibility to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. In making its evaluation, the Company considers, among other things, any risks and/or uncertainties to its results of operations, contractual obligations in the form of near-term debt maturities, dividend requirements, or other factors impacting the Company’s liquidity and capital resources. No conditions or events that raised substantial doubt about the ability to continue as a going concern within one year were identified as of the issuance date of the Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.

Reclassifications

Certain reclassifications of prior period amounts have been made in the consolidated financial statements and footnotes in order to conform to the current presentation.

Segment Reporting

The Company is primarily in the business of acquiring, developing and managing retail real estate which is considered to be 1 reportable segment. The Company has no other reportable segments.

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.

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, ASC 820 Fair Value Measurement. The framework specifies a hierarchy of valuation inputs, established to increase consistency, clarity and comparability in fair value measurements and related disclosures. The guidance describes a fair value hierarchy based on 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 on quoted prices in active markets for identical assets or liabilities.

Level 2 – Valuation is based on inputs other than Level 1 inputs 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 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”). The guidance in

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ASU 2020-06 simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in equity. In addition, the amendments in the ASU 2020-06 also simplify the guidance in ASC Subtopic 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity, by removing certain criteria that must be satisfied in order to classify a contract as equity, which is expected to decrease the number of freestanding instruments and embedded derivatives accounted for as assets or liabilities. Finally, the amendments revise

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the guidance on calculating earnings per share, requiring use of the if-converted method for all convertible instruments and rescinding an entity’s ability to rebut the presumption of share settlement for instruments that may be settled in cash or other assets. The amendments in ASU 2020-06 are effective for the Company for fiscal years beginning after December 15, 2021. Early adoption is permitted. The guidance must be adopted as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of this new guidance, but does not expect it to have a material impact on its financial statements.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)” (“ASU 2020-04”). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

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,~~September 30, 2021, the Company’s portfolio was approximately ~~99.4%~~99.6% leased and had a weighted average remaining lease term (excluding extension options) of approximately ~~9.8~~9.5 years. A significant majority of its properties are leased to national tenants and approximately ~~67.2%~~66.9% of its annualized base rent was derived from tenants, or parent entities thereof, with an investment grade credit rating from S&P Global Ratings, Moody’s Investors Service, Fitch Ratings or the National Association of Insurance Commissioners.

Substantially all of the Company’s 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, the Company’s 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 the Company’s properties are subject to leases under which it retains responsibility for specific costs and expenses of the property.

The Company’s 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.

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. The Company maintains a proactive leasing program that, combined with the quality and locations of its properties, has made its properties attractive to tenants. The Company intends to continue to hold its properties for long-term investment and, accordingly, places 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 its accounting for tenant leases.

The Company has elected the practical expedient in ASC 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 842 to the combined component.~~

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and maintenance charges, respectively. The Company applies the accounting requirements of ASC 842 to the combined component.

The following table includes information regarding contractual lease payments for the Company’s operating leases for which it is the lessor, for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020. (presented in thousands)


	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31, 2021		March 31, 2020		September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Total lease payments	$	80,200	$	58,096	$	91,205	$	65,762	$	256,246	$	184,144
Less: Operating cost reimbursements and percentage rents		8,976		6,893		9,546		6,897		27,090		19,981
Total non-variable lease payments	$	71,224	$	51,203	$	81,659	$	58,865	$	229,156	$	164,163

At ~~March 31,~~September 30, 2021, future non-variable lease payments to be received from the Company’s operating leases for the remainder of 2021, the following four years, and thereafter are as follows (presented in thousands):


	2021														2021
Year Ending December 31,	(remaining)		2022		2023		2024		2025		Thereafter		Total		(remaining)		2022		2023		2024		2025		Thereafter		Total
Future non-variable lease payments	$	216,360	$	286,948	$	282,249	$	271,968	$	261,085	$	1,575,641	$	2,894,251	$	85,101	$	338,867	$	332,914	$	321,677	$	310,144	$	1,936,234	$	3,324,937

Deferred Revenue

As of ~~March 31,~~September 30, 2021, and December 31, 2020, there was ~~$5.1~~$11.1 million and $6.1 million, respectively, in deferred revenues resulting from rents paid in advance.

Land Lease Obligations

The Company is the lessee under land lease agreements for certain of its properties. ASC 842 requires a lessee to recognize right of use assets and lease obligation liabilities that arise from leases, whether qualifying as operating or finance. As of ~~March 31,~~September 30, 2021 and December 31, 2020, the Company had ~~$49.8~~$61.1 million and $44.5 million of right of use assets, recognized within Other Assets in the Condensed Consolidated Balance Sheets, respectively, while the corresponding lease obligations of ~~$22.9~~$25.0 million and ~~$17.6~~$17.3 million, respectively, were recognized within Accounts Payable, Accrued Expenses, and Other Liabilities on the Condensed Consolidated Balance Sheets as of these dates.

The Company’s land leases do not include any variable lease payments. These leases typically provide multi-year renewal options to extend their term as lessee at the Company’s option. Option periods are included in the calculation of the lease obligation liability only when options are reasonably certain to be exercised. Certain of the Company’s land leases qualify as finance leases as a result of purchase options that are reasonably certain of being exercised or automatic transfer of title to the Company at the end of the lease term.

Amortization of right of use assets for operating land leases is classified as land lease expense and was $0.4 million and $0.3 million for the three months ended ~~March 31,~~September 30, 2021 and ~~2020.~~2020, respectively, and $1.1 million and $1.0 million for the nine months ended September 30, 2021 and 2020, respectively. There was no amortization of right of use assets for finance land leases, as the underlying leased asset (land) has an infinite life. Interest expense on finance land leases was ~~less than~~ $0.1 million during the three months ended ~~March 31,~~September 30, 2021, while there was 0 such expense incurred during the three months ended ~~March 31,~~September 30, 2020. Interest expense on finance land leases was $0.2 million during the nine months ended September 30, 2021 while 0 such expense was incurred during the nine months ended September 30, 2020.

In calculating its lease obligations under ground leases, the Company uses discount rates estimated to be equal to what it would have to pay to borrow on a collateralized basis over a similar term, for an amount equal to the lease payments, in a similar economic environment.

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The following tables include information on the Company’s land leases for which it is the lessee, for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020. (presented in thousands)


	Three Months Ended						Three Months Ended						Nine Months Ended
	March 31, 2021			March 31, 2020			September 30, 2021			September 30, 2020			September 30, 2021			September 30, 2020
Operating leases:
Operating cash outflows	$	267		$	267		$	282		$	267		$	816		$	802

Weighted-average remaining lease term - operating leases (years)		36.3			38.2			33.9			38.2			33.9			38.2

Weighted-average discount rate - operating leases		4.13	%		4.13	%		4.13	%		4.13	%		4.13	%		4.13	%

Finance leases:
Operating cash outflows	$	22		$	—		$	64		$	0		$	151		$	0

Financing cash outflows	$	34		$	—		$	19		$	0		$	73		$	0

Weighted-average remaining lease term - operating leases (years)		36.3			—

Weighted-average remaining lease term - finance leases (years)								3.0			—			3.0			—
Weighted-average discount rate - operating leases		4.13	%		—	%		4.13	%		0	%		4.13	%		0	%

Supplemental Disclosure
Supplemental Disclosure:
Right-of-use assets obtained in exchange for new lease liabilities	$	6,302		$	—		$	0		$	0		$	6,302		$	0
Right-of-use assets net change	$	6,302		$	—		$	0		$	0		$	6,302		$	0

Maturity Analysis of Lease Liabilities for Operating Leases (presented in thousands)

2021

Year Ending December 31,


(remaining)

2022

2023

2024

2025

Thereafter

Total
Lease payments

$
766

$
1,009

$
1,009

$
1,009

$
1,009

$
29,996

$
34,798
Imputed interest

(512)

(671)

(657)

(642)

(627)

(15,024)

(18,133)
Total lease liabilities

$
254

$
338

$
352

$
367

$
382

$
14,972

$
16,665


	2021
Year Ending December 31,	(remaining)		2022		2023		2024		2025		Thereafter		Total
Lease payments	$	295	$	1,197	$	1,197	$	1,197	$	1,197	$	31,045	$	36,128
Imputed interest		(186)		(730)		(711)		(690)		(669)		(15,137)		(18,123)
Total lease liabilities	$	109	$	467	$	486	$	507	$	528	$	15,908	$	18,005

Maturity Analysis of Lease Liabilities for Finance Leases (presented in thousands)

2021

Year Ending December 31,


(remaining)

2022

2023

2024

2025

Thereafter

Total
Lease payments

$
252

$
336

$
336

$
6,196

$
—

$
—

$
7,120
Imputed interest

(193)

(255)

(252)

(207)

—

—

(907)
Total lease liabilities

$
59

$
81

$
84

$
5,989

$
—

$
—

$
6,213


	2021
Year Ending December 31,	(remaining)		2022		2023		2024		2025		Thereafter		Total
Lease payments	$	84	$	336	$	336	$	6,196	$	0	$	0	$	6,952
Imputed interest		(64)		(255)		(252)		(207)		0		0		(778)
Total lease liabilities	$	20	$	81	$	84	$	5,989	$	0	$	0	$	6,174

Note 4 – Real Estate Investments

Real Estate Portfolio

As of ~~March 31,~~September 30, 2021, the Company owned ~~1,213~~1,338 properties, with a total gross leasable area (“GLA”) of approximately ~~24.2~~27.7 million square feet. Net Real Estate Investments totaled ~~$3.58~~$4.11 billion as of ~~March 31,~~September 30, 2021. As of December 31, 2020, the Company owned 1,129 properties, with a total GLA of approximately 22.7 million square feet. Net Real Estate Investments totaled $3.30 billion as of December 31, 2020.

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Acquisitions

During the three months ended ~~March 31,~~September 30, 2021, the Company purchased 8680 retail net lease assets for approximately ~~$387.9~~$340.6 million, which includes acquisition and closing costs. These properties are located in 2528 states and are leased for a weighted average lease term of approximately ~~12.9~~10.7 years.

During the nine months ended September 30, 2021, the Company purchased 219 retail net lease assets for approximately $1,075.1 million, which includes acquisition and closing costs. These properties are located in 40 states and are leased for a weighted average lease term of approximately 11.9 years.

The aggregate acquisitions for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 were allocated ~~$126.7~~$364.6 million to land, ~~$168.2~~$485.8 million to buildings and improvements, ~~$84.2~~$215.9 million to lease intangibles and $8.8 million to other assets. The acquisitions were all cash purchases and there was no material contingent consideration associated with these acquisitions. None of the Company’s acquisitions during the first ~~three~~nine months of 2021 caused any new or existing tenant to comprise 10% or more of its total assets or generate 10% or more of its total annualized contractual base rent at ~~March 31,~~September 30, 2021.

Developments

During the three months ended ~~March 31,~~September 30, 2021, the Company ~~completed~~commenced 1 development or Partner Capital Solutions project. At ~~March 31,~~September 30, 2021, the Company had 3 development or Partner Capital Solutions projects under construction.

During the nine months ended September 30, 2021, the Company completed 4 development or Partner Capital Solutions projects.

Dispositions

During the three months ended ~~March 31,~~September 30, 2021, the Company sold 3 properties for net proceeds of ~~$8.4~~$11.5 million and recorded a net gain of ~~$2.9~~$3.5 million.

During the nine months ended September 30, 2021, the Company sold 13 properties for net proceeds of $46.8 million and recorded a net gain of $13.2 million.

Provisions for Impairment

As a result of the Company’s review of real estate investments, it recognized 0 provisions for impairments for each of the three and nine months ended ~~March 31,~~September 30, 2021 and ~~March 31,~~$2.9 million and $4.0 million for the three and nine months ended September 30, 2020, respectively.

Note 5 – Debt

As of ~~March 31,~~September 30, 2021, the Company had total gross indebtedness of ~~$1.37~~$1.54 billion, including (i) ~~$33.2~~$32.8 million of mortgage notes payable; (ii) ~~$240.0 million of unsecured term loans; (iii) $860.0 million~~$1.51 billion of senior unsecured notes; and ~~(iv) $238.0 million of~~(iii) 0 borrowings outstanding under the Revolving Credit Facility (defined below). as of September 30, 2021.

Mortgage Notes Payable

As of ~~March 31,~~September 30, 2021, the Company had total gross mortgage indebtedness of ~~$33.2~~$32.8 million, which was collateralized by related real estate and tenants’ leases with an aggregate net book value of ~~$39.7~~$39.2 million. Including mortgages that have been swapped to a fixed interest rate, the weighted average interest rate on the Company’s mortgage notes payable was ~~4.20%~~4.17% as of ~~March 31,~~September 30, 2021 and 4.21% as of December 31, 2020.

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Mortgage notes payable consisted of the following:


	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020

(not presented in thousands)	(in thousands)				(in thousands)
Note payable in monthly installments of interest only at 3.60% per annum, with a balloon payment due January 2023	$	23,640	$	23,640	$	23,640	$	23,640

Note payable in monthly installments of interest only at 5.01% per annum, with a balloon payment due September 2023		4,622		4,622		4,622		4,622

Note payable in monthly installments of $91,675 including interest at 6.27% per annum, with a final monthly payment due July 2026		4,976		5,172		4,577		5,172

Total principal		33,238		33,434		32,839		33,434
Unamortized debt issuance costs		(285)		(312)		(232)		(312)
Total	$	32,953	$	33,122	$	32,607	$	33,122

The mortgage loans encumbering the Company’s properties are generally non-recourse, subject to certain exceptions for which we would be liable for any resulting losses incurred by the lender. These exceptions vary from loan to loan, but generally include fraud or material misrepresentations, misstatements or omissions by the borrower, intentional or grossly negligent conduct by the borrower that harms the property or results in a loss to the lender, filing of a bankruptcy petition by the borrower, either directly or indirectly, and certain environmental liabilities. At ~~March 31,~~September 30, 2021, there were no mortgage loans with partial recourse to the Company.

The Company has entered into mortgage loans that are secured by multiple properties and contain cross-default and cross-collateralization provisions. Cross-collateralization provisions allow a lender to foreclose on multiple properties in the event that the Company defaults under the loan. Cross-default provisions allow a lender to foreclose on the related property in the event a default is declared under another loan.

Unsecured Term Loan Facilities

The following table presents the unsecured term loans balance net of unamortized debt issuance costs as of ~~March 31,~~September 30, 2021 and December 31, 2020 (in thousands):


	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020
2023 Term Loan	$	40,000	$	40,000	$	0	$	40,000
2024 Term Loan Facilities		100,000		100,000		0		100,000
2026 Term Loan		100,000		100,000		0		100,000
Total Principal		240,000		240,000		0		240,000
Unamortized debt issuance costs		(2,045)		(2,151)		0		(2,151)
Total	$	237,955	$	237,849	$	0	$	237,849

In ~~July 2016,~~May 2021, the Company ~~completed a $40.0 million~~used the net proceeds from the offering of the 2028 Senior Unsecured Public Notes and the 2033 Senior Unsecured Public Notes (see Senior Unsecured Notes below) to repay all amounts outstanding under its unsecured term ~~loan facility that matures July 2023 (the “2023 Term Loan”). Borrowings under~~loans and settle the related swap agreements. The Company incurred a charge of $14.6 million upon this repayment and settlement, including swap termination costs of $13.4 million and the write-off of previously unamortized debt issuance costs of $1.2 million.

Prior to the repayments of the 2023 Term Loan, are priced at LIBOR plus 85 to 165 basis points, depending on the Company’s credit rating. The Company entered into an interest rate swap agreement to fix LIBOR at 140 basis points until maturity. As of March 31, 2021, $40.0 million was outstanding under the 2023 Term Loan, which was subject to an all-in interest rate of 2.40%, including the swap.

The Credit Agreement, described below, extended the maturity dates of the $65.0 million unsecured term loan facility (the “$65 Million Term Loan”) and $35.0 million unsecured term loan facility (the “$35 Million Term Loan,” and together with the $65 Million Term Loan, the “2024 Term Loan Facilities”) to January 2024. In connection with entering into the Credit Agreement, the prior notes evidencing the existing $65 Million Term Loan and $35 Million Term Loan were canceled and new notes evidencing the 2024 Term Loan Facilities, ~~were executed. Borrowings under~~and the ~~unsecured 2024~~2026 Term Loan, ~~Facilities bear~~these loans were subject to all-in interest ~~at a variable LIBOR plus 85 to 165 basis points, depending on~~rates of 2.40%, 2.86%, and 4.26%, respectively, including the ~~Company’s credit~~effects of related swap agreements.

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rating. The Company utilized existing interest rate swap agreements to effectively fix LIBOR at 213 basis points until September 2020 for the $35 Million Term Loan and July 2021 for the $65 Million Term Loan. Additional interest rate swap agreements were entered into to fix LIBOR at 143 basis points until maturity (refer to ~~Note 9 – Derivative Instruments and Hedging Activity~~~~). As of March 31, 2021, $100.0 million was outstanding under the 2024 Term Loan Facilities, bearing an all-in interest rate of 2.86%, including the swaps.~~

In December 2018, the Company entered into a $100.0 million unsecured term loan facility that matures January 2026 (the “2026 Term Loan”). Borrowings under the 2026 Term Loan are priced at LIBOR plus 145 to 240 basis points, depending on the Company’s credit rating. The Company entered into interest rate swap agreements to fix LIBOR at 266 basis points until maturity. As of March 31, 2021, $100.0 million was outstanding under the 2026 Term Loan, which was subject to an all-in interest rate of 4.26%, including the swap.

Senior Unsecured Notes

The following table presents the senior unsecured notes balance net of unamortized debt issuance costs and original issue discount as of ~~March 31,~~September 30, 2021, and December 31, 2020 (in thousands):


	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020
2025 Senior Unsecured Notes	$	50,000	$	50,000	$	50,000	$	50,000
2027 Senior Unsecured Notes		50,000		50,000		50,000		50,000
2028 Senior Unsecured Notes		60,000		60,000		60,000		60,000
2028 Senior Unsecured Public Notes						350,000		0
2029 Senior Unsecured Notes		100,000		100,000		100,000		100,000
2030 Senior Unsecured Notes		125,000		125,000		125,000		125,000
2030 Senior Unsecured Public Notes		350,000		350,000		350,000		350,000
2031 Senior Unsecured Notes		125,000		125,000		125,000		125,000
2033 Senior Unsecured Public Notes						300,000		0
Total Principal		860,000		860,000		1,510,000		860,000
Unamortized debt issuance costs and original issue discount, net		(4,546)		(4,672)		(15,253)		(4,672)
Total	$	855,454	$	855,328	$	1,494,747	$	855,328

In May 2015, the Company and the Operating Partnership completed a private placement of $100.0 million principal amount of senior unsecured notes. The senior unsecured notes were sold in two series; $50.0 million of 4.16% notes due May 2025 (the “2025 Senior Unsecured Notes”) and $50.0 million of 4.26% notes due May 2027 (the “2027 Senior Unsecured Notes”).

In July 2016, the Company and the Operating Partnership completed a private placement of $60.0 million aggregate principal amount of 4.42% senior unsecured notes due July 2028 (the “2028 Senior Unsecured Notes”).

In September 2017, the Company and the Operating Partnership completed a private placement of $100.0 million aggregate principal amount of 4.19% senior unsecured notes due September 2029 (the “2029 Senior Unsecured Notes”).

In September 2018, the Company and the Operating Partnership entered into two supplements to uncommitted master note facilities with institutional purchasers. Pursuant to the supplements, the Operating Partnership completed a private placement of $125.0 million aggregate principal amount of 4.32% senior unsecured notes due September 2030 (the “2030 Senior Unsecured Notes”).

In October 2019, the Company and the Operating Partnership closed on a private placement of $125.0 million of 4.47% senior unsecured notes due October 2031 (the “2031 Senior Unsecured Notes”). In March 2019, the Company entered into forward-starting interest rate swap agreements to fix the interest for $100.0 million of long-term debt until maturity. The Company terminated the swap agreements at the time of pricing the 2031 Senior Unsecured Notes, which resulted in an effective annual fixed rate of 4.41% for $100.0 million aggregate principal amount of the 2031 Senior Unsecured Notes. Considering the effect of the terminated swap agreements, the blended all-in rate to the Company for the $125.0 million aggregate principal amount of 2031 Senior Unsecured Notes is 4.42%.

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All of the senior unsecured notes described in the preceding paragraphs were sold only to institutional investors and did not involve a public offering in reliance on the exemption from registration in Section 4(a)(2) of the Securities Act of 1933, as amended.

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supplemented by an officer’s certificate dated August 17, 2020, the “Indenture”). The Indenture contains various restrictive covenants, including limitations on the ability of the guarantors and the issuer to incur additional indebtedness and requirements to maintain a pool of unencumbered assets. The Company terminated related swap agreements of $200.0 million that hedged the 2030 Senior Unsecured Public Notes. Considering the effect of the terminated swap agreements, the blended all-in rate to the Company for the $350.0 million aggregate principal amount of 2030 Senior Unsecured Public Notes is ~~3.49%~~3.50%.

In May 2021, the Operating Partnership completed an underwritten public offering of $350.0 million aggregate principal amount of 2.000% Notes due 2028 (the “2028 Senior Unsecured Public Notes”) and $300.0 million in aggregate principal amount of 2.600% Notes due 2033 (the “2033 Senior Unsecured Public Notes”). The 2028 Senior Unsecured Public Notes and the 2033 Senior Unsecured Public Notes are fully and unconditionally guaranteed by the Company and certain wholly owned subsidiaries of the Operating Partnership. The terms of the 2028 Senior Unsecured Public Notes and the 2033 Senior Unsecured Public Notes are governed by an indenture, dated August 17, 2020, among the Operating Partnership, the Company and U.S. Bank National Association, as trustee (as amended and supplemented by an officer’s certificate dated May 14, 2021, the “Indenture”). The Indenture contains various restrictive covenants, including limitations on the ability of the guarantors and the Operating Partnership to incur additional indebtedness and requirements to maintain a pool of unencumbered assets. The Company terminated related swap agreements of $300.0 million notional amount that hedged the 2033 Senior Unsecured Public Notes, receiving $16.7 million upon termination. Considering the effect of the terminated swap agreements, the blended all-in rates to the Company for the $350.0 million aggregate principal amount of the 2028 Senior Unsecured Public Notes and the $300.0 million aggregate principal amount of the 2033 Senior Unsecured Public Notes are 2.11% and 2.13%, respectively.

Senior Unsecured Revolving Credit Facility

In December 2019, the Company entered into a Second Amended and Restated Revolving Credit and Term Loan Agreement (the “Credit Agreement”). The Credit Agreement provides for a $500.0 million unsecured revolving credit facility that matures on January 15, 2024 (the “Revolving Credit Facility”),. It also provided for a $65 million unsecured term loan facility and a $35 million unsecured term loan facility. ~~The Credit Agreement amended and restated~~All amounts outstanding under these unsecured term loan facilities were repaid in ~~its entirety the Company’s previous credit agreement dated December 15, 2016.~~

~~The Credit Agreement provides $600.0 million unsecured borrowing capacity, composed of the Revolving Credit Facility, which matures on January 15, 2024, as well as the 2024~~May 2021 (see Unsecured Term Loan Facilities ~~which mature on January 15, 2024.~~above) and cannot be reborrowed against. Subject to certain terms and conditions set forth in the Credit Agreement, the Company (i) may request additional lender commitments under any or all facilities of up to an additional aggregate amount of $500.0 million and (ii) may elect, for an additional fee, to extend the maturity date of the Revolving Credit Facility by six months up to 2 times, for a maximum maturity date of January 15, 2025. No amortization payments are required under the Credit Agreement, and interest is payable in arrears no less frequently than quarterly.

All borrowings under the Revolving Credit Facility (except for swing line loans) bear interest at a rate per annum equal to, at the option of the Company, (i) LIBOR plus a margin that is based upon the Company’s credit rating, or (ii) the Base Rate (which is defined as the greater of the rate of interest as publicly announced from time to time by PNC Bank, National Association, as its prime rate, the Federal Funds Open Rate plus 0.50%, or the Daily Eurodollar Rate plus 1.0%) plus a margin that is based upon the Company’s credit rating. The margins for the Revolving Credit Facility range in amount from 0.775% to 1.450% for LIBOR-based loans and 0.00% to 0.45% for Base Rate loans, depending on the Company’s credit rating. The margins for the Revolving Credit Facility are subject to improvement based on the Company’s leverage ratio, provided its credit rating meets a certain threshold.

Concurrent with the amendment and restatement of the Company’s Credit Agreement, certain conforming changes, including customary financial covenants, were made to the 2023 Term Loan and 2026 Term Loan.

The Company and Richard Agree, the Executive Chairman of the Company, are parties to a Reimbursement Agreement dated November 18, 2014 (the “Reimbursement Agreement”). Pursuant to the Reimbursement Agreement, Mr. Agree has agreed to reimburse the Company for any loss incurred under the Revolving Credit Facility in an amount not to exceed $14.0 million to the extent that the value of the Operating Partnership’s assets available to satisfy the Operating Partnership’s obligations under the credit facility is less than $14.0 million.

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Debt Maturities

The following table presents scheduled principal payments related to the Company’s debt as of ~~March 31,~~September 30, 2021 (in thousands):


	Scheduled		Balloon				Scheduled		Balloon
	Principal		Payment		Total		Principal		Payment		Total
Remainder of 2021	$	604	$	0	$	604	$	204	$	0	$	204
2022		850		0		850		850		0		850
2023		904		68,262		69,166		905		28,262		29,167
2024 ⁽¹⁾		963		338,000		338,963		963		0		963
2025		1,026		50,000		51,026		1,026		50,000		51,026
Thereafter		629		910,000		910,629		629		1,460,000		1,460,629
Total scheduled principal payments		4,976		1,366,262		1,371,238		4,577		1,538,262		1,542,839
Original issue discount, net		—		(239)		(239)		0		(9,198)		(9,198)
Total	$	4,976	$	1,366,023	$	1,370,999	$	4,577	$	1,529,064	$	1,533,641

(1)	The Revolving Credit Facility matures in January 2024, with options to extend the maturity as described under Senior Unsecured Revolving Credit Facility above. The Revolving Credit Facility ~~had a~~did not have an outstanding balance ~~of $238.0 million~~ as of ~~March 31,~~September 30, 2021.

Loan Covenants

Certain loan agreements contain various restrictive covenants, including the following financial covenants: maximum total leverage ratio, maximum secured leverage ratios, consolidated net worth requirements, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio, a minimum unsecured interest expense ratio, a minimum interest coverage ratio, a minimum unsecured debt yield and a minimum unencumbered interest expense ratio. As of ~~March 31,~~September 30, 2021, the most restrictive covenant was the minimum unencumbered interest expense ratio. The Company was in compliance with all of its material loan covenants and obligations as of ~~March 31,~~September 30, 2021.

Note 6 – Common and Preferred Stock

Authorized Shares of Common Stock

In May 2021, the Company’s stockholders approved an amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of the Company’s common stock from 90 million shares to 180 million shares.

Shelf Registration ~~and Follow-on Public Offerings~~

The Company filed an automatic shelf registration statement on Form S-3 with the Securities and Exchange Commission, on May 27, 2020, registering an unspecified amount of common stock, preferred stock, depositary shares, warrants and guarantees of debt securities of the Operating Partnership, as well as an unspecified amount of debt securities of the Operating Partnership, at an indeterminate aggregate initial offering price. The Company may periodically offer one or more of these securities in amounts, prices and on terms to be announced when and if these securities are offered. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering.

Follow-on Common Stock Offerings

In April 2020, the Company completed a follow-on public offering of 2,875,000 shares of common stock, which included the full exercise of the underwriters’ option to purchase an additional 375,000 shares of common stock. ~~Upon closing,~~The offering resulted in net proceeds to the Company ~~issued 2,875,000 shares and received net proceeds~~ of approximately $170.4 million, after deducting fees and ~~expenses.~~estimated offering expenses payable by the Company.

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Also in April 2020, the Company entered into a follow-on public offering to sell an aggregate of 6,166,666 shares of common stock in connection with a forward sale agreement (the “April 2020 Forward”). During the remainder of 2020, the Company settled the April 2020 Forward, realizing net proceeds of approximately $354.6 million, after deducting fees and expenses.

In January 2021, the Company completed a follow-on public offering of 3,450,000 shares of common stock, which included the full exercise of the underwriters’ option to purchase an additional 450,000 shares of common stock. The offering resulted in net

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proceeds to the Company of approximately $221.4 million, after deducting ~~the~~fees and estimated offering expenses payable by the Company.

In June 2021, the Company completed a follow-on public offering of 4,600,000 shares of common stock, which included the full exercise of the underwriters’ option to purchase an additional 600,000 shares of common stock. The offering resulted in net proceeds to the Company of approximately $327.0 million, after deducting fees and estimated offering expenses payable by the Company.

Preferred Stock Offering

In September 2021, the Company completed an underwritten public offering of depositary shares (the “Depositary Shares”), each representing 1/1,000th of a share of Series A Preferred Stock, which resulted in net proceeds to the Company of approximately $170.3 million, after deducting the underwriting discounts and commissions and costs payable by the Company. At the closing, the Company issued 7,000 shares of Series A Preferred Stock to the depositary, resulting in the issuance of 7,000,000 Depositary Shares. The Company contributed the net proceeds from the sale of the Depositary Shares to the Operating Partnership in exchange for 7,000 Series A Preferred Units corresponding to the number of shares of Series A Preferred Stock underlying the Depositary Shares.

Dividends on the Series A Preferred Shares will be payable monthly in arrears on the first day of each month (or, if not on a business day, on the next succeeding business day). The dividend rate is 4.25% per annum of the $25,000 (equivalent to $25.00 per Depositary Share) liquidation preference. The first pro-rated dividend on the Series A Preferred Shares was paid on October 1, 2021, and was in an amount equivalent to $0.041 per Depositary Share. Subsequent dividends on the Series A Preferred Shares will be in amount of $0.08854 per Depositary Share, equivalent to $1.0625 per annum.

The Company may not redeem the Series A Preferred Shares before September 2026, except in limited circumstances to preserve its status as a real estate investment trust for federal income tax purposes and except in certain circumstances upon the occurrence of a change of control of the Company. Beginning in September 2026, the Company, at its option, may redeem the Series A Preferred Shares, in whole or from time to time in part, by paying $25.00 per Depositary Share, plus any accrued and unpaid dividends.

2019 ATM Program

In July 2019, the Company entered into a $400.0 million ATM program (the “2019 ATM Program”) through which the Company, from time to time, sold shares of common stock and entered into forward sale agreements.

During the fourth quarter of 2019, the Company entered into forward sale agreements in connection with the 2019 ATM Program to sell an aggregate of 2,003,118 shares of common stock. Additionally, during the first quarter of 2020, the Company entered into forward sale agreements in connection with the 2019 ATM Program to sell an aggregate of 3,169,754 shares of common stock. During 2020, the Company settled all forward sale agreements under the 2019 ATM Program, realizing net proceeds of $359.5 million.

The 2019 ATM Program was terminated simultaneously with the establishment of the 2020 ATM Program, which is discussed below. As a result, 0 future issuances will occur under the 2019 ATM Program.

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2020 ATM Program

In March 2020, the Company entered into a new $400.0 million ATM program (the “2020 ATM Program”) through which the Company, from time to time, ~~may sell~~sold shares of common stock. In addition to selling shares of common stock, the Company ~~has~~ entered into forward sale agreements through the 2020 ATM Program, as described below.

During 2020, the Company entered into forward sale agreements to sell an aggregate of 3,334,056 shares of common stock. ~~The~~During 2020, the Company ~~has since~~ settled ~~782,484~~204,074 shares of these forward sale agreements, realizing net proceeds of ~~$49.4~~$12.5 million. During the first nine months of 2021, the Company settled 1,628,772 shares of these forward sale agreements, realizing net proceeds of $102.8 million. The Company is required to settle the remaining outstanding shares of common stock under the 2020 ATM Program by various dates between ~~May~~November 2021 and December 2021.

The 2020 ATM Program was terminated simultaneously with the establishment of the 2021 ATM Program, which is discussed below. As a result, no0 future issuances will occur under the 2020 ATM Program.

2021 ATM Program

In February 2021, the Company entered into a new $500.0 million ATM program (the “2021 ATM Program”) through which the Company, from time to time, may sell shares of common stock. In addition to selling shares of common stock, the Company has entered into forward sale agreements through the 2021 ATM Program, as described below.

During the first ~~quarter~~nine months of 2021, the Company entered into forward sale agreements to sell an aggregate of ~~372,469~~1,918,130 shares of common stock. The Company has 0t settled any shares of these forward sale agreements as of ~~March 31,~~September 30, 2021. The Company is required to settle the remaining outstanding shares of common stock under the 2021 ATM Program by various dates inbetween March 2022 and September 2022.

Note 7 – Dividends and Distribution Payable

During the three months ended ~~March 31,~~September 30, 2021, the Company declared monthly dividends of ~~$0.207~~$0.217 per common share for ~~January, February~~July, August and ~~March~~September 2021. Holders of Operating Partnership Common Units are entitled to an equal distribution per Operating Partnership Unit held. The dividends and distributions payable for ~~January~~July and ~~February~~August were paid during the quarter, while the ~~March~~September amounts were recorded as liabilities on the Condensed Consolidated Balance Sheets at ~~March 31,~~September 30, 2021. The ~~March~~September dividends and distributions were paid on ~~April 14,~~October 15, 2021.

~~Table~~In September 2021, the Company declared the monthly dividends on the Series A Preferred Shares for the period from the September issuance of ~~Contents~~these preferred shares (see Note 6 – Common and Preferred Stock) in the pro-rated amount of $.041 per Depositary Share. This dividend was recorded as a liability on the Condensed Consolidated Balance Sheet at September 30, 2021 and was paid on October 1, 2021.

Note 8 – Income Taxes

Uncertain Tax Positions

The Company is subject to the provisions of FASB ASC Topic 740-10 (“ASC 740-10”) and has analyzed its various federal and state filing positions. The Company believes that its income tax filing positions and deductions are documented and supported. Additionally, the Company believes that its accruals for tax liabilities are adequate. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740-10. The Company’s federal income tax returns are open for examination by taxing authorities for all tax years after December 31, 2016. The Company has elected to record related interest and penalties, if any, as income tax expense on the Consolidated Statements of Operations and Comprehensive Income. ~~We have no~~The Company has 0 material interest or penalties relating to income taxes recognized for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020.

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Income Tax Expense

The Company recognized total federal and state tax expense of approximately ~~$1.0~~$0.4 million and $0.3 million for the three months ended ~~March 31,~~September 30, 2021 and 2020, respectively. The Company recognized total federal and state tax expense of approximately $1.9 million and $0.8 million for the nine months ended September 30, 2021 and 2020, respectively. The income tax expense recorded in 2021 includes additional tax expense of approximately $0.5 million relating to ~~the true-up of~~ 2020 ~~expense~~operations, recognized upon filing of the annual tax ~~returns.~~returns during the three months ended March 31, 2021.

Note 9 – Derivative Instruments and Hedging Activity

Background

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risk, including interest rate, liquidity and credit risk primarily by managing the amount, sources and duration of its debt funding and, to a limited extent, the use of derivative instruments. For additional information regarding the leveling of the Company’s derivatives, refer to Note 10 – Fair Value Measurements.

The Company’s objective in using interest rate derivatives is to manage its exposure to interest rate movements and add stability to interest expense. To accomplish this objective, the Company uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable rate amounts from a counterparty in exchange for the Company making fixed rate payments over the life of the agreement without exchange of the underlying notional amount.

Recent ~~Activity~~Hedges

In May and July 2021, the Company entered into forward-starting interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates from the trade date through the forecasted issuance date of $300.0 million of long-term debt. The Company hedged its exposure to the variability in future cash flows for a forecasted issuance of long-term debt over a maximum period ending December 2022. As of September 30, 2021, these interest rate swaps were valued as a liability of approximately $0.8 million.

Recent Settlements

Settlements Impacting Current and Future Interest Expense

In June 2019, the Company entered into forward-starting interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates from the trade date through the forecasted issuance date of $100.0 million of long-term debt. The Company hedged its exposure to the variability in future cash flows for a forecasted issuance of long-term debt over a maximum period ending March 2021. In August 2020, the Company terminated the swap agreements upon the debt issuance, paying $16.1 million upon termination. This settlement was included as a component of accumulated OCI, to be recognized as an adjustment to income over the term of the debt.

In February 2020, the Company entered into forward-starting interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates from the trade date through the forecasted issuance date of $100.0 million of long-term debt. The Company hedged its exposure to the variability in future cash flows for a forecasted issuance of long-term debt over a maximum period ending March 2021. In August 2020, the Company terminated the swap agreements upon the debt issuance, paying $7.3 million upon termination. ~~See discussion~~This settlement was included as a component of accumulated OCI, to be recognized as an adjustment to income over the term of the ~~2030 Senior Unsecured Public Notes in~~ ~~Note 5 – Debt~~ ~~above.~~debt.

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million of long-term debt. The Company ~~is hedging~~hedged its exposure to the variability in future cash flows for a forecasted issuance of long-term debt over a maximum period ending February 2022. AsIn May 2021, the Company terminated the swap agreements upon the debt issuance, receiving $8.0 million upon termination. This settlement was included as a component of ~~March 31, 2021, these interest rate swaps were valued~~accumulated OCI, to be recognized as an ~~asset~~adjustment to income over the term of ~~approximately $10.1 million.~~the debt.

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~~issuance of long-term debt over a maximum period ending February 2022. As of March 31, 2021, these interest rate swaps were valued as an asset of approximately $7.7 million.~~

In February 2021, the Company entered into forward-starting interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates from the trade date through the forecasted issuance date of $100.0 million of long-term debt. The Company is hedging its exposure to the variability in future cash flows for a forecasted issuance of long-term debt over a maximum period ending February 2022. As of March 31, 2021, these interest rate swaps were valued as an asset of approximately $5.2 million.

~~Prior Derivative Transactions~~

In July 2014, the Company entered into interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates on $65.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreements, the Company receives from the counterparty interest on the notional amount based on one month LIBOR and pays to the counterparty a fixed rate of 2.09%. These swaps effectively converted $65.0 million of variable-rate borrowings to fixed-rate borrowings from July 21, 2014 to July 21, 2021. As of March 31, 2021, these interest rate swaps were valued as a liability of approximately $0.4 million.

In June 2016, the Company entered into an interest rate swap agreement to hedge against changes in future cash flows resulting from changes in interest rates on $40.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreement, the Company receives from the counterparty interest on the notional amount based on one month LIBOR and pays to the counterparty a fixed rate of 1.40%. This swap effectively converted $40.0 million of variable-rate borrowings to fixed-rate borrowings from August 1, 2016 to July 1, 2023. As of March 31, 2021, this interest rate swap was valued as a liability of approximately $1.0 million.

In December 2018, the Company entered into interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates on $100.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreements, the Company receives from the counterparty interest on the notional amount based on one month LIBOR and pays to the counterparty a fixed rate of 2.66%. These swaps effectively converts $100.0 million of variable-rate borrowings to fixed-rate borrowings from December 27, 2018 to January 15, 2026. As of March 31, 2021, these interest rate swaps were valued as a liability of approximately $8.5 million.

~~In June 2019,~~ the Company entered into forward-starting interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates from the trade date through the forecasted issuance date of $100.0 million of long-term debt. The Company hedged its exposure to the variability in future cash flows for a forecasted issuance of long-term debt over a maximum period ending ~~March 2021.~~February 2022. In ~~August 2020,~~May 2021, the Company terminated the swap agreements upon the debt issuance, ~~paying $16.1~~receiving $5.6 million upon termination. ~~See discussion~~This settlement was included as a component of accumulated OCI, to be recognized as an adjustment to income over the term of the ~~2030 Senior Unsecured Public Notes~~debt.

In February 2021, the Company entered into forward-starting interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates from the trade date through the forecasted issuance date of $100.0 million of long-term debt. The Company hedged its exposure to the variability in future cash flows for a forecasted issuance of long-term debt over a maximum period ending February 2022. In May 2021, the Company terminated the swap agreements upon the debt issuance, receiving $3.1 million upon termination. This settlement was included as a component of accumulated OCI, to be recognized as an adjustment to income over the term of the debt.

~~Note 5 – Debt~~Settlements Impacting Current Year Results of Operations Only ~~above.~~

In July 2014, the Company entered into interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates on $65.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreements, the Company received from the counterparty interest on the notional amount based on one month LIBOR and pays to the counterparty a fixed rate of 2.09%. These swaps effectively converted $65.0 million of variable-rate borrowings to fixed-rate borrowings from July 21, 2014 to July 21, 2021. In May 2021, the Company terminated the swap agreements upon the payoff of the related term loan, paying $0.3 million upon termination. This settlement was recognized as an expense during the nine months ended September 30, 2021.

In June 2016, the Company entered into an interest rate swap agreement to hedge against changes in future cash flows resulting from changes in interest rates on $40.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreement, the Company received from the counterparty interest on the notional amount based on one month LIBOR and pays to the counterparty a fixed rate of 1.40%. This swap effectively converted $40.0 million of variable-rate borrowings to fixed-rate borrowings from August 1, 2016 to July 1, 2023. In May 2021, the Company terminated the swap agreements upon the payoff of the related term loan, paying $1.0 million upon termination. This settlement was recognized as an expense during the nine months ended September 30, 2021.

In December 2018, the Company entered into interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates on $100.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreements, the Company received from the counterparty interest on the notional amount based on one month LIBOR and pays to the counterparty a fixed rate of 2.66%. These swaps effectively converts $100.0 million of variable-rate borrowings to fixed-rate borrowings from December 27, 2018 to January 15, 2026. In May 2021, the Company terminated the swap agreements upon the payoff of the related term loan, paying $9.2 million upon termination. This settlement was recognized as an expense during the nine months ended September 30, 2021.

In October 2019, the Company entered into interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates on $65.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreements, the Company ~~receives~~received from the counterparty interest on the notional amount based on 1 month LIBOR and pays to the counterparty a fixed rate of 1.4275%. This swap effectively converts $65.0 million of variable-rate borrowings to fixed-rate borrowings from July 12, 2021 to January 12, 2024. AsIn May 2021, the Company terminated the swap agreements upon the payoff of ~~March 31, 2021, this interest rate swap~~the related term loan, paying $1.8 million upon termination. This settlement was ~~valued~~recognized as ~~a liability~~an expense during the nine months ended September 30, 2021.

Table of ~~approximately $1.7 million.~~Contents

Also in October 2019, the Company entered into an interest rate swap agreement to hedge against changes in future cash flows resulting from changes in interest rates on $35.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreement, the Company receives from the counterparty interest on the notional amount based on 1 month LIBOR and pays to the counterparty a fixed rate of 1.4265%. This swap effectively converts $35.0 million of variable-rate borrowings to fixed-rate borrowings from September 29, 2020 to January 12, 2024. AsIn May 2021, the Company terminated the swap agreements upon the payoff of ~~March 31, 2021, this interest rate swap~~the related term loan, paying $1.1 million upon termination. This settlement was ~~valued~~recognized as ~~a liability~~an expense during the nine months ended September 30, 2021.

See discussion of ~~approximately $1.0 million.~~the 2028 Senior Unsecured Public Notes and the 2033 Senior Unsecured Public Notes in Note 5 – Debt above.

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Recognition

Companies are required to recognize all derivative instruments as either assets or liabilities at fair value on the balance sheet. The Company recognizes its derivatives within Other Assets, net and Accounts Payable, Accrued Expenses and Other Liabilities on the Condensed Consolidated Balance Sheets.

The Company recognizes all changes in fair value for hedging instruments designated and qualifying for cash flow hedge accounting treatment as a component of Other Comprehensive Income (OCI).

Amounts reported in accumulated OCI related to currently outstanding interest rate derivatives are recognized as an adjustment to income as interest payments are made on the Company’s variable-rate debt. Realized gains or losses on settled derivative instruments included in accumulated OCI are recognized as an adjustment over the term of the hedged debt transaction. During the next twelve months, the Company estimates that an additional ~~$4.9~~$0.3 million will be reclassified as an increase to interest expense.

During 2021, the Company accelerated the reclassification of amounts in accumulated OCI into expense given that the hedged forecasted transactions were no longer likely to occur. During 2021, the Company accelerated a loss of $13.4 million out of OCI into earnings due to missed forecasted transactions associated with terminated swap agreements in connection with the early payoff of the hedged term loans (see Recent Settlements above).

The Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (in thousands, except number of instruments):

Number of Instruments ¹

Notional ¹

Number of Instruments ¹

Notional ¹

March 31,

December 31,

March 31,

December 31,

September 30,

December 31,

September 30,

December 31,

Interest Rate Derivatives

2021

2020

2021

2020

2021

2020

2021

2020

Interest rate swap

605,000

505,000

300,000

505,000

¹ Number of Instruments and total Notional disclosed includes all interest rate swap agreements outstanding at the balance sheet date, including forward-starting swaps prior to their effective date.

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The table below presents the estimated fair value of the Company’s derivative financial instruments, as well as their classification in the Condensed Consolidated Balance Sheets (in thousands).


	Asset Derivatives				Asset Derivatives
	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020
	Fair Value		Fair Value		Fair Value		Fair Value
Derivatives designated as cash flow hedges:
Other Assets, net	$	23,036	$	2,286	$	2,109	$	2,286


	Liability Derivatives				Liability Derivatives
	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020
	Fair Value		Fair Value		Fair Value		Fair Value
Derivatives designated as cash flow hedges:
Accounts Payable, Accrued Expenses, and Other Liabilities	$	12,590	$	16,985	$	2,880	$	16,985

The table below presents the effect of the Company’s derivative financial instruments in the Condensed Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020 (in thousands).

Location of

Derivatives in

Income/(Loss)

Derivatives in

Income/(Loss)

Cash Flow

Reclassified from

Amount of Income/(Loss)

Cash Flow

Reclassified from

Amount of Income/(Loss)

Hedging

Amount of Income/(Loss) Recognized

Accumulated OCI

Reclassified from

Hedging

Amount of Income/(Loss) Recognized

Accumulated OCI

Reclassified from

Relationships

in OCI on Derivative

into Income

Accumulated OCI into Expense

Relationships

in OCI on Derivative

into Income

Accumulated OCI into Expense

Three Months Ended March 31,

2021

2020

2021

2020

Three Months Ended September 30,

2021

2020

2021

2020

Interest rate swaps

23,954

(33,379)

Interest Expense

1,693

337

Interest rate swaps

3,300

(3,289)

Interest Expense

1,028

Nine Months Ended September 30,

2021

2020

2021

2020

Interest rate swaps

15,653

(36,667)

Interest Expense

2,529

1,365

Loss on extinguishment of debt and settlement of related hedges

13,363

The Company does not use derivative instruments for trading or other speculative purposes and did not have any other derivative instruments or hedging activities as of ~~March 31,~~September 30, 2021.

Credit-Risk-Related Contingent Features

The Company has agreements with its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness.

As of September 30, 2021, the fair value of derivatives in a net liability position related to these agreements, which includes accrued interest but excludes any adjustment for nonperformance risk, was $1.4 million.

Although the derivative contracts are subject to master netting arrangements, which serve as credit mitigants to both the Company and its counterparties under certain situations, the Company does not net its derivative fair values or any existing rights or obligations to cash collateral on the Condensed Consolidated Balance Sheets.

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~~Credit-Risk-Related Contingent Features~~

As of March 31, 2021, the fair value of derivatives in a net liability position related to these agreements, which includes accrued interest but excludes any adjustment for nonperformance risk, was $9.9 million.

The table below presents a gross presentation of the effects of offsetting and a net presentation of the Company’s derivatives as of ~~March 31,~~September 30, 2021 and December 31, 2020. The gross amounts of derivative assets or liabilities can be reconciled to the Tabular Disclosure of Fair Values of Derivative Instruments above, which also provides the location that derivative assets and liabilities are presented on the Condensed Consolidated Balance Sheets (in thousands):

Offsetting of Derivative Assets as of ~~March 31,~~September 30, 2021

Gross Amounts

Net Amounts of

Gross Amounts

Net Amounts of

Offset in the

Assets presented

Gross Amounts Not Offset in the

Offset in the

Assets presented

Gross Amounts Not Offset in the

Gross Amounts

Statement of

in the Statement

Statement of Financial Position

Gross Amounts

Statement of

in the Statement

Statement of Financial Position

of Recognized

Financial

of Financial

Financial

Cash Collateral

of Recognized

Financial

of Financial

Financial

Cash Collateral

Assets

Position

Instruments

Received

Net Amount

Assets

Position

Instruments

Received

Net Amount

Derivatives

23,036

(3,028)

20,008

2,109

(1,451)

658

Offsetting of Derivative Liabilities as of ~~March 31,~~September 30, 2021

Net Amounts of

Gross Amounts

Liabilities

Gross Amounts

Liabilities

Offset in the

presented in the

Gross Amounts Not Offset in the

Offset in the

presented in the

Gross Amounts Not Offset in the

Gross Amounts

Statement of

Statement of Financial Position

Gross Amounts

Statement of

Statement of Financial Position

of Recognized

Financial

Cash Collateral

of Recognized

Financial

Cash Collateral

Liabilities

Position

Instruments

Posted

Net Amount

Liabilities

Position

Instruments

Posted

Net Amount

Derivatives

12,590

(3,028)

9,562

2,880

(1,451)

1,429

Offsetting of Derivative Assets as of December 31, 2020

Gross Amounts

Net Amounts of

Offset in the

Assets presented

Gross Amounts Not Offset in the

Gross Amounts

Statement of

in the Statement

Statement of Financial Position

of Recognized

Financial

of Financial

Financial

Cash Collateral

Assets

Position

Instruments

Received

Net Amount

Derivatives

2,286

(1,258)

1,028

Offsetting of Derivative Liabilities as of December 31, 2020

Net Amounts of

Gross Amounts

Liabilities

Offset in the

presented in the

Gross Amounts Not Offset in the

Gross Amounts

Statement of

Statement of Financial Position

of Recognized

Financial

Cash Collateral

Liabilities

Position

Instruments

Posted

Net Amount

Derivatives

16,985

(1,258)

15,727

~~Table of Contents~~

Note 10 – Fair Value Measurements

Assets and Liabilities Measured at Fair Value

The Company accounts for fair values in accordance with ASC 820. ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.

ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources

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independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls, is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Derivative Financial Instruments

Currently, the Company uses interest rate swap agreements to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves.

To comply with the provisions of ASC 820, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of ~~March 31,~~September 30, 2021, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

~~Table of Contents~~

The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of ~~March 31,~~September 30, 2021 and December 31, 2020 (in thousands):


	Total Fair Value		Level 2		Total Fair Value		Level 2
March 31, 2021
September 30, 2021
Derivative assets - interest rate swaps	$	23,036	$	23,036	$	2,109	$	2,109
Derivative liabilities - interest rate swaps	$	12,590	$	12,590	$	2,880	$	2,880

December 31, 2020
Derivative assets - interest rate swaps	$	2,286	$	2,286	$	2,286	$	2,286
Derivative liabilities - interest rate swaps	$	16,985	$	16,985	$	16,985	$	16,985

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Other Financial Instruments

The carrying values of cash and cash equivalents, receivables and accounts payable and accrued liabilities are reasonable estimates of their fair values because of the short maturity of these financial instruments.

The Company estimated the fair value of its debt based on its incremental borrowing rates for similar types of borrowing arrangements with the same remaining maturity and on the discounted estimated future cash payments to be made for other debt. The discount rate used to calculate the fair value of debt approximates current lending rates for loans and assumes the debt is outstanding through maturity. Since such amounts are estimates that are based on limited available market information for similar transactions, which is a Level 2 non-recurring measurement, there can be no assurance that the disclosed value of any financial instrument could be realized by immediate settlement of the instrument.

Fixed rate debt (including variable rate debt swapped to fixed, excluding the value of the derivatives) with carrying values of ~~$1.13~~$1.53 billion and $1.13 billion as of ~~March 31,~~September 30, 2021 and December 31, 2020, respectively, had fair values of ~~$1.21~~$1.63 billion and $1.28 billion, respectively. Variable rate debt’s fair value ~~is estimated to be equal to the~~had 0 remaining carrying ~~values~~value as of ~~$238.0 million~~September 30, 2021 and had a carrying value of $92.0 million ~~as of March 31, 2021 and~~at December 31, ~~2020, respectively.~~2020. See Note 5 – Debt – Unsecured Term Loan Facilities above.

Note 11 – Equity Incentive Plan

In May 2020, the Company’s stockholders approved the Agree Realty Corporation 2020 Omnibus Incentive Plan (the “2020 Plan”), which replaced the Agree Realty Corporation 2014 Omnibus Equity Incentive Plan (the “2014 Plan”). The 2020 Plan provides for the award to employees, directors and consultants of the Company of options, restricted stock, restricted stock units, stock appreciation rights, performance awards (which may take the form of performance units or performance shares) and other awards to acquire up to an aggregate of 700,000 shares of the Company’s common stock. All subsequent awards of equity or equity rights will be granted under the 2020 Plan, and no further awards will be made under the 2014 Plan. As of ~~March 31,~~September 30, 2021, ~~472,142~~488,985 shares of common stock were available for issuance under the 2020 Plan.

Restricted Stock

Shares of restricted common stock (“restricted shares”) have been granted to certain employees.

The holder of a restricted share award is generally entitled at all times on and after the date of issuance of the restricted shares to exercise the rights of a stockholder of the Company, including the right to vote the shares and the right to receive dividends on the shares. The restricted shares vest over a five-year period based on continued service to the Company.

The Company estimates the fair value of restricted share grants at the date of grant and amortizes those amounts into expense on a straight-line basis or amount vested, if greater, over the appropriate vesting period. The Company recognized expense relating to restricted share grants of ~~$1.0~~$0.8 million and ~~$0.7~~$0.8 million for the three months ended ~~March 31,~~September 30, 2021 and 2020, respectively and $2.6 million and $2.4 million for the nine months ended September 30, 2021 and 2020, respectively.

As of ~~March 31,~~September 30, 2021, there was ~~$11.7~~$10.0 million of total unrecognized compensation costs related to the outstanding restricted stock, which is expected to be recognized over a weighted average period of ~~3.8~~3.5 years. The Company used 0% for the forfeiture rate for determining the fair value of restricted stock. The intrinsic value of restricted shares redeemed was less than $0.1 million for each of the three months ended September 30, 2021 and September 30, 2020. The intrinsic value of restricted shares redeemed was $1.8 million and $1.6 million during the nine months end September 30, 2021 and 2020, respectively.

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for the forfeiture rate for determining the fair value of restricted stock. The intrinsic value of restricted shares redeemed was $1.8 million and $1.6 million for the three months ended March 31, 2021 and 2020, respectively.

Restricted stock activity is summarized as follows:


	Shares	Weighted Average		Shares	Weighted Average
	Outstanding	Grant Date		Outstanding	Grant Date
	(in thousands)	Fair Value		(in thousands)	Fair Value
Unvested restricted stock at December 31, 2020	175	$	60.53	175	$	60.53

Restricted stock granted	77	$	64.56	83	$	65.10
Restricted stock vested	(58)	$	53.96	(59)	$	54.16
Restricted stock forfeited	(5)	$	64.50	(24)	$	63.88

Unvested restricted stock at March 31, 2021	189	$	64.08
Unvested restricted stock at September 30, 2021				175	$	64.40

Performance Units and Shares

Performance units were granted to certain executive officers during 2020 and 2019, while performance shares were granted prior to those years. Performance units or shares are subject to a three-year performance period, at the conclusion of which shares awarded are to be determined by the Company’s total shareholder return compared to the constituents of the MSCI US REIT Index and a defined peer group. 50% of the award is based upon the total shareholder return percentile rank versus the constituents in the MSCI US REIT index for the three-year performance period; and 50% of the award is based upon TSR percentile rank versus a specified net lease peer group for the three-year performance period. Vesting of the performance units and shares following their issuance will occur ratably over a three-year period, with the initial vesting occurring immediately following the conclusion of the performance period such that all units and shares vest within five years of the original award date.

The grant date fair value of these awards is determined using a Monte Carlo simulation pricing model and compensation expense is amortized on an attribution method over a five-year period. Compensation expense related to performance units or shares is determined at the grant date and is not adjusted throughout the measurement or vesting periods.

The Monte Carlo simulation pricing model for issued grants utilizes the following assumptions: (i) expected term (equal to the remaining performance measurement period at the grant date), (ii) volatility (based on historical volatility), and (iii) risk-free rate (interpolated based on 2- and 3-year rates). The Company used 0% for the forfeiture rate for determining the fair value of performance shares. During the years ended December 31, 2021, 2020 and 2019 the following assumptions were used:


Three Months Ended March 31,	2021		2020		2019
Nine Months Ended September 30,							2021		2020		2019
Expected term (years)	2.9		2.9		2.9		2.9		2.9		2.9
Volatility	33.9	%	18.4	%	19.7	%	33.9	%	18.4	%	19.7	%
Risk-free rate	0.2	%	1.3	%	2.5	%	0.2	%	1.3	%	2.5	%

~~During the three months ended March 31, 2021 and 2020, the~~The Company recognized ~~$0.2 million and $0.3 million, respectively, of~~ expense related to performance units and shares for which the three-year performance period has not yet been ~~completed.~~completed of $0.1 million and $0.4 million for the three months ended September 30, 2021 and 2020, respectively and $0.8 million and $1.1 million for the nine months ended September 30, 2021 and 2020. As of ~~March 31,~~September 30, 2021, there was ~~$5.1~~$3.5 million of total unrecognized compensation costs related to performance units and shares for which the three-year performance period has not yet been completed, which is expected to be recognized over a weighted average period of ~~4.0~~3.5 years.

~~During~~The Company recognized ($0.1) million for the three months ended ~~March 31,~~September 30, 2021 ~~the Company also recognized~~and $0.1 million infor the nine months ended September 30, 2021 of compensation ~~costs~~expense related to performance units and shares for which the ~~three- year~~three-year performance period was completed. As of ~~March 31,~~September 30, 2021, there was $0.2 million of total unrecognized compensation costs related to performance units and shares for which the three-year performance period has been completed, which is expected to be recognized over a weighted average period of ~~1.5~~1.4 years.

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Performance share and unit activity is summarized as follows:

Target Number

Weighted Average

of Awards

Grant Date

(in thousands)

Fair Value
Performance units and shares at December 31, 2020

87

$
69.61

Performance units granted

42

$
63.42
Performance units and shares at March 31, 2021 - three-year performance period completed

(31)

$
47.73
Performance units and shares forfeited

(3)

$
90.17

Performance units and shares at March 31, 2021 - three-year performance period to be completed

95

$
63.35

Shares

Weighted Average

Outstanding

Grant Date

(in thousands)

Fair Value
Performance shares -three-year performance period completed but not yet vested at December 31, 2020

—

$
—

Shares earned at completion of three-year performance period ⁽¹⁾

47

$
47.73
Shares vested

(16)

$
47.73

Performance shares -three-year performance period completed but not yet vested March 31, 2020

31

$
47.73

⁽¹⁾Performance shares granted in 2018 for which the three-year performance period was completed in 2021 paid out at 150% maximum performance level


	Target Number	Weighted Average
	of Awards	Grant Date
	(in thousands)	Fair Value
Performance units and shares at December 31, 2020	87	$	69.61

Performance units granted	43	$	63.42
Performance units and shares at September 30, 2021 - three-year performance period completed	(31)	$	47.73
Performance units and shares forfeited	(21)	$	68.79

Performance units and shares at September 30, 2021 - three-year performance period to be completed	78	$	63.35

	Shares	Weighted Average
	Outstanding	Grant Date
	(in thousands)	Fair Value
Performance shares - three-year performance period completed but not yet vested at December 31, 2020	0	$	0

Shares earned at completion of three-year performance period ⁽¹⁾	47	$	47.73
Shares vested	(16)	$	47.73
Shares forfeited	(4)	$	47.73

Performance shares - three-year performance period completed but not yet vested September 30, 2021	27	$	47.73

⁽¹⁾Performance shares granted in 2018 for which the three-year performance period was completed in 2021 paid out at the 150% maximum performance level

Note 12 – Commitments and Contingencies

In the ordinary course of business, we are party to various legal actions which we believe are routine in nature and incidental to the operation of our business. We believe that the outcome of the proceedings will not have a material adverse effect upon our consolidated financial position or results of operations.

Note 13 – Subsequent Events

In connection with the preparation of its financial statements, the Company has evaluated events that occurred subsequent to ~~March 31,~~September 30, 2021 through the date on which these financial statements were issued to determine whether any of these events required disclosure in the financial statements.

There were no reportable subsequent events or transactions.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following should be read in conjunction with the Interim Condensed Consolidated Financial Statements of Agree Realty Corporation (the “Company”), a Maryland corporation, including the respective notes thereto, which are included in this Quarterly Report on Form 10-Q. The terms the “Company,” “Management,” “we,” “our” and “us” refer to Agree Realty Corporation and all of its consolidated subsidiaries, including Agree Limited Partnership (the “Operating Partnership”), a Delaware limited partnership.

Cautionary Note Regarding Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and includes this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe the Company’s future plans, strategies and expectations, are generally identifiable by use of the words “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” “may,” “will,” “seek,” “could,” “project” or similar expressions. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond the Company’s control and which could materially affect the Company’s results of operations, financial condition, cash flows, performance or future achievements or events. Currently, one of the most significant factors, however, is the adverse effect of the current pandemic of the novel coronavirus, or COVID-19, on the financial condition, results of operations, cash flows and performance of the Company and its tenants, the real estate market and the global economy and financial markets. The extent to which COVID-19 impacts the Company and its tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and 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. Moreover, you should interpret many of the risks identified in this report, as well as the risks set forth below, as being heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic. Additional factors which may cause actual results to differ materially from current expectations include, but are not limited to: the factors included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, including those set forth under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; global and national economic conditions and changes in general economic, financial and real estate market conditions; the financial failure of, or other default in payment by, tenants under their leases and the potential resulting vacancies; the Company’s concentration with certain tenants and in certain markets, which may make the Company more susceptible to adverse events; changes in the Company’s business strategy; risks that the Company’s acquisition and development projects will fail to perform as expected; adverse changes and disruption in the retail sector and the financing stability of the Company’s tenants, which could impact tenants’ ability to pay rent and expense reimbursement; the Company’s ability to pay dividends; risks relating to information technology and cybersecurity attacks, loss of confidential information and other related business disruptions; loss of key management personnel; the potential need to fund improvements or other capital expenditures out of operating cash flow; financing risks, such as the inability to obtain debt or equity financing on favorable terms or at all; the level and volatility of interest rates; the Company’s ability to renew or re-lease space as leases expire; limitations in the Company’s tenants’ leases on real estate tax, insurance and operating cost reimbursement obligations; loss or bankruptcy of one or more of the Company’s major tenants, and bankruptcy laws that may limit the Company’s remedies if a tenant becomes bankrupt and rejects its leases; potential liability for environmental contamination, which could result in substantial costs; the Company’s level of indebtedness, which could reduce funds available for other business purposes and reduce the Company’s operational flexibility; covenants in the Company’s credit agreements and unsecured notes, which could limit our flexibility and adversely affect our financial condition; credit market developments that may reduce availability under our revolving credit facility; an increase in market interest rates which could raise the Company’s interest costs on existing and future debt; a decrease in interest rates, which may lead to additional competition for the acquisition of real estate or adversely affect the Company’s results of operations; the Company’s hedging strategies, which may not be successful in mitigating the Company’s risks associated with interest rates; legislative or regulatory changes, including changes to laws governing real estate investment trusts (“REITs”); the Company’s ability to maintain its qualification as a REIT for federal income tax purposes and the

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limitations imposed on its business by its status as a REIT; and the Company’s failure to qualify as a REIT for federal income tax purposes, which could adversely affect the Company’s operations and ability to make distributions.

Overview

The Company is a fully integrated 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 (“NYSE”) in 1994. The Company’s assets are held by, and all of its operations are conducted through, directly or indirectly, ~~(the~~the Operating ~~Partnership),~~Partnership, of which the Company is the sole general ~~partner and~~partner. Refer to Note 1- Organization in ~~which~~ the ~~Company held a 99.5% interest as of March 31, 2021.~~ Notes to the Condensed Consolidated Financial Statements in this Form 10-Q for further information on the ownership structure. 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. As of ~~March 31,~~September 30, 2021, the Company’s portfolio consisted of ~~1,213~~1,338 properties located in 4647 states and totaling approximately ~~24.2~~27.7 million square feet of gross leasable area (“GLA”).

As of ~~March 31,~~September 30, 2021, the Company’s portfolio was approximately ~~99.4%~~99.6% leased and had a weighted average remaining lease term of approximately ~~9.8~~9.5 years. A significant majority of our properties are leased to national tenants and approximately ~~67.2%~~66.9% 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 property operating expenses including property taxes, insurance and maintenance.

We elected to be taxed as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 1994. We believe that we have been organized and have operated in a manner that has allowed us to qualify as a REIT for federal income tax purposes and we intend to continue operating in such a manner.

COVID-19

We continue to closely monitor the impact of the novel coronavirus (“COVID-19”) pandemic on all aspects of our business and geographies, including how it is impacting our tenants and business partners. WeAlthough 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. However, we are still unable to predict the full impact that the COVID-19 pandemic will ultimately have on our financial condition, results of operations and cash flows due to numerous uncertainties. These uncertainties include the scope, severity and 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 outbreak of COVID-19 in many countries, including the United States, has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak continues to rapidly evolve and, many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel. Many states and cities, including where we own properties, have development sites and where our principal place of business is located, have also reacted by instituting quarantines, restrictions on travel, “shelter in place” rules, restrictions on types of business that may continue to operate, and/or restrictions on the types of construction projects that may continue. Although many of these jurisdictions have lifted some of these restrictions, the Company cannot predict whether and to what extent the restrictions will be reinstated, whether additional states and cities will implement similar restrictions or when restrictions currently in place will expire. As a result, the COVID-19 pandemic ishas negatively ~~impacting~~impacted almost every industry directly or indirectly, including industries in which the Company and our tenants operate. Further, the impacts of a potential worsening of global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets, consumer spending as well as other unanticipated consequences remain unknown.

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We cannot predict the impact that COVID-19 will have on our tenants and other business partners; however, any material effect on these parties could adversely impact us. ~~The Company received first quarter rent payments from over 99% of its portfolio.~~

~~Table of Contents~~

Refer to Note 2 – Summary of Significant Accounting Policies - Rent Concessions – COVID-19 to the Condensed Consolidated Financial Statements within this Quarterly Report on Form 10-Q regarding the Company’s accounting policies for rent concessions. Pursuant to the Company’s accounting elections, rental revenue continued to be recognized for tenants subject to deferral agreements, as long as such agreements did not result in a substantial increase in our rights as the lessor. ~~As a result, rent~~Rent deferrals did not have a material impact on revenues for the three months ended ~~March 31,~~September 30, 2021.

The continuing impact of the COVID-19 pandemic on our rental revenue for the remainder of 2021 and thereafter still cannot be fully determined at present. The situation surrounding the COVID-19 pandemic remains fluid, and we continue to actively manage our response in collaboration with tenants, government officials and business partners and to assess potential impacts to our financial position and operating results, as well as potential adverse developments in our business. For further information regarding the impact of COVID-19 on the Company, see Part I, Item 1A titled “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Results of Operations

Overall

The Company’s real estate investment portfolio grew from approximately ~~$2.4~~$3.0 billion in gross investment amount representing ~~868~~1,027 properties with ~~16.3~~21.0 million square feet of GLA as of ~~March 31,~~September 30, 2020 to approximately ~~$3.6~~$4.1 billion in gross investment amount representing ~~1,213~~1,338 properties with ~~24.2~~27.7 million square feet of GLA at ~~March 31,~~September 30, 2021. The Company’s real estate investments were made throughout and between the periods presented and were not all outstanding for the entire period; accordingly, a portion of the increase in rental income between periods is related to recognizing revenue in 2021 on acquisitions that were made during 2020. Similarly, the full rental income impact of acquisitions made during 2021 to-date will not be seen until the remainder of ~~2021.~~2021 and 2022.

Acquisitions

During the three months ended ~~March 31,~~September 30, 2021, the Company acquired 8680 retail net lease assets for approximately ~~$387.9~~$340.6 million, which includes acquisition and closing costs. These properties are located in 2528 states and are leased to 4649 different tenants operating in 20 diverse retail sectors for a weighted average lease term of approximately ~~12.9~~10.7 years. The underwritten weighted-average capitalization rate on the Company’s third quarter 2021 acquisitions was approximately 6.2%.¹

During the nine months ended September 30, 2021, the Company acquired 219 retail net lease assets for approximately $1,075.1 million, which includes acquisition and closing costs. These properties are located in 40 states and are leased to 86 different tenants operating in 26 diverse retail sectors for a weighted average lease term of approximately 11.9 years. The underwritten weighted-average capitalization rate on the Company’s first ~~quarter~~nine month of 2021 acquisitions was approximately ~~6.3%~~6.2%.¹

Dispositions

During the three months ended ~~March 31,~~September 30, 2021, the Company sold three properties for net proceeds of ~~$8.4~~$11.5 million and recorded a net gain of ~~$2.9~~$3.5 million.

~~Development and Partner Capital Solutions~~

During the ~~three~~nine months ended ~~March 31,~~September 30, 2021, the Company ~~completed one development or Partner Capital Solutions project. At March 31, 2021, the Company had three development or Partner Capital Solutions projects under construction.~~sold 13 properties for net proceeds of $46.8 million and recorded a net gain of $13.2 million.

¹ When used within this discussion, “weighted-average capitalization rate” for acquisitions and dispositions is defined by the Company as the sum of contractual fixed annual rents computed on a straight-line basis over the primary lease terms and anticipated annual net tenant recoveries, divided by the purchase and sales prices.

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Development and Partner Capital Solutions

During the three months ended September 30, 2021, the Company commenced one development or Partner Capital Solutions project. At September 30, 2021, the Company had three development or Partner Capital Solutions projects under construction. During the nine months ended September 30, 2021, the Company completed four development or Partner Capital Solutions projects.

Comparison of Three Months Ended ~~March 31,~~September 30, 2021 to Three Months Ended ~~March 31,~~September 30, 2020


	Three Months Ended				Variance				Three Months Ended				Variance
	March 31, 2021		March 31, 2020		(in dollars)		(percentage)		September 30, 2021		September 30, 2020		(in dollars)		(percentage)
Rental Income	$	77,760	$	55,783	$	21,977	39	%	$	87,469	$	63,701	$	23,768	37	%
Real Estate Tax Expense	$	5,696	$	4,702	$	994	21	%	$	6,957	$	5,516	$	1,441	26	%
Property Operating Expense	$	3,541	$	2,335	$	1,206	52	%	$	3,189	$	2,108	$	1,081	51	%
Depreciation and Amortization Expense	$	21,489	$	14,132	$	7,357	52	%	$	24,488	$	17,327	$	7,161	41	%

The variances in rental income, real estate tax expense, property operating expense and depreciation and amortization expense shown above were due to the acquisitions and ownership of an increased number of properties during the three months ended ~~March 31,~~September 30, 2021 compared to the three months ended ~~March 31,~~September 30, 2020, as further described under Results of Operations - Overall above.

General and administrative expenses increased ~~$2.2~~$0.9 million, or ~~48%~~20%, to ~~$6.9~~$5.7 million for the three months ended ~~March 31,~~September 30, 2021, compared to ~~$4.7~~$4.8 million for the three months ended ~~March 31,~~September 30, 2020. The increase was primarily the result of increased employee headcount and increased compensation ~~costs.~~costs, partially offset by reversals of previously recognized compensation expense upon the departure of certain executive officers during the third quarter of 2021. General and administrative expenses as a percentage of total revenue ~~increased~~decreased to ~~8.8%~~6.5% in the ~~first~~third quarter of 2021 from ~~8.3%~~7.5% in the ~~first~~third quarter of 2020.

Interest expense increased ~~$2.0~~$2.9 million, or ~~21%~~29%, to ~~$11.7~~$13.1 million for the three months ended ~~March 31,~~September 30, 2021, compared to ~~$9.7~~$10.2 million for the three months ended ~~March 31,~~September 30, 2020. The increase in interest expense was primarily a result of higher levels of borrowings in the ~~first~~third quarter of 2021 in comparison to the ~~first~~third quarter of 2020, partially offset by a reduction in interest rates on certain debt. Borrowings increased in order to finance the acquisition and development of additional properties. ~~Acquisition and development activity increased in the first quarter of 2021 compared to the prior period.~~

Gain on sale of assets increased ~~$1.3~~$2.5 million, or ~~79%~~258%, to ~~$2.9~~$3.5 million for the three months ended ~~March 31,~~September 30, 2021, compared to ~~$1.6~~$1.0 million for the three months ended ~~March 31,~~September 30, 2020. Gains on sales of assets are dependent on levels of disposition activity and the assets’ bases relative to their sales prices. As a result, such gains are not necessarily comparable period-to-period.

Income tax expense increased ~~$0.7~~$0.1 million, or ~~288%~~27%, to ~~$1.0~~$0.4 million for the three months ended ~~March 31,~~September 30, 2021 compared to $0.3 million for the three months ended ~~March 31,~~September 30, 2020. The increase in income tax expense was primarily due to the acquisition and the ownership of additional properties during the three months ended ~~March 31,~~September 30, 2021 compared to the three months ended ~~March 31,~~September 30, 2020.

Net income increased $15.4 million, or 72%, to $36.8 million for the three months ended September 30, 2021, compared to $21.4 million for the three months ended September 30, 2020. The change was the result of the items discussed above. After allocation of income to preferred stockholders, net income attributable to common stockholders increased $15.1 million, or 71% to $36.4 million for the three months ended September 30, 2021, compared to $21.3 million for the three months ended September 30, 2020. The allocation of income to the preferred stockholders began upon the September 2021 issuance of the Series A Preferred Stock – see Liquidity and Capital Resources - Equity below.

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Comparison of Nine Months Ended September 30, 2021 to Nine Months Ended September 30, 2020


	Nine Months Ended				Variance
	September 30, 2021		September 30, 2020		(in dollars)		(percentage)
Rental Income	$	247,722	$	176,960	$	70,762	40	%
Real Estate Tax Expense	$	18,812	$	15,058	$	3,754	25	%
Property Operating Expense	$	9,944	$	6,303	$	3,641	58	%
Depreciation and Amortization Expense	$	69,164	$	47,067	$	22,097	47	%

The variances in rental income, real estate tax expense, property operating expense and depreciation and amortization expense shown above were due to the acquisitions and ownership of an increased number of properties during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, as further described under Results of Operations - Overall above.

General and administrative expenses increased $4.8 million, or 34%, to $18.8 million for the nine months ended September 30, 2021, compared to $14.0 million for the nine months ended September 30, 2020. The increase was primarily the result of increased employee headcount and increased compensation costs. General and administrative expenses as a percentage of total revenue decreased to 7.6% in the first nine months of 2021 from 7.9% in the first nine months of 2020.

Interest expense increased $9.0 million, or 32%, to $37.3 million for the nine months ended September 30, 2021, compared to $28.3 million for the nine months ended September 30, 2020. The increase in interest expense was primarily a result of higher levels of borrowings in the first nine months of 2021 in comparison to the first nine months of 2020, partially offset by a reduction in interest rates on certain debt.

Gain on sale of assets increased $5.6 million, or 74%, to $13.2 million for the nine months ended September 30, 2021, compared to $7.6 million for the nine months ended September 30, 2020. Gains on sales of assets are dependent on levels of disposition activity and the assets’ bases relative to their sales prices. As a result, such gains are not necessarily comparable period-to-period.

Income tax expense increased $1.1 million, or 128%, to $1.9 million for the nine months ended September 30, 2021, compared to $0.8 million for the nine months ended September 30, 2020. The increase in income tax expense was primarily due to the acquisition and the ownership of additional properties during the first nine months of 2021 compared to the first nine months of 2020. Additionally, the Company recognized additional income tax expense of $0.5 million during the ~~three~~nine months ended ~~March 31,~~September 30, 2021 relating to 2020 operations upon filing of annual tax returns in 2021.

In May 2021, the Company used the net proceeds from the offering of the 2028 Senior Unsecured Public Notes and the 2033 Senior Unsecured Public Notes (see Liquidity and Capital Resources – Debt - Senior Unsecured Revolving Credit Facility and Unsecured Term Loans below) to repay all amounts outstanding under its unsecured term loans and settle the related swap agreements. The Company incurred a charge of $14.6 million upon this repayment and settlement, including swap termination costs of $13.4 million and the write-off of previously unamortized debt issuance costs of $1.2 million.

Net income increased ~~$8.9~~$21.4 million, or ~~42%~~31%, to ~~$30.3~~$89.6 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2021, compared to ~~$21.4~~$68.2 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2020. The change was the result of the items discussed above. After allocation of income to preferred stockholders, Net income attributable to common stockholders increased $21.0 million, or 31% to $88.8 million for the nine months ended September 30, 2021, compared to $67.8 million for the nine months ended September 30, 2020. The allocation of income to the preferred stockholders began upon the September 2021 issuance of the Series A Preferred Stock – see Liquidity and Capital Resources - Equity below.

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Liquidity and Capital Resources

The Company’s principal demands for funds include payment of operating expenses, payment of principal and interest on its outstanding indebtedness, dividends and distributions to our stockholders and holders of the units of the Operating Partnership (the “Operating Partnership Common Units”), and future property acquisitions and development.

The Company expects to meet its short-term liquidity requirements through cash provided from operations and borrowings under its revolving credit facility. As of ~~March 31,~~September 30, 2021, available cash and cash equivalents, including cash held in escrow, was ~~$7.4~~$102.8 million. As of ~~March 31,~~September 30, 2021, the Company ~~had $238.0 million~~did not have an outstanding balance on its revolving credit facility and ~~$262.0~~$500.0 million was available for future borrowings, subject to its compliance with covenants. The Company anticipates funding its long-term capital needs through cash provided from operations, borrowings under its revolving credit facility, the issuance of debt and common or preferred equity or other instruments convertible into or exchangeable for common or preferred equity.

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We continually evaluate alternative financing and believe that we can obtain financing on reasonable terms. However, there can be no assurance that additional financing or capital will be available, or that the terms will be acceptable or advantageous to us. Our ability to access capital on favorable terms as well as to use cash from operations to continue to meet our liquidity needs, all of which are highly uncertain and cannot be predicted, could be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic and other risks detailed in Part I, Item 1A titled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 and in the other reports the Company has filed with the Securities and Exchange Commission (“SEC’). Additionally, refer to COVID-19 earlier in this Management’s Discussion and Analysis.

The full impact of the COVID-19 pandemic on our rental revenue and, as a result, future cash from operations cannot be determined at present.

Capitalization

As of ~~March 31,~~September 30, 2021, the Company’s total enterprise value was approximately ~~$5.7~~$6.3 billion. Total enterprise value consisted of ~~$4.3~~$4.6 billion of common equity (based on the ~~March 31,~~September 30, 2021 closing price of Company’s common stock on the NYSE of ~~$67.31~~$66.23 per common share and assuming the conversion of Operating Partnership Common Units), $175.0 million of preferred equity (stated at liquidation value) and ~~$1.37~~$1.5 billion of total debt including (i) ~~$238.0 million of~~no borrowings under its revolving credit facility; (ii) ~~$240.0 million of unsecured term loans; (iii) $860.0 million~~$1.5 billion of senior unsecured notes; ~~(iv) $33.2~~(iii) $32.8 million of mortgage notes payable, less ~~(v)~~(iv) cash, cash equivalents and cash held in escrow of ~~$7.4~~$102.8 million. The Company’s total debt to enterprise value was ~~24.0%~~24.6% at ~~March 31,~~September 30, 2021.

At ~~March 31,~~September 30, 2021, the non-controlling interest in the Operating Partnership consisted of a 0.5% ownership interest in the Operating Partnership. The Operating Partnership Common Units may, under certain circumstances, be exchanged for shares of Company common stock on a one-for-one basis. The Company, as sole general partner of the Operating Partnership, has the option to settle exchanged Operating Partnership Common Units held by others for cash based on the current trading price of our shares. Assuming the exchange of all Operating Partnership Common Units, there would have been ~~64,493,397~~70,127,367 shares of common stock outstanding at ~~March 31,~~September 30, 2021.

Equity

Shelf Registration ~~and Follow-on Public Offerings~~

The Company filed an automatic shelf registration statement on Form S-3 with the SEC, registering an unspecified amount of common stock, preferred stock, depositary shares, warrants and guarantees of debt securities of the Operating Partnership, as well as an unspecified amount of debt securities of the Operating Partnership, at an indeterminate aggregate initial offering price. The Company may periodically offer one or more of these securities in amounts, prices and on terms to be announced when and if these securities are offered. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering.

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Common Stock Offerings

Also, in April 2020, the Company entered into a follow-on public offering to sell an aggregate of 6,166,666 shares of common stock in connection with a forward sale agreement (the “April 2020 Forward”). During the remainder of 2020, the Company settled the April 2020 Forward, realizing net proceeds of approximately $354.6 million, after deducting fees and expenses.

In January 2021, the Company completed a follow-on public offering of 3,450,000 shares of common stock, which included the underwriters’ option to purchase an additional 450,000 shares of common stock. The offering resulted in net proceeds to the Company of approximately $221.4 million, after deducting ~~the~~fees and estimated offering expenses payable by the Company.

~~Table~~In June 2021, the Company completed a follow-on public offering of ~~Contents~~4,600,000 shares of its common stock, which included the full exercise of the underwriters’ option to purchase an additional 600,000 shares of common stock. The offering resulted in net proceeds to the Company of approximately $327.0 million, after deducting fees and estimated offering expenses payable by the Company.

Preferred Stock Offering

In September 2021, the Company completed an underwritten public offering of depositary shares (the “Depositary Shares”), each representing 1/1,000th of a share of Series A Preferred Stock, which resulted in net proceeds to the Company of approximately $170.3 million, after deducting the underwriting discounts and commissions and costs payable by the Company. At the closing, the Company issued 7,000 shares of Series A Preferred Stock and 7,000,000 Depositary Shares. The Company contributed the net proceeds from the sale of the Depositary Shares to the Operating Partnership in exchange for 7,000 Series A Preferred Units corresponding to the number of shares of Series A Preferred Stock underlying the Depositary Shares.

Dividends on the Series A Preferred Shares will be payable monthly in arrears on the first day of each month (or, if not on a business day, on the next succeeding business day). The dividend rate is 4.25% per annum of the $25,000 (equivalent to $25.00 per Depositary Share) liquidation preference. The first pro-rated dividend on the Series A Preferred Stock was paid on October 1, 2021, and was in an amount equivalent to $0.041 per Depositary Share. Subsequent dividends on the Series A Preferred Shares will be in amount of $0.08854 per Depositary Share, equivalent to $1.0625 per annum.

The Company may not redeem the Series A Preferred Shares before September, 2026 except in limited circumstances to preserve its status as a real estate investment trust for federal income tax purposes and except in certain circumstances upon the occurrence of a change of control of the Company. Beginning in September, 2026, the Company, at its option, may redeem the Series A Preferred Shares, in whole or from time to time in part, by paying $25.00 per Depositary Share, plus any accrued and unpaid dividends.

2019 ATM Program

In July 2019, the Company entered into a $400.0 million ATM program (the “2019 ATM Program”) through which the Company, from time to time, sold shares of common stock. ~~During the third quarter of 2019, the Company issued 444,228 shares of common stock and entered into forward sale agreements.~~

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The 2019 ATM Program was terminated simultaneously with the establishment of the 2020 ATM Program, which is discussed below. As a result, no future issuances will occur under the 2019 ATM Program.

2020 ATM Program

In March 2020, the Company entered into a new $400.0 million ATM program (the “2020 ATM Program”) through which the Company, from time to time, may sell shares of common stock. In addition to selling shares of common stock, the Company ~~has~~ entered into forward sale agreements through the 2020 ATM Program, as described below.

The 2020 ATM Program was terminated simultaneously with the establishment of the 2021 ATM Program, which is discussed below. As a result, no future issuances will occur under the 2020 ATM Program.

2021 ATM Program

During the first nine months of 2021, the Company entered into forward sale agreements to sell an aggregate of ~~372,469~~1,918,130 shares of common stock. The Company has not settled any shares of these forward sale agreements as of ~~March 31,~~September 30, 2021. The Company is required to settle the remaining outstanding shares of common stock under the 2021 ATM Program by various dates inbetween March 2022 and September 2022.

After considering the ~~372,469~~1,918,130 shares of common stock subject to forward sale agreements issued under the 2021 ATM Program, the Company had approximately ~~$474.3~~$364.2 million of availability remaining under the 2021 ATM Program as of ~~March 31,~~September 30, 2021.

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Debt

The below table summarizes the Company’s outstanding debt as of ~~March 31,~~September 30, 2021 and December 31, 2020 (in thousands):


	Interest			Principal Amount Outstanding				All-in			Principal Amount Outstanding
Senior Unsecured Revolving Credit Facility	Rate		Maturity	March 31, 2021		December 31, 2020		Interest Rate		Maturity	September 30, 2021		December 31, 2020
Revolving Credit Facility ⁽¹⁾	0.94	%	January 2024	$	238,000	$	92,000	0.91	%	January 2024	$	—	$	92,000
Total Credit Facility				$	238,000	$	92,000				$	—	$	92,000

Unsecured Term Loans ⁽²⁾
Unsecured Term Loans ^{(2) (3)}
2023 Term Loan	2.40	%	July 2023	$	40,000		40,000	2.40	%		$	—		40,000
2024 Term Loan Facility	3.09	%	January 2024		65,000		65,000	3.09	%			—		65,000
2024 Term Loan Facility	2.43	%	January 2024		35,000		35,000	2.43	%			—		35,000
2026 Term Loan	4.26	%	January 2026		100,000		100,000	4.26	%			—		100,000
Total Unsecured Term Loans				$	240,000	$	240,000				$	—	$	240,000

Senior Unsecured Notes ⁽²⁾⁽³⁾
2025 Senior Unsecured Notes	4.16	%	May 2025	$	50,000	$	50,000	4.16	%	May 2025	$	50,000	$	50,000
2027 Senior Unsecured Notes	4.26	%	May 2027		50,000		50,000	4.26	%	May 2027		50,000		50,000
2028 Senior Unsecured Public Notes ⁽⁴⁾								2.11	%	June 2028		350,000		—
2028 Senior Unsecured Notes	4.42	%	July 2028		60,000		60,000	4.42	%	July 2028		60,000		60,000
2029 Senior Unsecured Notes	4.19	%	September 2029		100,000		100,000	4.19	%	September 2029		100,000		100,000
2030 Senior Unsecured Notes	4.32	%	September 2030		125,000		125,000	4.32	%	September 2030		125,000		125,000
2030 Senior Unsecured Public Notes ⁽³⁾	3.49	%	October 2030		350,000		350,000
2030 Senior Unsecured Public Notes ⁽⁴⁾								3.50	%	October 2030		350,000		350,000
2031 Senior Unsecured Notes	4.42	%	October 2031		125,000		125,000	4.42	%	October 2031		125,000		125,000
2033 Senior Unsecured Public Notes ⁽⁴⁾								2.13	%	June 2033		300,000		—
Total Senior Unsecured Notes				$	860,000	$	860,000				$	1,510,000	$	860,000

Mortgage Notes Payable ⁽²⁾
CMBS Portfolio Loan	3.60	%	January 2023	$	23,640	$	23,640	3.60	%	January 2023	$	23,640	$	23,640
Single Asset Mortgage Loan	5.01	%	September 2023		4,622		4,622	5.01	%	September 2023		4,622		4,622
Portfolio Credit Tenant Lease	6.27	%	July 2026		4,976		5,172	6.27	%	July 2026		4,577		5,172
Total Mortgage Notes Payable				$	33,238	$	33,434				$	32,839	$	33,434

Total Principal Amount Outstanding				$	1,371,238	$	1,225,434				$	1,542,839	$	1,225,434

(1)	The annual interest rate of the Revolving Credit Facility (defined below) assumes one-month LIBOR as of ~~March 31,~~September 30, 2021 of ~~0.11%~~0.09%.

(2)	The Unsecured Term Loans were repaid in May 2021.

(3)	Interest rate includes the effects of variable interest rates that have been swapped to fixed interest rates.

~~(3)~~(4)

The principal ~~amount~~amounts outstanding for the ~~$350.0 million~~2028 Senior Unsecured Public Notes, the 2030 Senior Unsecured Public Notes isand the 2033 Senior Unsecured Public Notes are presented excluding their original issue ~~discount.~~discounts.

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Senior Unsecured Revolving Credit Facility

In December 2019, the Company entered into a Second Amended and Restated Revolving Credit and Term Loan Agreement (the “Credit Agreement”). The Credit Agreement provides for a $500.0 million unsecured revolving credit facility that matures on January 15, 2024 (the “Revolving Credit Facility”),. It also provided for a ~~$65.0~~$65 million unsecured term loan facility ~~(the “$65 Million Term Loan”)~~ and a ~~$35.0~~$35 million unsecured term loan ~~facility (the “$35 Million Term Loan,” and together with the $65 Million Term Loan, the “2024 Term Loan Facilities”). The Credit Agreement amended and restated~~facility. All amounts outstanding under these unsecured term loan facilities were repaid in ~~its entirety the Company’s previous credit agreement dated December 15, 2016.~~

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additional fee, to extend the maturity date of the Revolving Credit Facility by six months up to two times, for a maximum maturity date of January 15, 2025. No amortization payments are required under the Credit Agreement, and interest is payable in arrears no less frequently than quarterly.

All borrowings under the Revolving Credit Facility (except swing line loans) bear interest at a rate per annum equal to, at the option of the Company, (i) LIBOR plus a margin that is based upon the Company’s credit rating, or (ii) the Base Rate (which is defined as the greater of the rate of interest as publicly announced from time to time by PNC Bank, National Association, as its prime rate, the Federal Funds Open Rate plus 0.50%, or the Daily Eurodollar Rate plus 1.0%) plus a margin that is based upon the Company’s credit rating. The margins for the Revolving Credit Facility range in amount from 0.775% to 1.450% for LIBOR-based loans and 0.00% to 0.45% for Base Rate loans, depending on the Company’s credit rating. The margins for the Revolving Credit Facility are subject to improvement based on the Company’s leverage ratio, provided its credit rating meets a certain threshold.

~~Concurrent with entering into the Credit Agreement, certain conforming changes, including customary financial covenants, were made to the 2023 Term Loan and 2026 Term Loan.~~

Unsecured Term Loan Facilities

In ~~July 2016,~~May 2021, the Company ~~completed a $40.0 million~~used the net proceeds from the offering of the 2028 Senior Unsecured Public Notes and the 2033 Senior Unsecured Public Notes (see Senior Unsecured Notes below) to repay all amounts outstanding under its unsecured term ~~loan facility that matures July 2023 (the “2023 Term Loan”). Borrowings under~~loans and settle the related swap agreements. The Company incurred a charge of $14.6 million upon this repayment and settlement, including swap termination costs of $13.4 million and the write-off of previously unamortized debt issuance costs of $1.2 million.

The Credit Agreement extended the maturity dates of the $65 Million Term Loan and the $35 Million Term Loan to January 2024. In connection with entering into the Credit Agreement, the prior notes evidencing the existing $65 Million Term Loan and $35 Million Term Loan were canceled and new notes evidencing the 2024 Term Loan Facilities, were executed. Borrowings under the unsecured 2024 Term Loan Facilities bear interest at a variable LIBOR plus 85 to 165 basis points, depending on the Company’s credit rating. The Company utilized existing interest rate swap agreements to effectively fix the LIBOR at 213 basis points until September 2020 for the $35 Million Term Loan and ~~July 2021 for the $65 Million Term Loan. Additional interest rate swap agreements were entered into to fix LIBOR at 143 basis points until maturity (refer to Note 9 –~~ ~~Derivative Instruments and Hedging Activity~~~~). As of March 31, 2021, $100.0 million was outstanding under the 2024 Term Loan Facilities, bearing an all-in interest rate of 2.86%, including the swaps.~~

~~In December 2018, the Company entered into a $100.0 million unsecured term loan facility that matures January 2026 (the “2026 Term Loan”). Borrowings under~~ the 2026 Term Loan, are priced at LIBOR plus 145 to 240 basis points, depending on the Company’s credit rating. The Company entered into interest rate swap agreements to fix LIBOR at 266 basis points until maturity. As of March 31, 2021, $100.0 million was outstanding under the 2026 Term Loan, which wasthese loans were subject to an all-in interest ~~rate~~rates of 2.40%, 2.86%, and 4.26%, respectively, including the ~~swap.~~effects of related swap agreements.

Senior Unsecured Notes

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May 2025 (the “2025 Senior Unsecured Notes”) and $50.0 million of 4.26% notes due May 2027 (the “2027 Senior Unsecured Notes”).

In July 2016, the Company and the Operating Partnership completed a private placement of $60.0 million aggregate principal amount of its 4.42% senior unsecured notes due July 2028 (the “2028 Senior Unsecured Notes”).

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In September 2018, the Company and the Operating Partnership entered into two supplements to uncommitted master note facilities previously entered into with institutional purchasers. Pursuant to the supplements, the Operating Partnership completed a private placement of $125.0 million aggregate principal amount of its 4.32% senior unsecured notes due September 2030 (the “2030 Senior Unsecured Notes”).

In October 2019, the Company and the Operating Partnership closed on a private placement of $125.0 million of 4.47% senior unsecured notes due October 2031. In March 2019, the Company entered into forward-starting interest rate swap agreements to fix the interest for $100.0 million of long-term debt until maturity. The Company terminated the swap agreements at the time of pricing the 2031 Senior Unsecured Notes, which resulted in an effective annual fixed rate of 4.41% for $100.0 million aggregate principal amount of the 2031 Senior Unsecured Notes. Considering the effect of the terminated swap agreements, the blended all-in rate to the Company for the $125.0 million aggregate principal amount of 2031 Senior Unsecured Notes is 4.42%.

All of the senior unsecured notes described in the preceding paragraphs were sold to only institutional investors in private placements pursuant to Section 4(a)(2) of the Securities Act.

In August 2020, the Operating Partnership completed an underwritten public offering of $350.0 million aggregate principal amount of 2.900% Notes due 2030 (the “2030 Senior Unsecured Public Notes”). The 2030 Senior Unsecured Public Notes are fully and unconditionally guaranteed by Agree Realty Corporation and certain wholly owned subsidiaries of the Operating Partnership. The terms of the 2030 Senior Unsecured Public Notes are governed by an indenture, dated August 17, 2020, among the Operating Partnership, the Company and U.S. Bank National Association, as trustee (as amended and supplemented by an officer’s certificate dated August 17, 2020, the “Indenture”). The Indenture contains various restrictive covenants, including limitations on the ability of the guarantors and the issuer to incur additional indebtedness and requirements to maintain a pool of unencumbered assets. The Company terminated related swap agreements of $200.0 million that hedged the 2030 Senior Unsecured Public Notes. Considering the effect of the terminated swap agreements, the blended all-in rate to the Company for the $350.0 million aggregate principal amount of ~~2031~~2030 Senior Unsecured Notes is ~~3.49%~~3.50%.

In May 2021, the Operating Partnership completed an underwritten public offering of $350.0 million aggregate principal amount of its 2.000% Notes due 2028 (the “2028 Senior Unsecured Public Notes”) and $300.0 million in aggregate principal amount of 2.600% Notes due 2033 (the “2033 Senior Unsecured Public Notes”). The 2028 Senior Unsecured Public Notes and the 2033 Senior Unsecured Public Notes are fully and unconditionally guaranteed by the Company and certain wholly owned subsidiaries of the Operating Partnership. The terms of the 2028 Senior Unsecured Public Notes and the 2033 Senior Unsecured Public Notes are governed by an indenture, dated August 17, 2020, among the Operating Partnership, the Company and U.S. Bank National Association, as trustee (as amended and supplemented by an officer’s certificate dated May 14, 2021, the “Indenture”). The Indenture contains various restrictive covenants, including limitations on the ability of the guarantors and the issuer to incur additional indebtedness and requirements to maintain a pool of unencumbered assets. The Company terminated related swap agreements of $300.0 million that hedged the 2033 Senior Unsecured Public Notes, receiving $16.7 million upon termination. Considering the effect of the terminated swap agreements, the blended all-in rates to the Company for the $350.0 million aggregate principal amount of the 2028 Senior Unsecured Public Notes and the $300.0 million aggregate principal amount of the 2033 Senior Unsecured Public Notes are 2.11% and 2.13%, respectively.

Mortgage Notes Payable

As of ~~March 31,~~September 30, 2021, the Company had total gross mortgage indebtedness of ~~$33.6~~$32.8 million which was collateralized by related real estate and tenants’ leases with an aggregate net book value of ~~$40.1~~$39.2 million. Including mortgages that have been swapped to a fixed interest rate, the weighted average interest rate on the Company’s mortgage notes payable was ~~4.22%~~4.17% as of ~~March 31,~~September 30, 2021 and ~~4.40%~~4.21% as of December 31, 2020.

The Company has entered into mortgage loans which are secured by multiple properties and contain cross-default and cross-collateralization provisions. Cross-collateralization provisions allow a lender to foreclose on multiple properties in the event that the Company defaults under the loan. Cross-default provisions allow a lender to foreclose on the related property in the event a default is declared under another loan.

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Loan Covenants

Certain loan agreements contain various restrictive covenants, including the following financial covenants: maximum leverage ratio, maximum secured leverage ratios, consolidated net worth requirements, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio, a minimum unsecured interest expense ratio, a minimum interest coverage

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ratio, a minimum unsecured debt yield and a minimum unencumbered interest expense ratio. As of ~~March 31,~~September 30, 2021, the most restrictive covenant was the minimum unencumbered interest expense ratio. The Company was in compliance with all of its material loan covenants and obligations as of ~~March 31,~~September 30, 2021.

Cash Flows

Operating - ~~Substantially all~~Most of the Company’s cash from operations is generated by rental income from its investment portfolio. Net cash provided by operating activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 increased by ~~$17.1~~$95.1 million over the same period in 2020, primarily due to the increase in the size of the Company’s real estate investment ~~portfolio.~~portfolio and the settlement of interest rate swaps.

Investing - Net cash used in investing activities was ~~$180.6~~$135.5 million higher during the ~~three~~nine months ended ~~March 31,~~September 30, 2021, compared to the same period in 2020. Acquisitions of properties during the first ~~three~~nine months of 2021 were ~~$167.5~~$117.9 million higher than the same period in 2020, due to overall increases in the level of acquisition activity. Development costs during the ~~three~~nine months ended ~~March 31,~~September 30, 2021 were ~~$2.9~~$18.4 million ~~lower~~higher than the same period in 2020, due to the timing of costs incurred related to the Company’s development activity. Proceeds from asset sales ~~decreased~~increased by ~~$16.0~~$1.0 million during the ~~three~~nine months ended ~~March 31,~~September 30, 2021 compared to the same period in 2020. Proceeds from asset sales are dependent on levels of disposition activity and the specific assets sold. Proceeds from asset sales are not necessarily comparable period-to-period.

Financing - Net cash provided by financing activities was ~~$112.9~~$161.1 million higher during the ~~three~~nine months ended ~~March 31,~~September 30, 2021, compared to the same period in 2020. Net proceeds from the issuance of common stock and ~~borrowings~~preferred stock increased by ~~$153.5~~$191.6 million during the ~~three~~nine months ended ~~March 31,~~September 30, 2021, compared to the same period in 2020, primarily to fund the increased level of acquisitions occurring in 2021. ~~Borrowings~~Net proceeds from the issuance of senior unsecured notes increased by $290.9 million during the nine months ended September 30, 2021, compared to the same period in 2020, primarily to fund the increased level of acquisitions occurring in 2021 and to pay off $240.0 million in unsecured term loans. Repayment on the revolving credit facility ~~decreased~~increased by ~~$7.0~~$23.0 million during the ~~three~~nine months ended ~~March 31,~~September 30, 2021, compared to the same period in 2020, due to increased level of equity and debt proceeds in ~~2020.~~2021. The Company increased its total dividends and distributions paid to its stockholders and non-controlling owners by ~~$36.3~~$63.5 million during the first ~~three~~nine months of 2021, compared to the same period in 2020. The Company’s annualized common dividend during the ~~first~~third quarter of 2021 is ~~$2.48~~$2.60 per common share, ~~a 6.0%~~an 8.3% increase over the annualized ~~$2.34~~$2.40 per common share declared in the ~~first~~third quarter of 2020. The Company’s initial dividends on its Series A Preferred Stock were accrued but upaid as of September 30, 2021.

Contractual Obligations

The following table summarizes the Company’s contractual obligations as of ~~March 31,~~September 30, 2021 (in thousands):


	Payments due by period														Payments due by period
		2021														2021
	(remaining)		2022		2023		2024		2025		Thereafter		Total		(remaining)		2022		2023		2024		2025		Thereafter		Total
Mortgage Notes Payable	$	604	$	850	$	29,167	$	963	$	1,026	$	628	$	33,238	$	205	$	850	$	29,167	$	963	$	1,026	$	628	$	32,839
Revolving Credit Facility		—		—		—		238,000		—		—		238,000
Unsecured Term Loans		—		—		40,000		100,000		—		100,000		240,000
Senior Unsecured Notes		—		—		—		—		50,000		810,000		860,000		—		—		—		—		50,000		1,460,000		1,510,000
Land Lease Obligations		1,018		1,345		1,345		7,205		1,009		29,995		41,917		379		1,532		1,532		7,393		1,197		31,046		43,079
Estimated Interest Payments on Outstanding Debt ⁽¹⁾		28,766		33,932		32,546		28,648		25,272		107,607		256,771		12,342		49,333		48,427		48,139		47,037		244,207		449,485
Total	$	30,388	$	36,127	$	103,058	$	374,816	$	77,307	$	1,048,230	$	1,669,926	$	12,926	$	51,715	$	79,126	$	56,495	$	99,260	$	1,735,881	$	2,035,403

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(1)

Includes estimated interest payments based on (i) the stated rates for mortgage notes payable, including the effect of interest rate swap agreements; (ii) the stated rates for senior unsecured ~~term loans,~~notes, including the effect of interest rate swap ~~agreements and assuming the interest rate in effect for the most recent quarter remains in effect through the respective maturity dates; and (iii) the stated rates for senior unsecured notes.~~agreements.

41In addition to items reflected in the table above, the Company has issued preferred stock with cumulative cash dividends, as described under Equity – Preferred Stock Offering above.

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Dividends

During the ~~three months~~quarter ended ~~March 31,~~September 30, 2021, the Company declared monthly dividends of ~~$0.207~~$0.217 per common share for ~~January, February,~~July, August, and ~~March~~September 2021. The holder of the Operating Partnership Common Units is entitled to an equal distribution per Operating Partnership Common Unit held. The dividends and distributions payable for ~~January~~July and ~~February~~August were paid during the quarter. The ~~March~~September dividends and distributions were paid on ~~April 14,~~October 15, 2021.

In September 2021, the Company declared the pro-rated monthly dividend on the Series A Preferred Shares for the period from the September issuance of these preferred shares in the amount of $0.041 per Depositary Share. This dividend was recorded as a liability on the Condensed Consolidated Balance Sheet at September 30, 2021, and was paid on October 1, 2021.

Recent Accounting Pronouncements

Refer to Note 2 – Summary of Significant Accounting Policies.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) requires the Company’s management to use judgment in the application of accounting policies, including making estimates and assumptions. Management bases estimates on the best information available at the time, its experience, and on various other assumptions believed to be reasonable under the circumstances. These estimates affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. If management’s judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, it is possible that different accounting principles would have been applied, resulting in a different presentation of the interim Condensed Consolidated Financial Statements. From time to time, the Company may re-evaluate its estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. A summary of the Company’s critical accounting policies is included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2020. The Company has not made any material changes to these policies during the periods covered by this Quarterly Report on Form 10-Q.

Non-GAAP Financial Measures

Funds from Operations (“FFO” or “Nareit FFO”)

FFO is defined by the National Association of Real Estate Investment Trusts, Inc. (“Nareit”) to mean net income computed in accordance with GAAP, excluding gains (or losses) from sales of real estate assets and/or changes in control, plus real estate related depreciation and amortization and any impairment charges on depreciable real estate assets, and after adjustments for unconsolidated partnerships and joint ventures. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most real estate industry investors consider FFO to be helpful in evaluating a real estate company’s operations.

FFO should not be considered an alternative to net income as the primary indicator of the Company’s operating performance, or as an alternative to cash flow as a measure of liquidity. Further, while the Company adheres to the Nareit

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definition of FFO, its presentation of FFO is not necessarily comparable to similarly titled measures of other REITs due to the fact that all REITs may not use the same definition.

Core Funds from Operations (“Core FFO”)

The Company defines Core FFO as Nareit FFO with the addback of (i) noncash amortization of above- and below- market lease ~~intangibles.~~intangibles and (ii) certain infrequently occurring items that reduce or increase net income in accordance with GAAP. Under Nareit’s definition of FFO, lease intangibles created upon acquisition of a net lease must be amortized over the remaining term of the lease. The Company believes that by recognizing amortization charges for above- and below-market lease intangibles, the utility of FFO as a financial performance measure can be diminished. Management believes that its measure of Core FFO facilitates useful comparison of performance to its peers who predominantly transact in sale-leaseback transactions and are thereby not required by GAAP to allocate purchase price to lease intangibles. Unlike

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many of its peers, the Company has acquired the substantial majority of its net-leased properties through acquisitions of properties from third parties or in connection with the acquisitions of ground leases from third parties.

Core FFO should not be considered an alternative to net income as the primary indicator of the Company’s operating performance, or as an alternative to cash flow as a measure of liquidity. Further, the Company’s presentation of Core FFO is not necessarily comparable to similarly titled measures of other REITs due to the fact that all REITs may not use the same definition.

Adjusted Funds from Operations (“AFFO”)

AFFO is a non-GAAP financial measure of operating performance used by many companies in the REIT industry. AFFO further adjusts FFO and Core FFO for certain non-cash ~~and/or infrequently recurring~~ items that reduce or increase net income computed in accordance with GAAP. Management considers AFFO a useful supplemental measure of the Company’s performance; however, AFFO should not be considered an alternative to net income as an indication of its performance, or to cash flow as a measure of liquidity or ability to make distributions. The Company’s computation of AFFO may differ from the methodology for calculating AFFO used by other equity REITs, and therefore may not be comparable to such other REITs.

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Reconciliations

The following table provides a reconciliation from net income to FFO, Core FFO and AFFO for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020 (in thousands):

Three Months Ended


March 31, 2021

March 31, 2020


Reconciliation from Net Income to Funds from Operations

Net income

$
30,278

$
21,370

Depreciation of rental real estate assets

15,292

10,402

Amortization of lease intangibles - in-place leases and leasing costs

6,050

3,621

(Gain) loss on sale or involuntary conversion of assets, net

(3,062)

(1,645)

Funds from Operations

$
48,558

$
33,748

Amortization of above (below) market lease intangibles, net

4,756

3,809

Core Funds from Operations

$
53,314

$
37,557

Straight-line accrued rent

(2,597)

(1,637)

Stock based compensation expense

1,364

1,014

Amortization of financing costs

268

168

Non-real estate depreciation

147

109

Adjusted Funds from Operations

$
52,496

$
37,211

Funds from Operations Per Share - Diluted

$
0.77

$
0.74

Core Funds from Operations Per Share - Diluted

$
0.84

$
0.82

Adjusted Funds from Operations Per Share - Diluted

$
0.83

$
0.81

Weighted average shares and Operating Partnership Units outstanding

Basic

63,176,516

45,783,810

Diluted

63,287,979

45,912,672

Additional supplemental disclosure

Scheduled principal repayments

$
195

$
230

Capitalized interest

$
75

$
25

Capitalized building improvements

$
174

$
915

Contractual rents subject to deferral ¹

$
149

Uncollected contractual rents not subject to deferral ¹

$
52

¹Beginning in the second quarter of 2020, the Company began providing supplemental disclosures due to the COVID-19 pandemic. “Contractual rent” for any period means the recurring cash amount charged to tenants, inclusive of monthly base rent and recurring operating cost reimbursements due pursuant to lease agreements, for such period. “Contractual rents subject to deferral” are presented net of amounts repaid under deferral agreements. “Uncollected contractual rents not subject to deferral” as used within this table exclude rents that have been deemed uncollectible for purpose of ASC 842. Rents deemed uncollectible are excluded from the reported net income and funds from operations measures in the reconciliation above.


	Three Months Ended				Nine Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Reconciliation from Net Income to Funds from Operations
Net income	$	36,830	$	21,416	$	89,570	$	68,210
Less Series A preferred stock dividends		289		—		289		—
Net income attributable to Operating Partnership common unitholders		36,541		21,416		89,281		68,210
Depreciation of rental real estate assets		17,019		12,669		48,439		34,387
Amortization of lease intangibles - in-place leases and leasing costs		7,310		4,523		20,263		12,315
Provision for impairment		—		2,868		—		3,996
(Gain) loss on sale or involuntary conversion of assets, net		(3,470)		(970)		(13,285)		(7,567)
Funds from Operations - Operating Partnership common unitholders	$	57,400	$	40,506	$	144,698	$	111,341

Loss on extinguishment of debt and settlement of related hedges		-		-		14,614		-
Amortization of above (below) market lease intangibles, net		6,615		3,964		16,630		11,552
Core Funds from Operations - Operating Partnership common unitholders	$	64,015	$	44,470	$	175,942	$	122,893

Straight-line accrued rent		(3,215)		(2,294)		(8,779)		(5,614)
Stock based compensation expense		986		1,233		3,967		3,471
Amortization of financing costs		203		223		692		560
Non-real estate depreciation		159		135		462		365
Adjusted Funds from Operations - Operating Partnership common unitholders	$	62,148	$	43,767	$	172,284	$	121,675

Funds from Operations per common share and partnership unit - diluted	$	0.82	$	0.74	$	2.18	$	2.16
Core Funds from Operations per common share and partnership unit - diluted	$	0.92	$	0.81	$	2.65	$	2.39
Adjusted Funds from Operations per common share and partnership unit - diluted	$	0.89	$	0.80	$	2.60	$	2.36

Weighted average shares and Operating Partnership units outstanding
Basic		69,450,119		54,069,575		65,971,339		50,985,188
Diluted		69,939,467		54,903,291		66,299,732		51,499,081

Additional supplemental disclosure
Scheduled principal repayments	$	201	$	236	$	594	$	699
Capitalized interest	$	36	$	54	$	200	$	109
Capitalized building improvements	$	1,921	$	973	$	4,376	$	3,248

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ITEM 3.Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to interest rate risk primarily through borrowing activities. There is inherent roll-over risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and the Company’s future financing requirements.

The Company’s interest rate risk is monitored using a variety of techniques. The table below presents the principal payments and the weighted average interest rates on outstanding debt, by year of expected maturity, to evaluate the

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expected cash flows and sensitivity to interest rate changes. Average interest rates shown reflect the impact of the swap agreements described later in this section.

($ in thousands)


	2021
	(remaining)			2022			2023			2024			2025			Thereafter			Total
Mortgage Notes Payable	$	205		$	850		$	29,167		$	963		$	1,026		$	628		$	32,839
Average Interest Rate		6.27	%		6.27	%		3.91	%		6.27	%		6.27	%		6.27	%

Senior Unsecured Notes	$	—		$	—		$	—		$	—		$	50,000		$	1,460,000		$	1,510,000
Average Interest Rate														4.16	%		3.15	%

2021

2022

2023

2024

2025

Thereafter

Total
Mortgage Notes Payable

$
604

$
850

$
29,167

$
963

$
1,026

$
628

$
33,238
Average Interest Rate

6.27
%

6.27
%

3.91
%

6.27
%

6.27
%

6.27
%

Unsecured Revolving Credit Facility ⁽¹⁾

$
—

$
—

$
—

$
238,000

$
—

$
—

$
238,000
Average Interest Rate

0.96
%

Unsecured Term Loans

$
—

$
—

$
40,000

$
100,000

$
—

$
100,000

$
240,000
Average Interest Rate

2.40
%

2.86
%

4.26
%

Senior Unsecured Notes

$
—

$
—

$
—

$
—

$
50,000

$
810,000

$
860,000
Average Interest Rate

4.16
%

3.98
%

~~(1)~~

The balloon payment balance includes the balance outstanding under the Revolving Credit Facility as of March 31, 2021. The Revolving Credit Facility matures in January 2024, with options to extend the maturity date by six months up to two times, for a maximum maturity of January 2025.

The fair value is estimated to be ~~$34.1 million, $246.5~~$33.8 million and ~~$931.9~~$1,598.2 million for mortgage notes payable ~~unsecured term loans~~ and senior unsecured notes, respectively, as of ~~March 31,~~September 30, 2021.

The table above incorporates those exposures that exist as of ~~March 31,~~September 30, 2021; it does not consider those exposures or positions which could arise after that date. As a result, the Company’s ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period and interest rates.

The Company seeks to limit the impact of interest rate changes on earnings and cash flows and to lower the overall borrowing costs by closely monitoring its variable rate debt and converting such debt to fixed rates when we deem such conversion advantageous. From time to time, the Company may enter into interest rate swap agreements or other interest rate hedging contracts. While these agreements are intended to lessen the impact of rising interest rates, they also expose us to the risks that the other parties to the agreements will not perform. The Company could incur significant costs associated with the settlement of the agreements, the agreements will be unenforceable and the underlying transactions will fail to qualify as highly effective cash flow hedges under GAAP guidance.

In July 2014, the Company entered into interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates on $65.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreements, the Company receives from the counterparty interest on the notional amount based on 1 month LIBORMay 2021 and ~~pays to the counterparty a fixed rate of 2.09%. These swaps effectively converted $65.0 million of variable-rate borrowings to fixed-rate borrowings from~~ July ~~21, 2014 to July 21, 2021. As of March 31, 2021, these interest rate swaps were valued as a liability of approximately $0.4 million.~~

In June 2016, the Company entered into an interest rate swap agreement to hedge against changes in future cash flows resulting from changes in interest rates on $40.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreement, the Company receives from the counterparty interest on the notional amount based on 1 month LIBOR and pays to the counterparty a fixed rate of 1.40%. This swap effectively converted $40.0 million of variable-rate borrowings to fixed-rate borrowings from August 1, 2016 to July 1, 2023. As of March 31, 2021, this interest rate swap was valued as a liability of approximately $1.0 million.

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swap agreements, the Company receives from the counterparty interest on the notional amount based on 1 month LIBOR and pays to the counterparty a fixed rate of 2.66%. These swaps effectively converts $100.0 million of variable-rate borrowings to fixed-rate borrowings from December 27, 2018 to January 15, 2026. As of March 31, 2021, these interest rate swaps were valued as a liability of approximately $8.5 million.

In October 2019, the Company entered into interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates on $65.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreements, the Company receives from the counterparty interest on the notional amount based on 1 month LIBOR and pays to the counterparty a fixed rate of 1.4275%. This swap effectively converts $65.0 million of variable-rate borrowings to fixed-rate borrowings from July 12, 2021 to January 12, 2024. As of March 31, 2021, this interest rate swap was valued as a liability of approximately $1.7 million.

Also in October 2019, the Company entered into an interest rate swap agreement to hedge against changes in future cash flows resulting from changes in interest rates on $35.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreement, the Company receives from the counterparty interest on the notional amount based on 1 month LIBOR and pays to the counterparty a fixed rate of 1.4265%. This swap effectively converts $35.0 million of variable-rate borrowings to fixed-rate borrowings from September 29, 2020 to January 12, 2024. As of March 31, 2021, this interest rate swap was valued as a liability of approximately $1.0 million.

In August 2020, the Company entered into forward-starting interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates from the trade date through the forecasted issuance date of $100.0 million of long-term debt. The Company is hedging its exposure to the variability in future cash flows for a forecasted issuance of long-term debt over a maximum period ending February 2022. As of March 31, 2021, these interest rate swaps were valued as an asset of approximately $10.1 million.

In December 2020, the Company entered into forward-starting interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates from the trade date through the forecasted issuance date of $100.0 million of long-term debt. The Company is hedging its exposure to the variability in future cash flows for a forecasted issuance of long-term debt over a maximum period ending February 2022. As of March 31, 2021, these interest rate swaps were valued as an asset of approximately $7.7 million.

~~In February~~ 2021, the Company entered into forward-starting interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates from the trade date through the forecasted issuance date of ~~$100.0~~$300.0 million of long-term debt. The Company ~~is hedging~~hedged its exposure to the variability in future cash flows for a forecasted issuance of long-term debt over a maximum period ending ~~February~~December 2022. As of ~~March 31,~~September 30, 2021, these interest rate swaps were valued as ~~an asset~~a liability of approximately ~~$5.2~~$0.8 million.

The Company does not use derivative instruments for trading or other speculative purposes and the Company did not have any other derivative instruments or hedging activities as of ~~March 31,~~September 30, 2021.

~~Refer to the section “Risks Related to Our Debt Financings” under Item 1A “Risk Factors” in our~~ ~~Annual Report on Form 10-K for the year ended December 31, 2020~~ ~~for discussion of the future transition from LIBOR and the possible impact it may have on the Company’s debt, swap agreements, and interest payments.~~

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ITEM 4. Controls and Procedures

Disclosure Controls and Procedures

At the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of its principal executive officer and principal financial officer, of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that its disclosure controls and procedures are effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There was no change in the Company’s internal control over financial reporting during its most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1. Legal Proceedings

The Company is not presently involved in any material litigation nor, to its knowledge, is any other material litigation threatened against us, except for routine litigation arising in the ordinary course of business which is expected to be covered by its liability insurance.

ITEM 1A. Risk Factors

For a discussion of our potential risks and uncertainties, see the information under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3. Defaults upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

Not applicable.

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ITEM 6. Exhibits


*


3.1	Articles Supplementary to the Articles of Incorporation of the Company designating the 4.250% Series A Cumulative Redeemable Preferred Stock, $0.0001 par value per share (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on September 13, 2021).
4.1	Master Deposit Agreement by and among the Company, Computershare Inc. and Computershare Trust Company, N.A., as depositary, and the holders from time to time of the depositary receipts described therein relating to shares of preferred stock of the Company, dated as of September 17, 2021 (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form 8-A filed on September 17, 2021).
10.1	~~Employment~~Second Amended and Restated Agreement of Limited Partnership of the Operating Partnership, dated ~~February 22,~~as of September 17, 2021 ~~between Agree Realty Corporation and Simon Leopold.~~(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 17, 2021).
** +
22	Subsidiary Guarantors of Agree Realty Corporation (incorporated by reference to Exhibit 22 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020)..

*31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Joel N. Agree, Chief Executive Officer

*31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, ~~Simon Leopold,~~Peter Coughenour, Interim Chief Financial Officer

*32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Joel N. Agree, Chief Executive Officer

*32.2	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, ~~Simon Leopold,~~Peter Coughenour, Interim Chief Financial Officer

*101	The following materials from Agree Realty Corporation’s Quarterly Report on Form 10-Q for the three months ended ~~March 31,~~September 30, 2021 formatted in Inline iXBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income and Comprehensive Income, (iii) the Condensed Consolidated Statement of Stockholders’ Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) related notes to these consolidated financial statements.

*104	Cover Page Interactive Date File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

** Exhibits and schedules have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of omitted exhibits and schedules will be furnished to the Commission upon request.

~~+ Management contract or compensatory plan or arrangement.~~

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Agree Realty Corporation

/s/ Joel N. Agree
Joel N. Agree
President and Chief Executive Officer

/s/ ~~Simon J. Leopold~~Peter Coughenour
~~Simon J. Leopold~~Peter Coughenour
Interim Chief Financial Officer ~~and Secretary~~
(Principal Financial Officer)

Date: ~~May 3,~~November 1, 2021

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