AGREE REALTY CORP

Previous wording

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.

Current wording

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 “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.

Previous wording

As of March 31, 2024, the Company’s portfolio consisted of 2,161 properties located in 49 states and totaling approximately 44.9 million square feet of GLA. The portfolio was approximately 99.6% leased and had a weighted average remaining lease term of approximately 8.2 years. A significant majority of the Company’s properties are leased to national tenants and approximately 68.8% 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.

Current wording

As of June 30, 2024, the Company’s portfolio consisted of 2,202 properties located in 49 states and totaling approximately 45.8 million square feet of GLA. The portfolio was approximately 99.8% leased and had a weighted average remaining lease term of approximately 8.1 years. A significant majority of the Company’s properties are leased to national tenants and approximately 68.4% of our annualized base rent was derived from tenants, or parent entities thereof, with an investment grade credit rating from S&P Global Ratings, Moody’s Investors Service, Fitch Ratings or the National Association of Insurance Commissioners. Substantially all of our tenants are subject to net lease agreements. A net lease typically requires the tenant to be responsible for minimum monthly rent and property operating expenses including property taxes, insurance and maintenance.

Previous wording

The Company’s real estate investment portfolio grew from approximately $6.01 billion in net investment amount representing 1,908 properties with 40.1 million square feet of GLA as of March 31, 2023 to approximately $6.82 billion in net investment amount representing 2,161 properties with 44.9 million square feet of GLA at March 31, 2024. 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 2024 on acquisitions that were made during 2023. Similarly, the full rental income impact of acquisitions made during 2024 to-date will not be seen until the remainder of 2024.

Current wording

The Company’s real estate investment portfolio grew from approximately $6.27 billion in net investment amount representing 2,004 properties with 41.7 million square feet of GLA as of June 30, 2023 to approximately $6.95 billion in net investment amount representing 2,202 properties with 45.8 million square feet of GLA at June 30, 2024. 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 2024 on acquisitions that were made during 2023. Similarly, the full rental income impact of acquisitions made during 2024 to-date will not be seen until the remainder of 2024.

Previous wording

During the three months ended March 31, 2024, the Company acquired 31 retail net lease assets for approximately $128.3 million, which includes acquisition and closing costs. These properties are located in 22 states and are leased to tenants operating in 15 diverse retail sectors for a weighted average lease term of approximately 8.2 years. The underwritten weighted-average capitalization rate on the Company’s acquisitions during the three months ended March 31, 2024 was 7.7%.1

Current wording

During the three months ended June 30, 2024, the Company acquired 47 retail net lease assets for approximately $187.6 million, which includes acquisition and closing costs. These properties are located in 21 states and are leased to tenants operating in 16 diverse retail sectors for a weighted average lease term of approximately 9.3 years. The underwritten weighted-average capitalization rate on the Company’s acquisitions during the three months ended June 30, 2024 was 7.7%.1

Previous wording

During the three months ended March 31, 2024, the Company disposed of six assets for net proceeds of $21.1 million and recognized a net gain of $2.1 million.

Current wording

During the three months ended June 30, 2024, the Company disposed of 10 assets for net proceeds of $35.5 million and recognized a net gain of $7.2 million.

Previous wording

During the three months ended March 31, 2024, the Company commenced four and completed two development or Developer Funding Platform (“DFP”) projects. At March 31, 2024, the Company had 18 development or DFP projects under construction.

Current wording

During the three months ended June 30, 2024, the Company commenced five and completed four development or Developer Funding Platform (“DFP”) projects. During the six months ended June 30, 2024, the Company commenced nine and completed six development or DFP projects. At June 30, 2024, the Company had 19 development or DFP projects under construction.

Previous wording

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 the ownership of an increased number of properties during the three months ended March 31, 2024 compared to the three months ended March 31, 2023, as further described underResults of Operations - Overall above.

Current wording

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 the ownership of an increased number of properties during the three months ended June 30, 2024 compared to the three months ended June 30, 2023, as further described underResults of Operations - Overall above. In addition, during the three months ended June 30, 2024 the Company recognized, within rental income, $2.0 million of termination income related to two existing lease agreements, resulting in an increase of $1.9 million over the termination income recognized during the three months ended June 30, 2023.

Previous wording

General and administrative expenses increased $0.7 million, or 8%, to $9.5 million for the three months ended March 31, 2024, compared to $8.8 million for the three months ended March 31, 2023. The increase was primarily the result of growth in compensation costs due to inflationary increases and higher stock-based compensation expense as a result of changing the vesting period for awards granted in 2023 and 2024. General and administrative expenses as a percentage of total revenue decreased to 6.4% in the first quarter of 2024 down from 7.0% in the first quarter of 2023.

Current wording

General and administrative expenses increased $1.3 million, or 15%, to $9.7 million for the three months ended June 30, 2024, compared to $8.4 million for the three months ended June 30, 2023. The increase was primarily the result of growth in compensation costs due to inflationary increases and higher stock-based compensation expense as a result of changing the vesting period for awards granted in 2023 and 2024. General and administrative expenses as a percentage of total revenue decreased to 6.4% for the three months ended June 30, 2024 down from 6.5% for the three months ended June 30, 2023.

Previous wording

Interest expense increased $6.5 million, or 36%, to $24.5 million for the three months ended March 31, 2024, compared to $18.0 million for the three months ended March 31, 2023. The increase in interest expense was primarily a result of higher levels of borrowings in the first quarter of 2024 compared to the first quarter of 2023 in order to finance the acquisition and development of additional properties. Borrowings increased primarily from the $350.0 million 2029 Unsecured Term Loan that closed in July 2023. The Unsecured Term Loan borrowing and related amortization of deferred financing costs resulted in an increase of $4.1 million in interest expense during the three months ended March 31, 2024 as compared to the same period in 2023. In addition, interest rates and the average outstanding balance on the Revolving Credit Facility increased resulting in a $2.0 million increase in interest expense during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. Furthermore, capitalized interest decreased approximately $0.2 million during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 due to the timing of capital spend on development and DFP projects.

Current wording

Interest expense increased $6.5 million, or 32%, to $26.4 million for the three months ended June 30, 2024, compared to $19.9 million for the three months ended June 30, 2023. The increase in interest expense was primarily a result of higher levels of borrowings during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 in order to finance the acquisition and development of additional properties. Borrowings increased primarily from the $350.0 million 2029 Unsecured Term Loan that closed in July 2023 and the $450.0 million 2034 Senior Unsecured Public Notes that were issued in May 2024. The 2029 Unsecured Term Loan borrowing and related amortization of deferred financing costs resulted in an increase of $4.2 million in interest expense during the three months ended June 30, 2024. No such costs were incurred during the same period in 2023. Interest related to the $450.0 million 2034 Senior Unsecured Public Notes and related amortization of the original issuance discount and deferred financing costs resulted in an increase of $3.6 million in interest expense during the three months ended June 30, 2024 as compared to the same period in 2023. In addition, capitalized interest decreased approximately $0.3 million during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 due to the timing of capital spend on development and DFP projects. These increases in interest expense were partially offset by a $1.4 million reduction in interest expense on the Revolving

Previous wording

A gain on sale of assets, net of $2.1 million was recognized on the sale of six assets during the three months ended March 31, 2024. No dispositions were completed during the three months ended March 31, 2023, as a result no gain on sale of assets was recognized during the period. Gains and loss on sales of assets are dependent on levels of disposition activity and the carrying value of the assets relative to their sales prices. As a result, such gains and losses on sales are not necessarily comparable period-to-period.

Current wording

Gain on sale of assets, net increased $6.9 million to $7.2 million on the sale of 10 assets during the three months ended June 30, 2024 as compared to $0.3 million on the sale of one asset during the three months ended June 30, 2023. The increase was primarily due to the growth in disposition volume during 2024 as compared to 2023. Gains and losses on sales of assets are dependent on levels of disposition activity and the carrying value of the assets relative to their sales prices. As a result, such gains and losses on sales are not necessarily comparable period-to-period.

Previous wording

Net income increased $3.2 million, or 8%, to $45.0 million for the three months ended March 31, 2024, compared to $41.8 million for the three months ended March 31, 2023. The change was the result of the growth in the portfolio offset by the items discussed above. After allocation of income to non-controlling interest and preferred stockholders, net income attributable to common stockholders increased $3.2 million, or 8%, to $43.0 million for the three months ended March 31, 2024, compared to $39.8 million for the three months ended March 31, 2023.

Current wording

Net income increased $13.9 million, or 34%, to $54.9 million for the three months ended June 30, 2024, compared to $41.0 million for the three months ended June 30, 2023. The change was the result of the growth in the portfolio offset by the items discussed above. After allocation of income to non-controlling interest and preferred stockholders, net income attributable to common stockholders increased $13.9 million, or 36%, to $52.9 million for the three months ended June 30, 2024, compared to $39.0 million for the three months ended June 30, 2023.

Previous wording

The Company recognized a $4.5 million provision for impairment during the three months ended March 31, 2024. No such impairment was recognized during the three months ended March 31, 2023. Provisions for impairment are recorded when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through operations plus estimated disposition proceeds and are not necessarily comparable period-to-period.

Current wording

The Company recognized a $4.5 million provision for impairment during the six months ended June 30, 2024, while $1.3 million was recognized during the six months ended June 30, 2023. Provisions for impairment are recorded when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through operations plus estimated disposition proceeds and are not necessarily comparable period-to-period.

Previous wording

The Company expects to meet its short-term liquidity requirements through cash and cash equivalents held as of March 31, 2024, cash provided from operations, and borrowings under its revolving credit facility. As of March 31, 2024, available cash and cash equivalents, including cash held in escrow, was $15.4 million.

Current wording

The Company expects to meet its short-term liquidity requirements through cash and cash equivalents held as of June 30, 2024, cash provided from operations, and borrowings under its revolving credit facility. As of June 30, 2024, available cash and cash equivalents, including cash held in escrow, was $24.3 million. As of June 30, 2024, the Company had $43.0 million outstanding on its revolving credit facility and $957.0 million available for future borrowings, subject to its compliance with covenants.

Previous wording

As of March 31, 2024, the Company had $330.0 million outstanding on its revolving credit facility and $670.0 million 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, and the issuance of debt and common or preferred equity or other instruments convertible into or exchangeable for common or preferred equity.

Current wording

The Company anticipates funding its long-term capital needs through cash provided from operations, borrowings under its revolving credit facility, and the issuance of debt and common or preferred equity or other instruments convertible into or exchangeable for common or preferred equity.

Previous wording

As of March 31, 2024, the Company’s total enterprise value was approximately $8.46 billion. Total enterprise value consisted of $5.77 billion of common equity (based on the March 31, 2024 closing price of the Company’s common stock on the NYSE of $57.12 per common share and assuming the conversion of Operating Partnership Common Units), $175.0 million of preferred equity (stated at liquidation value) and $2.53 billion of total debt principal including (i) $330.0 million of borrowings under its revolving credit facility; (ii) $1.81 billion of senior unsecured notes; (iii) $350.0 million under its unsecured term loan; (iv) $44.6 million of mortgage notes payable; less $15.4 million cash, cash equivalents and cash held in escrow. The Company’s total debt principal to total enterprise value was 30.0% as of March 31, 2024.

Current wording

As of June 30, 2024, the Company’s total enterprise value was approximately $9.10 billion. Total enterprise value consisted of $6.25 billion of common equity (based on the June 30, 2024 closing price of the Company’s common stock on the NYSE of $61.94 per common share and assuming the conversion of Operating Partnership Common Units), $175.0 million of preferred equity (stated at liquidation value) and $2.70 billion of total debt principal including (i) $43.0 million of borrowings under its revolving credit facility; (ii) $2.26 billion of senior unsecured notes; (iii) $350.0 million under its unsecured term loan; (iv) $44.4 million of mortgage notes payable; less $24.3 million cash, cash equivalents and cash held in escrow. The Company’s total debt principal to total enterprise value was 29.6% as of June 30, 2024.

Previous wording

At March 31, 2024, the non-controlling interest in the Operating Partnership consisted of a 0.3% common 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 100,976,594 shares of common stock outstanding as of March 31, 2024.

Current wording

At June 30, 2024, the non-controlling interest in the Operating Partnership consisted of a 0.3% common 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 100,972,243 shares of common stock outstanding as of June 30, 2024.

Previous wording

On February 16, 2024, the Company entered into a $1.00 billion ATM program (the “2024 ATM Program”). As of March 31, 2024, the Company had not entered into any forward sale agreements under the 2024 ATM Program.

Current wording

In February 2024, the Company entered into a $1.00 billion ATM program (the “2024 ATM Program”). As of June 30, 2024, the Company has entered into forward sale agreements to sell an aggregate of 3,235,964 shares of common stock, for anticipated net proceeds of $194.5 million. During the six months ended June 30, 2024, the Company did not settle any of the outstanding shares of these forward sales agreements. The Company is required to settle the outstanding shares of common stock under the 2024 ATM Program between May 2025 and July 2025. After considering the shares of common stock sold subject to forward sale agreements under the 2024 ATM Program, the Company had approximately $803.3 million of availability under the 2024 ATM Program as of June 30, 2024.

Previous wording

Since the inception of the 2022 ATM Program and through the adoption of the 2024 ATM Program on February 16, 2024, the Company entered into forward sale agreements to sell an aggregate of 10,217,973 shares of common stock under the 2022 ATM Program, for anticipated net proceeds of $670.2 million. Through December 31, 2023, the Company settled 6,363,359 shares of these forward sale agreements for net proceeds of approximately $433.4 million, after deducting fees and expenses. During the three months ended March 31, 2024, the Company did not settle any of the remaining outstanding

Current wording

Since the inception of the 2022 ATM Program and through the adoption of the 2024 ATM Program on February 16, 2024, the Company entered into forward sale agreements to sell an aggregate of 10,217,973 shares of common stock under the 2022 ATM Program, for anticipated net proceeds of $670.0 million. Through December 31, 2023, the Company settled 6,363,359 shares of these forward sale agreements for net proceeds of approximately $433.4 million, after deducting fees and expenses. During the six months ended June 30, 2024, the Company did not settle any of the remaining outstanding shares. The Company is required to settle the remaining outstanding shares of common stock under the 2022 ATM Program by January 2025.

Previous wording

(1) The interest rate of the Revolving Credit Facility assumes SOFR as of March 31, 2024 of 5.32%.

Current wording

(1) The interest rate of the Revolving Credit Facility assumes SOFR as of June 30, 2024 of 5.34%.

Previous wording

(3) All-in interest rate for Senior Unsecured Notes reflects the straight-line amortization of the terminated swap agreements, as applicable.

Current wording

(3) All-in interest rate for Senior Unsecured Notes reflects the straight-line amortization of the terminated swap agreements and original issuance discounts, as applicable.

Previous wording

for the Revolving Credit Facility are subject to improvement based on the Company's leverage ratio, provided its credit ratings meet a certain threshold. In addition, in connection with the Company's ongoing environmental, social and governance ("ESG") initiatives, pricing on the Revolving Credit Facility may be reduced if specific ESG rating improvements are achieved. As of March 31, 2024 the Revolving Credit Facility bore interest of 6.19%, which is comprised of SOFR of 5.32% plus the pricing grid spread of 76.5 basis points and 10 basis point SOFR adjustment.

Current wording

The Revolving Credit Facility's interest rate is based on a pricing grid with a range of 72.5 to 140 basis points over SOFR, determined by the Company's credit ratings and leverage ratio, plus a SOFR adjustment of 10 basis points. The margins for the Revolving Credit Facility are subject to improvement based on the Company's leverage ratio, provided its credit ratings meet a certain threshold. In addition, in connection with the Company's ongoing environmental, social and governance ("ESG") initiatives, pricing on the Revolving Credit Facility may be reduced if specific ESG rating improvements are achieved. As of June 30, 2024 the Revolving Credit Facility bore interest of 6.21%, which is comprised

Previous wording

As of March 31, 2024, the Company had total gross mortgage indebtedness of $44.6 million which was collateralized by related real estate and tenants’ leases with an aggregate net book value of $78.5 million. The weighted average interest rate on the Company’s mortgage notes payable was 3.77% as of March 31, 2024.

Current wording

As of June 30, 2024, the Company had total gross mortgage indebtedness of $44.4 million which was collateralized by related real estate and tenants’ leases with an aggregate net book value of $77.8 million. The weighted average interest rate on the Company’s mortgage notes payable was 3.76% as of June 30, 2024.

Previous wording

Operating - 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 months ended March 31, 2024 increased by $9.0 million over the same period in 2023, primarily due to the increase in the size of the Company’s real estate investment portfolio.

Current wording

Operating - 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 six months ended June 30, 2024 increased by $16.4 million over the same period in 2023, primarily due to the increase in the size of the Company’s real estate investment portfolio.

Previous wording

Investing - Net cash used in investing activities was $205.1 million lower during the three months ended March 31, 2024, compared to the same period in 2023 primarily due to:

Current wording

Investing - Net cash used in investing activities was $373.1 million lower during the six months ended June 30, 2024, compared to the same period in 2023 primarily due to:

Previous wording

Financing - Net cash provided by financing activities decreased by $197.2 million during the three months ended March 31, 2024, compared to the same period in 2023 primarily due to:

Current wording

Financing - Net cash provided by financing activities decreased by $363.1 million during the six months ended June 30, 2024, compared to the same period in 2023 primarily due to:

Previous wording

During the three months ended March 31, 2024 the Company had 20 development or DFP projects completed or under construction, for which 18 remain under construction as of March 31, 2024. Anticipated total costs for the 18 projects are approximately $73.9 million. These construction commitments will be funded using cash provided from operations, current capital resources on hand, and/or other sources of funding available to the Company.

Current wording

During the six months ended June 30, 2024 the Company had 25 development or DFP projects completed or under construction, for which 19 remain under construction as of June 30, 2024. Anticipated total costs for the 19 projects are approximately $77.8 million. These construction commitments will be funded using cash provided from operations, current capital resources on hand, and/or other sources of funding available to the Company.

Previous wording

During the quarter ended March 31, 2024, the Company declared monthly dividends of $0.247 per common share for January, February and March 2024. 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 and February were paid during the three months ended March 31, 2024 and 2023, while March dividends and distributions were recorded as a liability on the condensed consolidated balance sheet at March 31, 2024 and were paid on April 12, 2024.

Current wording

During the quarter ended June 30, 2024, the Company declared monthly dividends of $0.250 per common share for April, May and June 2024. 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 April and May were paid during the three months ended June 30, 2024, while June dividends and distributions were recorded as a liability on the condensed consolidated balance sheet at June 30, 2024 and were paid on July 15, 2024.

Previous wording

During the quarter ended March 31, 2024, the Company declared monthly dividends on the Series A Preferred Shares for January, February and March 2024. The dividends payable for January and February were paid during the quarter. The March dividend was recorded as a liability on the condensed consolidated balance sheet at March 31, 2024 and was paid on April 1, 2024.

Current wording

During the quarter ended June 30, 2024, the Company declared monthly dividends on the Series A Preferred Shares for April, May and June 2024. The dividends payable for April and May were paid during the quarter. The June dividend was recorded as a liability on the condensed consolidated balance sheet at June 30, 2024 and was paid on July 1, 2024.

Previous wording

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.

Current wording

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 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.

Previous wording

The following table provides a reconciliation of net income to FFO, Core FFO and AFFO for the three months ended March 31, 2024 and 2023 (presented in thousands):

Current wording

The following table provides a reconciliation of net income to FFO, Core FFO and AFFO for the three and six months ended June 30, 2024 and 2023 (presented in thousands):