ANNUAL
REPORT
for the year ended
DECEMBER 31, 2016
Agree Realty Corporation (NYSE: ADC) is a
fully-integrated, self-administered, and
self-managed real estate investment trust
self-managed real estate investment trust
(REIT) focused on the acquisition and
development of properties net leased to
industry-leading retailers throughout the
United States.
Building upon the foundation of
excellence established throughout the
excellence established throughout the
past four decades, Agree Realty continues
to be a market leader in the net lease
space. At December 31, 2016, our growing
portfolio consisted of 366 assets in 43 states,
containing approximately 7.0 million
square feet of gross leasable space.
Dear Fellow Shareholders,
Our culture at Agree is built upon five Core Values that guide our decisions and drive our actions: constantly
challenging ourselves to improve and learn, an ownership mentality, consistent and persistent, disciplined, and
strategic thinkers and actors. These principles push us to identify the best risk-adjusted opportunities in an ever-
changing retail landscape, and to ensure that we effectively execute our operating strategy.
In 2016, we continued the transformation of our Company with another year of record performance. We added
92 high-quality net lease properties to our best-in-class retail portfolio, which has been carefully crafted since
the launch of our acquisition platform in 2010. We efficiently accessed capital, bolstered our sector-leading
balance sheet, retained top talent, and improved our processes and systems.
I am extremely pleased and proud of our performance in 2016. Please allow me to review our Company’s
numerous successes during this past year through the lens of our five Core Values.
Constantly Challenging Ourselves To Improve And Learn
We are constantly challenging ourselves to improve every facet of our business. Accepting the status quo isn’t
an option at our rapidly growing Company.
This year marked the seventh consecutive record year of growth for our Company, as we deployed or
committed approximately $334 million of capital into 96 high-quality retail properties. Of those 96 properties,
82 were sourced through our acquisition platform, representing a record acquisition volume of $296 million.
The acquired properties are leased to 49 different tenants operating in 22 diverse e-commerce and recession
resistant retail sectors. These properties are well-diversified geographically, spanning 27 states. Since the
inception of our acquisition platform in 2010, we have invested nearly $900 million in 294 net lease properties.
While our acquisition platform has been a reliable vehicle of growth for our Company, we have challenged
ourselves to expand our development and Partner Capital Solutions (“PCS”) platforms as well. These platforms
enable us to provide unique and comprehensive solutions for retailers by delivering a distinct value proposition
that differentiates our Company in the retail net lease universe. We have forged strong relationships with our
retail partners as a result of these distinctive capabilities, and we will continue to do so. In 2016, our efforts to
scale these platforms began to materialize. During the year, we commenced or completed 14 projects for
leading retailers, representing total committed capital of approximately $38 million.
The 92 properties brought online this past year had a weighted-average remaining lease term of 11.1 years,
and were purchased or developed at a weighted-average cap rate of 7.9%. Our newly acquired and delivered
properties are leased to industry-leading retailers including Starbucks, Hobby Lobby, Tractor Supply Company,
O’Reilly Auto Parts, AutoZone, TJ Maxx and Ross Dress for Less, among others.
Ownership Mentality
Our mission is to provide our fellow shareholders with growing earnings and a reliable income stream,
supported by a diversified portfolio with consistently strong occupancy levels. We are very pleased with our
year-end occupancy rate of 99.6%. Our asset management team exemplifies an ownership mentality.
Our dividend of $0.495 per share declared in the fourth quarter of 2016 was the second dividend increase
authorized by our Board of Directors during the year. This dividend marks the Company’s 91st consecutive
cash dividend, and represents an increase of 6.5% over the dividend at year-end 2015, as well as a five-year
increase of 23%. Our annualized dividend of $1.98 per share is supported by 2016 funds from operations
(“FFO”) and adjusted funds from operations (“AFFO”) that increased 34.3% and 33.2%, respectively. Our
dividend represented an annualized FFO payout ratio of approximately 77%.
Our strong dividend, improved float and robust earnings growth resulted in total shareholder returns of more
than 41% in 2016, making us one of the top performing real estate investment trusts for the second consecutive
year. Furthermore, our two-year, three-year, four-year and five-year total shareholder returns are the best in
the net lease sector.
Consistent & Persistent
We have continued to produce earnings growth and strong returns for our shareholders while strengthening our
historically conservative balance sheet. This past year we executed on a number of strategic capital markets
transactions to further bolster our balance sheet and put us in a position to execute in 2017 and beyond.
Throughout the year, we raised approximately $228 million in equity from the issuance of 5.5 million common
shares through two follow-on public offerings and the use of our at-the-market (“ATM”) equity program. We also
originated $100 million of long-term, unsecured, fixed rate debt. The debt financings had a weighted-average
maturity of 10 years and a blended interest rate of 3.87%. Lastly, we finalized an agreement to amend and
restate our senior unsecured credit facility in December. The amended and restated facility increased capacity
to $350 million and is comprised of a $250 million unsecured revolving credit facility and extensions of the
Company’s existing $65 million and $35 million unsecured term loans.
These capital markets transactions totaled a record $328 million in new equity and long-term unsecured debt
capital raised during the year. At year-end, total debt to enterprise value was approximately 24.9% and net debt
to recurring EBITDA was 4.5 times. Our fixed charge coverage ratio, inclusive of principal amortization, was a
robust 3.9 times.
Our investment grade mindset to our balance sheet has been the foundation of our Company and will continue
to be in the years to come. While we are focused on our near-term results, we are dedicated to building an
organization that will consistently thrive in the future.
Disciplined
While we have increased the number of assets in our portfolio fivefold since 2010, we have held firm to our
stringent investment criteria. Our approach emphasizes a bottoms-up analysis of retail real estate
fundamentals, including retail synergy, visibility, demographics, traffic patterns and access. This analysis is
paired with a disciplined focus to acquire leading retailers that have a well-defined omni-channel strategy and
operate in sectors that have been resilient to the pressures of e-commerce.
While our cost of capital has improved significantly in the past year, we remain focused on leveraging our
capabilities, access to information and our long-standing retailer relationships to identify opportunities that will
continue to deliver the outsized value that we have historically achieved.
As of December 31, 2016, our real estate portfolio spanned 366 assets, over 7.0 million square feet and
generated approximately 46% of annualized base rents from investment grade tenants. We are now the proud
owners of properties in 43 states leased to leading retailers in over 25 retail sectors.
Strategic Thinkers & Actors
To strategically expand and diversify our portfolio, we increased our exposure to a few outstanding retailers
during the year. Lowe’s, Mister Car Wash, Hobby Lobby and Tractor Supply Company all became top ten
tenants of our Company in 2016 through several opportunistic transactions. We made investments in
e-commerce and recession resistant sectors such as auto service, auto parts, grocery, specialty retail, home
improvement, discount apparel and crafts and novelties. We also made a concerted effort to expand our
portfolio geographically, investing in populous and growing states such as California, Texas and Colorado.
To further diversify our best-in-class portfolio, we opportunistically sold four Walgreens assets for
approximately $29.7 million. These dispositions were completed at a weighted-average cap rate of 5.6%. The
dispositions, paired with our robust investment activity, led to a 33% reduction in our portfolio’s Walgreens
exposure, which stood at 11.6% of annualized rental income as of December 31, 2016.
During the year, we also reduced our Michigan exposure from 20% to 15.4%, and decreased our pharmacy
exposure from 23.2% to 16.2% of annualized base rents. We will continue to evaluate our portfolio for strategic
dispositions to recycle capital into high-quality assets that further enhance our portfolio’s diversification and
quality.
In Conclusion
As we move forward into 2017, I am equally excited about the future for our Company. The Core Values that
got us here will lead us in the future, as we strive to build the premier organization in the net lease sector. I
would like to thank our Board of Directors, our fantastic team, and our fellow shareholders for their continued
support of Agree Realty Corporation.
Sincerely,
Joey Agree
President & Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
Commission File Number 1-12928
AGREE REALTY CORPORATION
(Exact name of Registrant as specified in its charter)
Maryland
(State or other jurisdiction of
incorporation or organization)
38-3148187
(I.R.S. Employer
Identification No.)
70 E. Long Lake Road, Bloomfield Hills, Michigan 48304
(Address of Principal Executive Offices)
Registrant’s telephone number, including area code: (248) 737-4190
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $.0001 par value
Name of Each Exchange
On Which Registered
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
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
Yes
(2) has been subject
file such
No
the past 90 days.
reports), and
requirements
to such
filing
for
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
No
The aggregate market value of the Registrant’s shares of common stock held by non-affiliates was approximately
$1,140,289,546 as of June 30, 2016, based on the closing price of $48.24 on the New York Stock Exchange on that date.
At February 20, 2017, there were 26,146,543 shares of common stock, $.0001 par value per share, outstanding.
Portions of the registrant’s definitive proxy statement for the annual stockholder meeting to be held in 2017 are
incorporated by reference into Part III of this Annual Report on Form 10-K as noted herein.
DOCUMENTS INCORPORATED BY REFERENCE
AGREE REALTY CORPORATION
Index to Form 10-K
PART I
Item 1:
Business
Item 1A:
Risk Factors
Item 1B:
Unresolved Staff Comments
Item 2:
Properties
Item 3:
Item 4:
Legal Proceedings
Mine Safety Disclosures
PART II
Item 5:
Item 6:
Item 7:
Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results
of Operations
Item 7A:
Quantitative and Qualitative Disclosure about Market Risk
Item 8:
Item 9:
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Item 9A:
Controls and Procedures
Item 9B:
Other Information
PART III
Item 10:
Directors, Executive Officers and Corporate Governance
Item 11:
Executive Compensation
Item 12:
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Item 13:
Certain Relationships and Related Transactions, and Director Independence
Item 14:
Principal Accountant Fees and Services
PART IV
Item 15:
Exhibits and Financial Statement Schedules
Consolidated Financial Statements and Notes
SIGNATURES
Page
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F-1
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PART I
Cautionary Note Regarding Forward-Looking Statements
This report contains certain 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”). We intend 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 include this
statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are
based on certain assumptions and describe our 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. Forward-looking statements in this report include information about possible or
assumed future events, including, among other things, discussion and analysis of our future financial condition,
results of operations, our strategic plans and objectives, occupancy and leasing rates and trends, liquidity and ability
to refinance our indebtedness as it matures, anticipated expenditures of capital, and other matters. 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 our control and which could materially affect actual results, performances or
achievements. Factors which may cause actual results to differ materially from current expectations, include, but
are not limited to: the global and national economic conditions and changes in general economic, financial and real
estate market conditions; changes in our business strategy; risks that our acquisition and development projects will
fail to perform as expected; 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; our ability to re-lease space at acceptable rates as leases expire; loss or
bankruptcy of one or more of our major tenants; a failure of our properties to generate additional income to offset
increases in operating expenses; our ability to maintain our qualification as a real estate investment trust (“REIT”)
for federal income tax purposes and the limitations imposed on our business by our status as a REIT; legislative or
regulatory changes, including changes to laws governing REITs; and other factors discussed in “Item 1A. - Risk
Factors” and elsewhere in this report and in subsequent filings with the Securities and Exchange Commission
(“SEC”). We caution you that any such statements are based on currently available operational, financial and
competitive information, and that you should not place undue reliance on these forward-looking statements, which
reflect our management’s opinion only as of the date on which they were made. Except as required by law, we
disclaim any obligation to review or update these forward–looking statements to reflect events or circumstances as
they occur.
Unless the context otherwise requires, references in this Annual Report on Form 10-K to the terms "registrant,” the
"Company," “Agree Realty,” "we,” “our” or "us" refer to Agree Realty Corporation and all of its consolidated
subsidiaries, including its majority owned operating partnership, Agree Limited Partnership (the “Operating
Partnership”). Agree Realty has elected to treat certain subsidiaries as taxable real estate investment trust
subsidiaries which are collectively referred to herein as the “TRS.”
Item 1:
Business
General
Agree Realty Corporation, a Maryland corporation, is a fully integrated REIT primarily focused on the ownership,
acquisition, development and management of retail properties net leased to industry leading tenants. We were
founded in 1971 by our current Executive Chairman, Richard Agree, and our common stock was listed on the New
York Stock Exchange (“NYSE”) in 1994.
As of December 31, 2016, our portfolio consisted of 366 properties located in 43 states and totaling approximately
7.0 million square feet of gross leasable area (“GLA”). See “Item 2 – Properties – Geographic Diversification” for
more information on market concentrations. Our portfolio included 363 net lease properties, which contributed
approximately 98.1% of annualized base rent, and three community shopping centers, which generated the
remaining 1.9% of annualized base rent.
As of December 31, 2016, our portfolio was approximately 99.6% leased and had a weighted average remaining
lease term of approximately 10.6 years. A significant majority of our properties are leased to national tenants and
approximately 45.6% of our annualized base rent was derived from tenants, or parents thereof, with an investment
grade credit rating. 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.
1
Our assets are held by, and all of our operations are conducted through, directly or indirectly, the Operating
Partnership, of which we are the sole general partner and in which we held a 98.7% interest as of December 31,
2016. Under the partnership agreement of the Operating Partnership, we, as the sole general partner, have
exclusive responsibility and discretion in the management and control of the Operating Partnership.
As of December 31, 2016, we had 24 full-time employees, including executive, investment, due diligence,
construction, accounting, asset management and administrative personnel.
Our principal executive offices are located at 70 E. Long Lake Road, Bloomfield Hills, MI 48304 and our telephone
number is (248) 737-4190. We maintain a website at www.agreerealty.com. Our reports are electronically filed
with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act and can be accessed through
this site, free of charge, as soon as reasonably practicable after we electronically file or furnish such reports. These
filings are also available on the SEC’s website at www.sec.gov. Our website also contains copies of our corporate
governance guidelines and code of business conduct and ethics, as well as the charters of our audit, compensation
and nominating and governance committees. The information on our website is not part of this report.
Recent Developments
Investments
During 2016, we completed approximately $311.9 million of investments in net leased retail real estate, including
acquisition and closing costs. Total investment volume includes the acquisition of 82 properties for an aggregate
purchase price of approximately $295.6 million and the completed development of ten properties for an aggregate
cost of approximately $16.3 million. These 92 properties are net leased to 56 different tenants operating in 24
sectors and are located in 30 states. These assets are 100% leased for a weighted average lease term of
approximately 11.1 years, and the weighted average capitalization rate on our investments was approximately
7.9%.
We calculate the weighted average capitalization rate on our investments by dividing annual expected net operating
income derived from the properties by the total investment in the properties. Annual expected net operating income
is defined as the straight-line rent for the base term of the lease, less property level expenses (if any) that are not
recoverable from the tenant.
Dividends
We increased our quarterly dividend per share from $0.465 in March 2016 to $0.480 in June 2016 and further
increased our quarterly dividend per share to $0.495 in December 2016.
The quarterly dividend per share of $0.495 represents an annualized dividend of $1.98 per share and an annualized
dividend yield of approximately 4.3% based on the last reported sales price of our common stock listed on the NYSE
of $46.05 on December 30, 2016. We have paid a quarterly cash dividend for 91 consecutive quarters and, although
we expect to continue our policy of paying quarterly dividends, we cannot guarantee that we will maintain our current
level of dividends, that we will continue our recent pattern of increasing dividends per share, or what our actual
dividend yield will be in any future period.
Financing
In May 2016, we issued 2,875,000 shares of common stock at a price of $39.75 per share, including 375,000 shares
purchased by the underwriters upon the exercise of their option to purchase additional shares. After underwriting
discounts and other offering costs of $4.6 million, net proceeds of approximately $109.6 million were used to repay
borrowings under our revolving credit facility, to fund property acquisitions and for general corporate purposes.
In October 2016, we issued 2,087,250 shares of common stock at a price of $47.50 per share, including 272,250
shares purchased by the underwriters upon the exercise of their option to purchase additional shares. After
underwriting discounts and other offering costs of $5.8 million, net proceeds of approximately $95.0 million were
primarily used to repay borrowings under our revolving credit facility, to fund property acquisitions and for general
corporate purposes.
2
In July 2016, we entered into a private placement of $60.0 million principal amount of senior unsecured notes. The
senior unsecured notes bear a fixed interest rate of 4.42% per annum and mature in July 2028. Proceeds from the
issuance were used to repay borrowings under our revolving credit facility and for general corporate purposes.
In July 2016, we completed a $40.0 million unsecured term loan facility that matures in July 2023. Borrowings under
the term loan are priced at LIBOR plus 165 to 225 basis points, depending on our leverage. We entered into an
interest rate swap to fix LIBOR at 1.40% until maturity. As of December 31, 2016, $40.0 million was outstanding
under the term loan, which is subject to an all-in interest rate of 3.05%.
In August 2016, we prepaid a $20.3 million amortizing mortgage note due May 2017, secured by seven properties,
that had an interest rate of LIBOR plus 170 basis points. Concurrently therewith, we entered into a $20.3 million
unsecured amortizing term loan. See “Item 7 – Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Unsecured Term Loan Facilities” for further detail.
In August 2016, we entered into a $20.3 million unsecured amortizing term loan facility that matures in May 2019.
Borrowings under the unsecured amortizing term loan facility are priced at LIBOR plus 170 basis points. In order to
fix LIBOR on the term loan facility at 1.92% until maturity, we had an interest rate swap agreement in place, which
was assigned by the lender under the prior secured facility to the lender under the unsecured amortizing term loan
facility. As of December 31, 2016, $20.0 million was outstanding under the unsecured amortizing term loan facility
bearing an all-in interest rate of 3.62%
In December 2016, we amended and restated the credit agreement that governs our senior unsecured revolving
credit facility and our unsecured term loan facility to increase the aggregate borrowing capacity to $350.0 million.
The agreement provides for a $250.0 million unsecured revolving credit facility, a $65.0 million unsecured term loan
facility and a $35.0 million unsecured term loan facility. The unsecured revolving credit facility matures in January
2021 with options to extend the maturity date to January 2022. The unsecured term loan facilities mature in January
2024. We have the ability to increase the aggregate borrowing capacity under the credit agreement up to $500.0
million, subject to lender approval. Borrowings under the revolving credit facility bear interest at LIBOR plus 1.30%
to 1.95%, depending on our leverage ratio. Additionally, we are required to pay an unused commitment fee at an
annual rate of 0.15% or 0.25% of the unused portion of the revolving credit facility, depending on the amount of
borrowings outstanding. The credit agreement contains certain financial covenants, including a maximum leverage
ratio, a minimum fixed charge coverage ratio and a maximum percentage of secured debt to total asset value.
Additionally, conforming changes were made to the $40.0 million unsecured term loan facility and $20.0 million
unsecured amortizing term loan facility.
During the year ended December 31, 2016, we issued 499,209 shares of common stock under our at-the-market
(“ATM”) equity offering at an average price of $47.74, realizing gross proceeds of $23.8 million. We had
approximately $36.2 million remaining capacity under the ATM program as of December 31, 2016.
Dispositions
During 2016, the Company sold four properties for aggregate gross proceeds of $29.7 million, which resulted in a
gain of $10.0 million. The four properties sold were single tenant buildings, all leased to Walgreens (Port St.
John, Florida; Rancho Cordova, California; Macomb, Michigan, and Silver Springs Shores, Florida).
Leasing
During 2016, excluding properties that were sold, we executed new leases, extensions or options on more than
56,000 square feet of gross leasable area throughout our portfolio. The annual rent associated with these new
leases, extensions or options is approximately $0.7 million. Material new leases, extensions or options included a
24,153 square foot Staples at Davenport Retail Center in Davenport, Iowa.
Business Strategies
Our primary business objective is to generate consistent shareholder returns by primarily investing in and actively
managing a diversified portfolio of retail properties net leased to industry leading tenants. The following is a
discussion of our investment, financing and asset management strategies:
Investment Strategy
We are primarily focused on the long-term, fee simple ownership of properties net leased to national or large,
regional retailers operating in sectors we believe to be more e-commerce and recession resistant. Our leases are
3
typically long term net leases that require the tenant to pay all property operating expenses, including real estate
taxes, insurance and maintenance. We believe that a diversified portfolio of such properties provides for stable and
predictable cash flow.
We seek to expand and enhance our portfolio by identifying the best risk-adjusted investment opportunities across
our development, Partner Capital Solutions (“PCS”) and acquisitions platforms.
Development: We have been developing retail properties since the formation of our predecessor in 1971 and
our development platform seeks to employ our capabilities to direct all aspects of the development process,
including site selection, land acquisition, lease negotiation, due diligence, design and construction. Our
developments are typically build-to-suit projects that result in fee simple ownership of the property upon
completion.
Partner Capital Solutions: We launched our PCS program, formerly known as Joint Venture Capital Solutions
program, in April 2012. Our PCS program allows us to acquire properties or development opportunities by
partnering with private developers or retailers on their in-process developments. We offer construction
expertise, relationships, access to capital and forward commitments to purchase to facilitate the successful
completion of their projects. We typically take fee simple ownership of PCS projects upon their completion.
Acquisitions: Our acquisitions platform was launched in April 2010 in order to expand our investment capabilities
by pursuing opportunities that do not fall within our development platform, but that do meet both our real estate
and return on investment criteria.
We believe that development and PCS projects have the potential to generate superior risk-adjusted returns on
investment in properties that are substantially similar to those which we acquire.
Each platform leverages the Company’s collective real estate acumen to pursue investments in net lease retail real
estate. Factors that we consider when evaluating an investment include but are not limited to:
overall market-specific characteristics, such as demographics, market rents, competition and retail synergy
asset-specific characteristics, such as the age, size, location, zoning, use and environmental history,
accessibility, physical condition, signage and visibility of the property
tenant-specific characteristics, including but not limited to the financial profile, operating history, business plan,
size, market positioning, geographic footprint, management team, industry and/or sector-specific trends and
other characteristics specific to tenant and parent thereof
unit-level operating characteristics, including store sales performance and profitability, if available;
lease-specific terms, including term of the lease, rent to be paid by the tenant and other tenancy considerations
transaction considerations, such as purchase price, seller profile and other non-financial terms
Financing Strategy
We seek to maintain a capital structure that provides us with the flexibility to manage our business and pursue our
growth strategies, while allowing us to service our debt requirements and generate appropriate risk adjusted returns
for our shareholders. We believe these objectives are best achieved by a capital structure that consists primarily
of common equity and prudent amounts of debt financing. However, we may raise capital in any form and under
terms that we deem acceptable and in the best interest of our shareholders.
We have previously utilized common stock equity offerings, secured mortgage borrowings, unsecured bank
borrowings, the private placement of senior unsecured notes and the sale of properties to meet our capital
requirements. We continually evaluate our financing policies on an on-going basis in light of current economic
conditions, access to various capital markets, relative costs of equity and debt securities, market value of our
properties and other factors.
As of December 31, 2016, our ratio of total debt to total market capitalization, assuming the conversion of limited
partnership interests in the Operating Partnership (“OP Units”) into shares of common stock, was approximately
24.9%, and our ratio of total debt to total gross assets (before accumulated depreciation) was approximately 34.2%.
As of December 31, 2016, our total debt outstanding before deferred financing costs was $404.0 million, including
$70.0 million of secured mortgage debt that had a weighted average fixed interest rate of 4.0% (including the effects
of interest rate swap agreements) and a weighted average maturity of 4.4 years, $320 million of unsecured
4
borrowings that had a weighted average fixed interest rate of 3.9% (including the effects of interest rate swap
agreements) and a weighted average maturity of 9.1 years, and $14.0 million of floating rate borrowings under our
revolving credit facility at a weighted average interest rate of approximately 1.9%.
Certain financial agreements to which we are a party contain covenants that limit our ability to incur debt under
certain circumstances; however, our organizational documents do not limit the absolute amount or percentage of
indebtedness that we may incur. As such, we may modify our borrowing policies at any time without shareholder
approval.
Asset Management
We maintain a proactive leasing and capital improvement program that, combined with the quality and locations of
our properties, has made our properties attractive to tenants. We intend to continue to hold our properties for long-
term investment and, accordingly, place a strong emphasis on the quality of construction and an on-going program
of regular and preventative maintenance. Our properties are designed and built to require minimal capital
improvements other than renovations or alterations, typically paid for by tenants. At our three community shopping
center properties, we subcontract on-site functions such as maintenance, landscaping, snow removal and
sweeping. The cost of these functions is generally reimbursed by our tenants. Personnel from our corporate
headquarters conduct regular inspections of each property and maintain regular contact with major tenants.
We have a management information system designed to provide our management with the operating data
necessary to make informed business decisions on a timely basis. This system provides us rapid access to lease
data, tenants’ sales history, cash flow budgets and forecasts. Such a system helps us to maximize cash flow from
operations and closely monitor corporate expenses.
Financial and Asset Information about Industry Segments
We are in the business of acquiring, developing and managing retail real estate which we consider one reporting
segment. See “Item 2 – Properties" and “Item 6 – Selected Financial Data" and “Note 2 – Summary of Significant
Accounting Policies” to our consolidated financial statements for additional financial and asset information.
Competition
The U.S. commercial real estate investment market is a highly competitive industry. We actively compete with
many entities engaged in the acquisition, development and operation of commercial properties. As such, we
compete with other investors for a limited supply of properties and financing for these properties. Investors include
traded and non-traded public REITs, private equity firms, institutional investment funds, insurance companies and
private individuals, many of which have greater financial resources than we do and the ability to accept more risk
than we believe we can prudently manage. There can be no assurance that we will be able to compete successfully
with such entities in our acquisition, development and leasing activities in the future.
Significant Tenants
As of December 31, 2016, we leased 29 properties to Walgreens. Total annualized base rents from Walgreens
were approximately 11.6%, 17.2% and 21.9% for the years ended 2016, 2015 and 2014 respectively. As of
December 31, 2016, the weighted average remaining lease term of our Walgreens leases was 11.3 years.
No other tenant accounted for more than 5.0% of our annualized base rent as of December 31, 2016. See “Item 2
– Properties” for additional information on our top tenants and the composition of our tenant base.
Regulation
Environmental
Investments in real property create the potential for environmental liability on the part of the owner or operator of
such real property. If hazardous substances are discovered on or emanating from a property, the owner or operator
of the property may be held strictly liable for all costs and liabilities relating to such hazardous substances. We
have obtained a Phase I environmental study (which involves inspection without soil sampling or ground water
analysis) conducted by independent environmental consultants on each of our properties and, in certain instances,
have conducted additional investigation, including a Phase II environmental assessment. Furthermore, we have
adopted a policy of conducting a Phase I environmental study on each property we acquire and conducting
additional investigation as warranted.
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We have no knowledge of any hazardous substances existing on our properties in violation of any applicable laws;
however, no assurance can be given that such substances are not located on any of our properties. We carry no
insurance coverage for the types of environmental risks described above.
We believe that we are in compliance, in all material respects, with all federal, state and local ordinances and
regulations regarding hazardous or toxic substances. Furthermore, we have not been notified by any governmental
authority of any noncompliance, liability or other claim in connection with any of our properties.
Americans with Disabilities Act of 1990
Our properties, as commercial facilities, are required to comply with Title III of the Americans with Disabilities Act
of 1990 and similar state and local laws and regulations (collectively, the “ADA”). Investigation of a property may
reveal non-compliance with the ADA. Our tenants will typically have primary responsibility for complying with the
ADA, but we may incur costs if the tenant does not comply. As of December 31, 2016, we have not been notified
by any governmental authority, nor are we otherwise aware, of any non-compliance with the ADA that we believe
would have a material adverse effect on our business, financial position or results of operations.
Available Information
We make available free of charge through our website at www.agreerealty.com all reports we electronically file
with, or furnish to, the SEC, including our Annual Report on Form 10-K, Quarterly Reports on From 10-Q, and
current reports on Form 8-K, as well as any amendments to those reports, as soon as reasonably practicable
after those documents are filed with, or furnished to, the SEC. These filings are also accessible on the SEC’s
website at www.sec.gov.
Item 1A:
Risk Factors
You should carefully consider each of the risks, assumptions, uncertainties and other factors described below and
elsewhere in this report, as well as any amendments or updates reflected in subsequent filings or furnishings with
the SEC. We believe these risks, assumptions, uncertainties and other factors, individually or in the aggregate,
could cause our actual results to differ materially from expected and historical results and could materially and
adversely affect our business operations, results of operations, financial condition and liquidity.
Risks Related to Our Business and Operations
Global economic and financial conditions may have a negative effect on our business and operations.
Any worsening of economic conditions in our markets, including any disruption in the capital markets, could
adversely affect our business and operations. Potential consequences of changes in economic and financial
conditions include:
changes in the performance of our tenants, which may result in lower rent and lower recoverable expenses
that the tenant can afford to pay and tenant defaults under the leases due to bankruptcy, lack of liquidity,
operational failures or for other reasons;
current or potential tenants may delay or postpone entering into long-term net leases with us which could
lead to reduced demand for commercial real estate;
the ability to borrow on terms and conditions that we find acceptable may be limited or unavailable, which
could reduce our ability to pursue acquisition and development opportunities and refinance existing debt,
reduce our returns from acquisition and development activities, reduce our ability to make cash distributions
to our shareholders and increase our future interest expense;
our ability to access the capital markets may be restricted at a time when we would like, or need, to access
those markets, which could have an impact on our flexibility to react to changing economic and business
conditions;
the recognition of impairment charges on or reduced values of our properties, which may adversely affect
our results of operations or limit our ability to dispose of assets at attractive prices and may reduce the
availability of buyer financing; and
one or more lenders under our revolving credit facility could fail and we may not be able to replace the
financing commitment of any such lenders on favorable terms, or at all.
We are also limited in our ability to reduce costs to offset the results of a prolonged or severe economic downturn
given certain fixed costs and commitments associated with our operations. Such conditions could make it very
difficult to forecast operating results, make business decisions and identify and address material business risks.
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Single-tenant leases involve significant risks of tenant default.
We focus our development and investment activities on ownership of real properties that are primarily net leased
to a single tenant. Therefore, the financial failure of, or other default in payment by, a single tenant under its lease
is likely to cause a significant reduction in our operating cash flows from that property and a significant reduction in
the value of the property, and could cause a significant reduction in our revenues and a significant impairment
loss. Because our properties have generally been built to suit a particular tenant’s specific needs and desires, we
may also incur significant losses to make the leased premises ready for another tenant and experience difficulty or
a significant delay in re-leasing such property.
Failure by any major tenant with leases in multiple locations to make rental payments to us, because of a
deterioration of its financial condition or otherwise, would have a material adverse effect on us.
We derive substantially all of our revenue from tenants who lease space from us at our properties. Therefore, our
ability to generate cash from operations is dependent on the rents that we are able to charge and collect from our
tenants. At any time, our tenants may experience a downturn in their respective businesses that may significantly
weaken their financial condition, particularly during periods of economic uncertainty. In addition, our tenants
compete with alternative forms or retailing, including online shopping, home shopping networks and mail order
catalogs. As a result, our tenants may delay lease commencements, decline to extend or renew leases upon
expiration, fail to make rental payments when due, close a number of stores or declare bankruptcy. Any of these
actions could result in the termination of the tenant’s leases and the loss of rental income attributable to the
terminated leases. In addition, lease terminations by a major tenant or a failure by that major tenant to occupy the
premises could result in lease terminations or reductions in rent by other tenants in close proximity under the terms
of some leases. In that event, we may be unable to re-lease the vacated space at attractive rents or at all. The
occurrence of any of the situations described above would have a material adverse effect on our results of
operations and our financial condition. See “We may be subject to tenant credit concentrations that make us more
susceptible to adverse events with respect to those tenants” below.
We may be subject to tenant credit concentrations that make us more susceptible to adverse events with
respect to those tenants.
As of December 31, 2016, we derived approximately 11.6% of our annualized base rent from Walgreens. In the
event of a default under the leases, we may experience delays in enforcing our rights as lessor and may incur
substantial costs in seeking to protect our investment. Any bankruptcy, insolvency or failure to make rental
payments by Walgreens, or any adverse changes in their financial condition or in the financial condition of any other
tenant to whom we may have a significant credit concentration now or in the future, would likely result in a material
reduction of our cash flows and material losses to us.
Bankruptcy laws will limit our remedies if a tenant becomes bankrupt and rejects its leases.
If a tenant becomes bankrupt or insolvent, that could diminish the income we receive from that tenant’s leases. We
may not be able to evict a tenant solely because of its bankruptcy. On the other hand, a bankruptcy court might
authorize the tenant to terminate its leasehold with us. If that happens, our claim against the bankrupt tenant for
unpaid future rent would be an unsecured pre-petition claim subject to statutory limitations, and therefore any
amounts received in bankruptcy are likely to be substantially less valuable than the remaining rent we otherwise
were owed under the leases. In addition, any claim we have for unpaid past rent could be substantially less than
the amount owed.
Our portfolio has limited geographic diversification, which makes us more susceptible to adverse events
in these areas.
Our properties are located throughout the United States and in particular, the State of Michigan (where 49 properties
out of 366 properties are located or 15.4% of our annualized base rent was derived as of December 31, 2016). An
economic downturn or other adverse events or conditions such as natural disasters in these areas, or any other
area where we may have significant concentration in the future, could result in a material reduction of our cash
flows or material losses to our company.
There are risks associated with our development and acquisition activities.
We intend to continue the development of new properties and to consider possible acquisitions of existing
properties. We anticipate that our new developments will be financed under the revolving credit facility or other
forms of financing that will result in a risk that permanent fixed rate financing on newly developed projects might not
be available or would be available only on disadvantageous terms. In addition, new project development is subject
to a number of risks, including risks of construction delays or cost overruns that may increase anticipated project
costs, and new project commencement risks such as receipt of zoning, occupancy and other required governmental
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permits and authorizations and the incurrence of development costs in connection with projects that are not pursued
to completion. If permanent debt or equity financing is not available on acceptable terms to finance new
development or acquisitions undertaken without permanent financing, further development activities or acquisitions
might be curtailed or cash available for distribution might be adversely affected. Acquisitions entail risks that
investments will fail to perform in accordance with expectations, as well as general investment risks associated with
any new real estate investment.
Properties that we acquire or develop may be located in new markets where we may face risks associated
with investing in an unfamiliar market.
We may acquire or develop properties in markets that are new to us. When we acquire or develop properties
located in these markets, we may face risks associated with a lack of market knowledge or understanding of the
local economy, forging new business relationships in the area and unfamiliarity with local government and permitting
procedures.
We own certain of our properties subject to ground leases that expose us to the loss of such properties
upon breach or termination of the ground leases and may limit our ability to sell these properties.
We own certain of our properties through leasehold interests in the land underlying the buildings and we may
acquire additional buildings in the future that are subject to similar ground leases. As lessee under a ground lease,
we are exposed to the possibility of losing the property upon termination, or an earlier breach by us, of the ground
lease, which may have a material adverse effect on our business, financial condition and results of operations, our
ability to make distributions to our shareholders and the trading price of our common stock. Our ground leases
contain certain provisions that may limit our ability to sell certain of our properties. In order to assign or transfer our
rights and obligations under certain of our ground leases, we generally must obtain the consent of the landlord
which, in turn, could adversely impact the price realized from any such sale.
Loss of revenues from tenants would reduce the Company’s cash flow.
Our tenants encounter significant macroeconomic, governmental and competitive forces. Adverse changes in
consumer spending or consumer preferences for particular goods, services or store based retailing could severely
impact their ability to pay rent. Shifts from in-store to online shopping could increase due to changing consumer
shopping patterns as well as the increase in consumer adoption and use of mobile electronic devices. This
expansion of e-commerce could have an adverse impact on our tenant’s ongoing viability. The default, financial
distress, bankruptcy or liquidation of one or more of our tenants could cause substantial vacancies in our property
portfolio. Vacancies reduce our revenues, increase property expenses and could decrease the value of each vacant
property. Upon the expiration of a lease, the tenant may choose not to renew the lease and/or we may not be able
to release the vacant property at a comparable lease rate or without incurring additional expenditures in connection
with such renewal or re-leasing.
Joint venture investments may expose us to certain risks.
We may from time to time enter into joint venture transactions for portions of our existing or future real estate
assets. Investing in this manner subjects us to certain risks, among them include the following:
We may not exercise sole decision-making authority regarding the joint venture’s business and assets and,
thus, we may not be able to take actions that we believe are in our best interests;
We may be required to accept liability for obligations of the joint venture (such as recourse carve-outs on
mortgage loans) beyond our economic interest; and
Our returns on joint venture assets may be adversely affected if the assets are not held for the long-term.
The availability and timing of cash distributions is uncertain.
We expect to continue to pay quarterly distributions to our shareholders. However, we bear all expenses incurred
by our operations, and our funds generated by operations, after deducting these expenses, may not be sufficient to
cover desired levels of distributions to our shareholders. In addition, our board of directors, in its discretion, may
retain any portion of such cash for working capital. We cannot assure our shareholders that sufficient funds will be
available to pay distributions.
We face significant competition.
We face competition in seeking properties for acquisition and tenants who will lease space in these properties from
insurance companies, credit companies, pension or private equity funds, private individuals, investment companies,
other REITs and other industry participants, many of which have greater financial and other resources than we
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do. There can be no assurance that we will be able to successfully compete with such entities in our development,
acquisition and leasing activities in the future.
We face risks relating to cybersecurity attacks, loss of confidential information and other business
disruptions.
Our business is subject to risks from and may be impacted by cybersecurity attacks, including attempts to gain
unauthorized access to our confidential data and other electronic security breaches. Such cyber-attacks can range
from individual attempts to gain unauthorized access to our information technology systems to more sophisticated
security threats. While we employ a number of measures to prevent, detect and mitigate these threats, there is no
guarantee such efforts will be successful in preventing a cyber-attack. Cybersecurity incidents could cause
operational interruption, damage to our relationships with our tenants, private data exposure (including personally
identifiable information, or proprietary and confidential information, of ours and our employees, as well as third
parties) and affect the efficiency of our business operations. Any such incidents could result in legal claims or
proceedings, liability or regulatory penalties under laws protecting the privacy of personal information and reduce
the benefits of our technologies.
General Real Estate Risk
Our performance and value are subject to general economic conditions and risks associated with our real
estate assets.
There are risks associated with owning and leasing real estate. Although many of our leases contain terms that
obligate the tenants to bear substantially all of the costs of operating our properties, investing in real estate involves
a number of risks. Income from and the value of our properties may be adversely affected by:
Changes in general or local economic conditions;
The attractiveness of our properties to potential tenants;
Changes in supply of or demand for similar or competing properties in an area;
Bankruptcies, financial difficulties or lease defaults by our tenants;
Changes in operating costs and expense and our ability to control rents;
Our ability to lease properties at favorable rental rates;
Our ability to sell a property when we desire to do so at a favorable price;
Unanticipated changes in costs associated with known adverse environmental conditions or retained
liabilities for such conditions;
Changes in or increased costs of compliance with governmental rules, regulations and fiscal policies,
including changes in tax, real estate, environmental and zoning laws, and our potential liability thereunder;
and
Unanticipated expenditures to comply with the Americans with Disabilities Act and other similar regulations.
Economic and financial market conditions have and may continue to exacerbate many of the foregoing risks. If a
tenant fails to perform on its lease covenants, that would not excuse us from meeting any mortgage debt obligation
secured by the property and could require us to fund reserves in favor of our mortgage lenders, thereby reducing
funds available for payment of cash dividends on our shares of common stock.
The fact that real estate investments are relatively illiquid may reduce economic returns to investors.
We may desire to sell a property in the future because of changes in market conditions or poor tenant performance
or to avail ourselves of other opportunities. We may also be required to sell a property in the future to meet secured
debt obligations or to avoid a secured debt loan default. Real estate properties cannot generally be sold quickly,
and we cannot assure you that we could always obtain a favorable price. We may be required to invest in the
restoration or modification of a property before we can sell it. This lack of liquidity may limit our ability to vary our
portfolio promptly in response to changes in economic or other conditions and, as a result, could adversely affect
our financial condition, results of operations, cash flows and our ability to pay distributions on our common stock.
Our ability to renew leases or re-lease space on favorable terms as leases expire significantly affects our
business.
We are subject to the risks that, upon expiration of leases for space located in our properties, the premises may not
be re-let or the terms of re-letting (including the cost of concessions to tenants) may be less favorable than current
lease terms. If a tenant does not renew its lease or if a tenant defaults on its lease obligations, there is no assurance
we could obtain a substitute tenant on acceptable terms. If we cannot obtain another tenant with comparable
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structural needs, we may be required to modify the property for a different use, which may involve a significant
capital expenditure and a delay in re-leasing the property. Further, if we are unable to re-let promptly all or a
substantial portion of our retail space or if the rental rates upon such re-letting were significantly lower than expected
rates, our net income and ability to make expected distributions to shareholders would be adversely affected. There
can be no assurance that we will be able to retain tenants in any of our properties upon the expiration of their leases.
Potential liability for environmental contamination could result in substantial costs.
Under federal, state and local environmental laws, we may be required to investigate and clean up any release of
hazardous or toxic substances or petroleum products at our properties, regardless of our knowledge or actual
responsibility, simply because of our current or past ownership or operation of the real estate. If unidentified
environmental problems arise, we may have to make substantial payments, which could adversely affect our cash
flow and our ability to make distributions to our shareholders. This potential liability results from the following:
As owner, we may have to pay for property damage and for investigation and clean-up costs incurred in
connection with the contamination;
The law may impose clean-up responsibility and liability regardless of whether the owner or operator knew
of or caused the contamination;
Even if more than one person is responsible for the contamination, each person who shares legal liability
under environmental laws may be held responsible for all of the clean-up costs; and
Governmental entities and third parties may sue the owner or operator of a contaminated site for damages
and costs.
These costs could be substantial and in extreme cases could exceed the value of the contaminated property. The
presence of hazardous substances or petroleum products or the failure to properly remediate contamination may
adversely affect our ability to borrow against, sell or lease an affected property. In addition, some environmental
laws create liens on contaminated sites in favor of the government for damages and costs it incurs in connection
with a contamination.
We own and may in the future acquire properties that will be operated as convenience stores with gas station
facilities. The operation of convenience stores with gas station facilities at our properties will create additional
environmental concerns. We require that the tenants who operate these facilities do so in material compliance with
current laws and regulations.
A majority of our leases require our tenants to comply with environmental laws and to indemnify us against
environmental liability arising from the operation of the properties. However, we could be subject to strict liability
under environmental laws because we own the properties. There are certain losses, including losses from
environmental liabilities, that are not generally insured against or that are not generally fully insured against because
it is not deemed economically feasible or prudent to do so. There is also a risk that tenants may not satisfy their
environmental compliance and indemnification obligations under the leases. Any of these events could
substantially increase our cost of operations, require us to fund environmental indemnities in favor of our secured
lenders and reduce our ability to service our secured debt and pay dividends to shareholders and any debt security
interest payments. Environmental problems at any properties could also put us in default under loans secured by
those properties, as well as loans secured by unaffected properties.
Uninsured losses relating to real property may adversely affect our returns.
Our leases generally require tenants to carry comprehensive liability and extended coverage insurance on our
properties. However, there are certain losses, including losses from environmental liabilities, terrorist acts or
catastrophic acts of nature, that are not generally insured against or that are not generally fully insured against
because it is not deemed economically feasible or prudent to do so. If there is an uninsured loss or a loss in excess
of insurance limits, we could lose both the revenues generated by the affected property and the capital we have
invested in the property. In the event of a substantial unreimbursed loss, we would remain obligated to repay any
mortgage indebtedness or other obligations related to the property.
Risks Related to Our Debt Financings
Leveraging our portfolio subjects us to increased risk of loss, including loss of properties in the event of a
foreclosure.
At December 31, 2016, our ratio of total debt to total market capitalization (assuming conversion of OP Units into
shares of common stock) was approximately 24.9%. The use of leverage presents an additional element of risk in
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the event that (1) the cash flow from lease payments on our properties is insufficient to meet debt obligations, (2)
we are unable to refinance our debt obligations as necessary or on as favorable terms or (3) there is an increase in
interest rates. If a property is mortgaged to secure payment of indebtedness and we are unable to meet mortgage
payments, the property could be foreclosed upon with a consequent loss of income and asset value to us. Under
the “cross-default” provisions contained in mortgages encumbering some of our properties, our default under a
mortgage with a lender would result in our default under mortgages held on other properties resulting in multiple
foreclosures.
We generally intend to maintain a ratio of total indebtedness (including construction or acquisition financing) to total
market capitalization of 65% or less. Nevertheless, we may operate with debt levels which are in excess of 65% of
total market capitalization for extended periods of time. Our organizational documents contain no limitation on the
amount or percentage of indebtedness which we may incur. Therefore, our board of directors, without a vote of the
shareholders, could alter the general policy on borrowings at any time. If our debt capitalization policy were
changed, we could become more highly leveraged, resulting in an increase in debt service that could adversely
affect our operating cash flow and our ability to make expected distributions to shareholders, and could result in an
increased risk of default on our obligations.
Covenants in our credit agreements could limit our flexibility and adversely affect our financial condition.
The terms of the financing agreements and other indebtedness require us to comply with a number of customary
financial and other covenants. These covenants may limit our flexibility in our operations, and breaches of these
covenants could result in defaults under the instruments governing the applicable indebtedness even if we have
satisfied our payment obligations. In certain instances our financing agreements contain certain cross-default
provisions which could be triggered in the event that we default on our other indebtedness. These cross-default
provisions may require us to repay or restructure the revolving credit facility in addition to any mortgage or other
debt that is in default. If our properties were foreclosed upon, or if we are unable to refinance our indebtedness at
maturity or meet our payment obligations, the amount of our distributable cash flows and our financial condition
would be adversely affected.
Our unsecured revolving credit facility and certain term loan agreements contain various restrictive corporate
covenants, including a maximum total leverage ratio, a maximum secured leverage ratio, a minimum fixed charge
coverage ratio, a maximum recourse secured debt ratio, a minimum net worth requirement and a maximum payout
ratio. In addition, our unsecured revolving credit facility and certain term loan agreements have unencumbered pool
covenants, which include a minimum number of eligible unencumbered assets, a maximum unencumbered leverage
ratio and a minimum unencumbered interest coverage ratio. These covenants may restrict our ability to pursue
certain business initiatives or certain transactions that might otherwise be advantageous. Furthermore, failure to
meet certain of these financial covenants could cause an event of default under and/or accelerate some or all of such
indebtedness which could have a material effect on us.
Credit market developments may reduce availability under our credit agreements.
There is risk that lenders, even those with strong balance sheets and sound lending practices, could fail or refuse
to honor their legal commitments and obligations under existing credit commitments, including but not limited to:
extending credit up to the maximum amount permitted by a credit facility, allowing access to additional credit
features and/or honoring loan commitments. If our lender(s) fail to honor their legal commitments under our credit
facilities, it could be difficult to replace our credit facilities on similar terms. Any such failure by any of the lenders
under the revolving credit facility may impact our ability to finance our operating or investing activities.
Our hedging strategies may not be successful in mitigating our risks associated with interest rates and
could reduce the overall returns on your investment.
We use various derivative financial instruments to provide a level of protection against interest rate risks, but no
hedging strategy can protect us completely. These instruments involve risks, such as the risk that the counterparties
may fail to honor their obligations under these arrangements, that these arrangements may not be effective in
reducing our exposure to interest rate changes and that a court could rule that such agreements are not legally
enforceable. These instruments may also generate income that may not be treated as qualifying REIT income for
purposes of the REIT income tests. In addition, the nature and timing of hedging transactions may influence the
effectiveness of our hedging strategies. Poorly designed strategies or improperly executed transactions could
actually increase our risk and losses. Moreover, hedging strategies involve transaction and other costs. We cannot
assure you that our hedging strategy and the derivatives that we use will adequately offset the risk of interest rate
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volatility or that our hedging transactions will not result in losses that may reduce the overall return on your
investment.
Risks Related to Our Corporate Structure
Our charter, bylaws and Maryland law contain provisions that may delay, defer or prevent a change of
control transaction.
Our charter contains 9.8% ownership limits. Our charter, subject to certain exceptions, authorizes our directors to
take such actions as are necessary and desirable to preserve our qualification as a REIT and contains provisions
that limit any person to actual or constructive ownership of no more than 9.8% (in value or in number of shares,
whichever is more restrictive) of the outstanding shares of our common stock and no more than of the aggregate
of the value of our outstanding shares of all classes and series of our stock. Our board of directors, in its sole
discretion, may exempt, subject to the satisfaction of certain conditions, any person from the ownership limits.
These restrictions on transferability and ownership will not apply if our board of directors determines that it is no
longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT. The ownership limits may
delay or impede, and we may use the ownership limits deliberately to delay or impede, a transaction or a change
of control that might involve a premium price for our common stock or otherwise be in the best interest of our
shareholders.
We have a staggered board. Our directors are divided into three classes serving three-year staggered terms. The
staggering of our board of directors may discourage offers for the Company or make an acquisition more difficult,
even when an acquisition may be viewed to be in the best interest of our shareholders.
We have a shareholder rights plan. Under the terms of this plan, we can in effect prevent a person or group from
acquiring more than 15% of the outstanding shares of our common stock because, unless we approve the
acquisition, after the person acquires more than 15% of our outstanding common stock, all other shareholders will
have the right to purchase securities from us at a price that is less than their then fair market value. This would
substantially reduce the value and influence of the stock owned by the acquiring person. Our board of directors
can prevent the plan from operating by approving the transaction in advance, which gives us significant power to
approve or disapprove of the efforts of a person or group to acquire a large interest in our company.
We could issue stock without stockholder approval. Our board of directors could, without stockholder approval,
issue authorized but unissued shares of our common stock or preferred stock. In addition, our board of directors
could, without stockholder approval, classify or reclassify any unissued shares of our common stock or preferred
stock and set the preferences, rights and other terms of such classified or reclassified shares. Our board of directors
could establish a series of stock that could, depending on the terms of such series, delay, defer or prevent a
transaction or change of control that might involve a premium price for our common stock or otherwise be viewed
to be in the best interest of our shareholders.
Provisions of Maryland law may limit the ability of a third party to acquire control of our company. Certain provisions
of Maryland law may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding
a change of control under certain circumstances that otherwise could provide the holders of shares of our common
stock with the opportunity to realize a premium over the then prevailing market price of such shares, including:
“Business combination” provisions that, subject to limitations, prohibit certain business combinations
between us and an “interested stockholder” (defined generally as any person who beneficially owns 10%
or more of the voting power of our shares or an affiliate thereof) for five years after the most recent date on
which the stockholder becomes an interested stockholder and thereafter would require the recommendation
of our board of directors and impose special appraisal rights and special stockholder voting requirements
on these combinations; and
“Control share” provisions that provide that “control shares” of our company (defined as shares which, when
aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three
increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as
the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to
the extent approved by our shareholders by the affirmative vote of at least two-thirds of all the votes entitled
to be cast on the matter, excluding all interested shares.
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The business combination statute permits various exemptions from its provisions, including business combinations
that are approved or exempted by the board of directors before the time that the interested stockholder becomes
an interested stockholder. Our board of directors has exempted from the business combination provisions of the
Maryland General Corporation Law, or MGCL, any business combination with Mr. Richard Agree or any other
person acting in concert or as a group with Mr. Richard Agree.
In addition, our bylaws contain a provision exempting from the control share acquisition statute Richard Agree,
Edward Rosenberg, any spouses or the foregoing, any brothers or sisters of the foregoing, any ancestors of the
foregoing, any other lineal descendants of any of the foregoing, any estates of any of the foregoing, any trusts
established for the benefit of any of the foregoing and any other entity controlled by any of the foregoing, our other
officers, our employees, any of the associates or affiliates of the foregoing and any other person acting in concert
of as a group with any of the foregoing.
Additionally, Title 3, Subtitle 8 of the MGCL, permits our board of directors, without stockholder approval and
regardless of what is currently provided in our charter or our bylaws, to implement certain takeover defenses. These
provisions may have the effect of inhibiting a third party from making an acquisition proposal for our company or of
delaying, deferring or preventing a change in control of our company under circumstances that otherwise could
provide the holders of our common stock with the opportunity to realize a premium over the then-current market
price.
Our charter, our bylaws, the limited partnership agreement of the Operating Partnership and Maryland law also
contain other provisions that may delay, defer or prevent a transaction or a change of control that might involve a
premium price for our common stock or otherwise be viewed to be in the best interest of our shareholders.
Our board of directors can take many actions without stockholder approval.
Our board of directors has overall authority to oversee our operations and determine our major corporate policies.
This authority includes significant flexibility. For example, our board of directors can do the following:
Change our investment and financing policies and our policies with respect to certain other activities,
including our growth, debt capitalization, distributions, REIT status and investment and operating policies;
Within the limits provided in our charter, prevent the ownership, transfer and/or accumulation of shares in
order to protect our status as a REIT or for any other reason deemed to be in the best interests of us and
our shareholders;
Issue additional shares without obtaining stockholder approval, which could dilute the ownership of our
then-current shareholders;
Classify or reclassify any unissued shares of our common stock or preferred stock and set the preferences,
rights and other terms of such classified or reclassified shares, without obtaining stockholder approval;
Employ and compensate affiliates;
Direct our resources toward investments that do not ultimately appreciate over time;
Change creditworthiness standards with respect to third-party tenants; and
Determine that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT.
Any of these actions could increase our operating expenses, impact our ability to make distributions or reduce the
value of our assets without giving our shareholders the right to vote.
Future offerings of debt and equity may not be available to us or may adversely affect the market price of
our common stock.
We expect to continue to increase our capital resources by making additional offerings of equity and debt securities
in the future, which could include classes or series of preferred stock, common stock and senior or subordinated
notes. Our ability to raise additional capital may be adversely impacted by market conditions. Future market
dislocations could cause us to seek sources of potentially less attractive capital. All debt securities and other
borrowings, as well as all classes or series of preferred stock, will be senior to our common stock in a liquidation of
our company. Additional equity offerings could dilute our shareholders’ equity, and reduce the market price of
shares of our common stock. In addition, we may issue preferred stock with a distribution preference or a liquidation
preference that may limit our ability to make distributions on our common stock. Our ability to estimate the amount,
timing or nature of additional offerings is limited as these factors will depend upon market conditions and other
factors.
13
The market price of our stock may vary substantially.
The market price of our common stock could be volatile, and investors in our common stock may experience a
decrease in the value of their shares, including decreases unrelated to our operating performance or prospects.
Among the market conditions that may affect the market price of our common stock are the following:
Changes in interest rates;
Our financial condition and operating performance and the performance of other similar companies;
Actual or anticipated variations in our quarterly results of operations;
The extent of investor interest in our company, real estate generally or commercial real estate specifically;
The reputation of REITs generally and the attractiveness of their equity securities in comparison to other
equity securities, including securities issued by other real estate companies, and fixed income securities;
Changes in expectations of future financial performance or changes in estimates of securities analysts;
Fluctuations in stock market prices and volumes; and
Announcements by us or our competitors of acquisitions, investments or strategic alliances.
An officer and director may have interests that conflict with the interests of shareholders.
An officer and member of our board of directors owns OP units in the Operating Partnership. This individual may
have personal interests that conflict with the interests of our shareholders with respect to business decisions
affecting us and the Operating Partnership, such as interests in the timing and pricing of property sales or
refinancings in order to obtain favorable tax treatment.
Federal Income Tax Risks
Complying with REIT requirements may cause us to forego otherwise attractive opportunities.
To qualify as a REIT for federal income tax purposes we must continually satisfy numerous income, asset and other
tests, thus having to forego investments we might otherwise make and hindering our investment performance.
Failure to qualify as a REIT could adversely affect our operations and our ability to make distributions.
We will be subject to increased taxation if we fail to qualify as a REIT for federal income tax purposes. Although
we believe that we are organized and operate in such a manner so as to qualify as a REIT under the Internal
Revenue Code of 1986, as amended (the “Code”), no assurance can be given that we will remain so
qualified. Qualification as a REIT involves the application of highly technical and complex Code provisions for which
there are only limited judicial or administrative interpretations. The complexity of these provisions and applicable
treasury regulations is also increased in the context of a REIT that holds its assets in partnership form. The
determination of various factual matters and circumstances not entirely within our control may affect our ability to
qualify as a REIT. A REIT generally is not taxed at the corporate level on income it distributes to its shareholders,
as long as it distributes annually at least 90% of its taxable income to its shareholders. We have not requested and
do not plan to request a ruling from the Internal Revenue Service that we qualify as a REIT.
If we fail to qualify as a REIT, we will face tax consequences that will substantially reduce the funds available for
payment of cash dividends:
We would not be allowed a deduction for dividends paid to shareholders in computing our taxable income
and would be subject to federal income tax at regular corporate rates.
We could be subject to the federal alternative minimum tax and possibly increased state and local taxes.
Unless we are entitled to relief under statutory provisions, we could not elect to be treated as a REIT for
four taxable years following the year in which we failed to qualify.
In addition, if we fail to qualify as a REIT, we will no longer be required to pay dividends (other than any mandatory
dividends on any preferred shares we may offer). As a result of these factors, our failure to qualify as a REIT could
adversely affect the market price for our common stock.
Changes in tax laws may prevent us from maintaining our qualification as a REIT.
As we have previously described, we intend to maintain our qualification as a REIT for federal income tax purposes.
However, this intended qualification is based on the tax laws that are currently in effect. We are unable to predict
any future changes in the tax laws that would adversely affect our status as a REIT. If there is a change in the tax
law that prevents us from qualifying as a REIT or that requires REITs generally to pay corporate level income taxes,
we may not be able to make the same level of distributions to our shareholders.
14
Complying with REIT requirements may force us to liquidate or restructure otherwise attractive
investments. In order to qualify as a REIT, at least 75% of the value of our assets must consist of cash, cash
items, government securities and qualified real estate assets. The remainder of our investments in securities (other
than government securities, securities of TRSs and qualified real estate assets) cannot include more than 10% of
the voting securities or 10% of the value of all securities, of any one issuer. In addition, in general, no more than
5% of the total value of our assets (other than government securities, securities of TRSs and qualified real estate
assets) can consist of securities of any one issuer, and no more than 25% (20% for taxable years beginning after
December 31, 2017) of the total value of our assets can be represented by one or more TRSs. If we fail to comply
with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end
of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and
suffering adverse tax consequences. As a result, we may be required to liquidate otherwise attractive investments.
We may have to borrow funds or sell assets to meet our distribution requirements.
Subject to some adjustments that are unique to REITs, a REIT generally must distribute 90% of its taxable income.
For the purpose of determining taxable income, we may be required to accrue interest, rent and other items treated
as earned for tax purposes but that we have not yet received. In addition, we may be required not to accrue as
expenses for tax purposes some that which actually have been paid, including, for example, payments of principal
on our debt, or some of our deductions might be disallowed by the Internal Revenue Service. As a result, we could
have taxable income in excess of cash available for distribution. If this occurs, we may have to borrow funds or
liquidate some of our assets in order to meet the distribution requirement applicable to a REIT.
Our ownership of and relationship with our TRSs will be limited, and a failure to comply with the limits
would jeopardize our REIT status and may result in the application of a 100% excise tax.
A REIT may own up to 100% of the stock of one or more TRSs. A TRS may earn income that would not be qualifying
income if earned directly by the parent REIT. Overall, no more than 20% of the value of a REIT’s assets may
consist of stock or securities of one or more TRSs. A TRS will typically pay federal, state and local income tax at
regular corporate rates on any income that it earns. In addition, the TRS rules impose a 100% excise tax on certain
transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis. Our TRSs will
pay federal, state and local income tax on their taxable income, and their after-tax net income will be available for
distribution to us but will not be required to be distributed to us. There can be no assurance that we will be able to
comply with the 20% limitation discussed above or to avoid application of the 100% excise tax discussed above.
Liquidation of our assets may jeopardize our REIT qualification.
To qualify as a REIT, we must comply with requirements regarding our assets and our sources of income. If we are
compelled to liquidate our investments to repay obligations to our lenders, we may be unable to comply with these
requirements, ultimately jeopardizing our qualification as a REIT, or we may be subject to a 100% tax on any gain
if we sell assets in transactions that are considered to be “prohibited transactions,” which are explained in the risk
factor below.
We may be subject to other tax liabilities even if we qualify as a REIT.
Even if we remain qualified as a REIT for federal income tax purposes, we will be required to pay certain federal,
state and local taxes on our income and property. For example, we will be subject to income tax to the extent we
distribute less than 100% of our REIT taxable income (including capital gains). Additionally, we will be subject to a
4% nondeductible excise tax on the amount, if any, by which dividends paid by us in any calendar year are less
than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed
income from prior years. Moreover, if we have net income from “prohibited transactions,” that income will be subject
to a 100% tax. In general, prohibited transactions are sales or other dispositions of property held primarily for sale
to customers in the ordinary course of business. The determination as to whether a particular sale is a prohibited
transaction depends on the facts and circumstances related to that sale. While we will undertake sales of assets if
those assets become inconsistent with our long-term strategic or return objectives, we do not believe that those
sales should be considered prohibited transactions, but there can be no assurance that the Internal Revenue
Service would not contend otherwise. The need to avoid prohibited transactions could cause us to forego or defer
sales of properties that might otherwise be in our best interest to sell.
In addition, any net taxable income earned directly by our TRSs, or through entities that are disregarded for federal
income tax purposes as entities separate from our TRSs, will be subject to federal and possibly state corporate
15
income tax. To the extent that we and our affiliates are required to pay federal, state and local taxes, we will have
less cash available for distributions to our shareholders.
Dividends payable by REITs do not qualify for the reduced tax rates on dividend income from regular
corporations.
The maximum income tax rate applicable to “qualified dividend income” payable to domestic shareholders that are
individuals, trusts and estates is 20%. Dividends payable by REITs, however, are generally not eligible for the
reduced rates on qualified dividend income. The more favorable rates applicable to regular corporate qualified
dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be
relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could
adversely affect the value of the stock of REITs, including our stock.
Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax
liabilities.
The REIT provisions of the Code substantially limit our ability to hedge our liabilities. Any income from a hedging
transaction we enter into to manage risk of interest rate changes, price changes or currency fluctuations with respect
to borrowings made or to be made to acquire or carry real estate assets does not constitute qualifying income for
purposes of income tests that apply to us as a REIT. To the extent that we enter into other types of hedging
transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of the
income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or
implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRS
would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we
would otherwise want to bear. In addition, losses in our TRSs will generally not provide any tax benefit, except for
being carried forward against future taxable income in the TRSs.
Item 1B:
Unresolved Staff Comments
There are no unresolved staff comments.
Item 2:
Properties
As of December 31, 2016, our portfolio consisted of 366 properties located in 43 states and totaling approximately
7.0 million square feet of gross leasable area. Our portfolio included 363 net lease properties, which contributed
approximately 98.1% of annualized base rent, and three community shopping centers, which generated the
remaining 1.9% of annualized base rent.
As of December 31, 2016, our portfolio was approximately 99.6% leased and had a weighted average remaining
lease term of approximately 10.6 years. A significant majority of our properties are leased to national tenants and
approximately 45.6% of our annualized base rent was derived from tenants, or parents thereof, with an investment
grade credit rating. 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. In addition, our tenants are typically subject to future rent increases based on
fixed amounts or increases in the consumer price index and many leases provide for additional rent calculated as
a percentage of the tenants’ gross sales above a specified level.
Property Type Summary
The following table presents certain information about our properties as of December 31, 2016:
16
Number of
Annualized
% of Ann.
Property Type
Retail Net Lease
Retail Net Lease (ground leases)
Total Retail Net Lease
Community Shopping Centers
Total Portfolio
Properties Base Rent (1) Base Rent
90.6%
7.5%
98.1%
1.9%
100.0%
$85,422
7,077
$92,499
1,751
$94,250
331
32
363
3
366
% Investment
Grade
Rated (2)
42.6%
86.5%
45.9%
28.2%
45.6%
Remaining
Wtd. Avg.
Lease
Term
10.3 yrs
13.1 yrs
10.7 yrs
5.5 yrs
10.6 yrs
Annualized base rent is in thousands; any differences are a result of rounding.
(1) Represents annualized straight-line rent as of December 31, 2016.
(2) Reflects tenants, or parent entities thereof, with investment grade credit ratings from Standard & Poors, Moody's, Fitch and/or NAIC.
Tenant Diversification
The following table presents annualized base rents for all tenants that generated 1.5% or greater of our total
annualized base rent as of December 31, 2016:
($ in thousands)
Tenant / Concept
Walgreens
Walmart
Lowe's
Wawa
Mister Car Wash
Smart & Final
CVS
Dollar General
Hobby Lobby
Tractor Supply
Academy Sports
Rite Aid
Dollar Tree
Burger King(2)
BJ's Wholesale
LA Fitness
24 Hour Fitness
AMC
Taco Bell(3)
Other (4)
Total
Annualized
Base Rent (1)
$
10,903
4,224
3,099
2,664
2,580
2,518
2,463
2,415
2,177
2,172
1,982
1,886
1,832
1,763
1,759
1,709
1,694
1,585
1,537
43,288
94,250
$
% of Ann.
Base Rent
11.6%
4.5%
3.3%
2.8%
2.7%
2.7%
2.6%
2.6%
2.3%
2.3%
2.1%
2.0%
1.9%
1.9%
1.9%
1.8%
1.8%
1.7%
1.6%
45.9%
100.0%
Annualized base rent is in thousands; any differences are a result of rounding.
(1) Represents annualized straight-line rent as of December 31, 2016.
(2) Franchise restaurants operated by Meridian Restaurants Unlimited, L.C.
(3) Franchise restaurants operated by Charter Foods North, LLC.
(4) Includes tenants generating less than 1.5% of annualized base rent.
Significant Tenants
Walgreens operates the largest drugstore chain in the United States and trades, through its holding company
Walgreens Boot Alliance, Inc., on the Nasdaq stock exchange under the symbol “WBA”. For its fiscal year ended
August 31, 2016, Walgreens had total assets of approximately $72.7 billion, annual net sales of $117.4 billion,
17
annual net income of $4.2 billion and shareholders’ equity of $30.3 billion. As of August 31, 2016, Walgreens
operated 8,175 locations in 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands.
On October 27, 2015, Walgreens Boot Alliance, Inc. entered into an Agreement and Plan of Merger with Rite Aid
Corporation ("Rite Aid'') and Victoria Merger Sub, Inc., a wholly-owned subsidiary of the Walgreens Boot Alliance,
Inc., pursuant to which the Walgreens Boot Alliance, Inc. agreed, subject to the terms and conditions thereof, to
acquire Rite Aid, a drugstore chain in the United States with 4,550 stores in 31 states and the District of Columbia
as of August 27, 2016. The transaction is expected to close in early calendar 2017, subject to regulatory approvals
and other customary closing conditions.
The information set forth above was derived from the annual report on Form 10-K filed by Walgreens with respect
to their 2016 fiscal year. Additional information regarding Walgreens and Walgreens Boots Alliance, Inc. can be
found in their public filings. These filings can be accessed at www.sec.gov. We are unable to confirm, and make
no representations with respect to the accuracy of these reports and therefore you should not place undue reliance
on such information as it pertains to our operations.
Tenant Sector Diversification
The following table presents annualized base rents for all sectors that generated 2.5% or greater of our total
annualized base rents as of December 31, 2016:
Tenant Sector
Pharmacy
Grocery Stores
Restaurants - Quick Service
Auto Service
Specialty Retail
Discount Apparel
General Merchandise
Health & Fitness
Home Improvement
Warehouse Clubs
Crafts and Novelties
Sporting Goods
Dollar Stores
Farm and Rural Supply
Convenience Stores
Auto Parts
Restaurants - Casual Dining
Other(2)
Total
Annualized
Base Rent (1)
$15,252
6,632
6,492
5,452
4,672
4,533
3,956
3,822
3,790
3,749
3,528
3,149
3,038
2,906
2,830
2,822
2,481
15,146
$94,250
% of Ann.
Base Rent
16.2%
7.0%
6.9%
5.8%
5.0%
4.8%
4.2%
4.1%
4.0%
4.0%
3.7%
3.3%
3.2%
3.1%
3.0%
3.0%
2.6%
16.1%
100.0%
Annualized base rent is in thousands; any differences are a result of rounding.
(1) Represents annualized straight-line rent as of December 31, 2016.
(2) Includes sectors generating less than 2.5% of annualized base rent.
Geographic Diversification
18
The following table presents annualized base rents, by state, for our portfolio as of December 31, 2016:
Tenant Sector
Michigan
Texas
Florida
Ohio
Illinois
Pennsylvania
California
Mississippi
Wisconsin
Kentucky
Colorado
Kansas
North Carolina
Missouri
Georgia
North Dakota
South Carolina
Indiana
Utah
Louisiana
Oregon
New York
Alabama
Virginia
Tennessee
Arizona
Iowa
Minnesota
Maine
New Mexico
New Jersey
West Virginia
Oklahoma
Washington
Connecticut
Nevada
Delaware
South Dakota
Montana
Maryland
Arkansas
New Hampshire
Nebraska
Total
Annualized
Base Rent (1)
$14,555
8,107
7,491
5,779
5,677
4,095
3,700
2,855
2,841
2,723
2,571
2,540
2,396
2,186
2,050
1,910
1,812
1,800
1,682
1,638
1,605
1,552
1,258
1,211
1,201
1,146
1,045
1,024
792
651
590
527
483
413
400
332
326
326
309
277
187
107
80
$94,250
% of Ann.
Base Rent
15.4%
8.6%
7.9%
6.1%
6.0%
4.3%
3.9%
3.0%
3.0%
2.9%
2.7%
2.7%
2.5%
2.3%
2.2%
2.0%
1.9%
1.9%
1.8%
1.8%
1.7%
1.7%
1.3%
1.3%
1.3%
1.2%
1.1%
1.1%
0.9%
0.7%
0.6%
0.6%
0.5%
0.5%
0.4%
0.4%
0.4%
0.4%
0.3%
0.3%
0.2%
0.1%
0.1%
100.0%
Annualized base rent is in thousands; any differences are a result of rounding.
(1) Represents annualized straight-line rent as of Decemb er 31, 2016.
19
Lease Expirations
The following table presents contractual lease expirations within the Company’s portfolio as of December 31, 2016,
assuming that no tenants exercise renewal options:
Gross Leasable Area
% of
Total
Annualized Base Rent (1)
Year
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
Thereafter
Total
Number of
Leases
8
15
13
18
29
22
27
36
34
34
179
415
$
Dollars
817
2,258
4,403
2,639
6,042
4,690
4,865
9,081
6,883
4,352
48,220
$94,250
% of
Total
0.9%
2.4%
4.7%
2.8%
6.4%
5.0%
5.2%
9.6%
7.3%
4.6%
51.1%
100.0%
Square Feet
89
356
377
244
386
406
443
880
538
390
2,924
7,033
1.3%
5.1%
5.4%
3.5%
5.5%
5.8%
6.3%
12.5%
7.7%
5.6%
41.3%
100.0%
Annualized b ase rent and gross leasab le area are in thousands; any differences are a result of rounding.
(1) Represents annualized straight-line rent as of December 31, 2016.
Community Shopping Centers
Our three community shopping centers range in size from 20,000 to 241,458 square feet of GLA.
The location and primary occupancy information with respect to the community shopping centers as of December
31, 2016 are set forth below:
Property
Capital Plaza
Location
Frankfort, KY
Year
Completed /
Renovated
1978 / 2006
Central Michigan Commons Mt. Pleasant, MI
1973 / 1997
West Frankfort Plaza
West Frankfort, IL
1982 / N/A
Totals
Gross
Leasable
Area (Sq. Ft.)
116
241
20
377
Annualized
Base Rent (1)
$634
Annualized
Base Rent
per Sq. Ft (2)
$5.46
Percent
Leased at
December 31, 2016
100%
$1,026
$4.68
91%
Anchor Tenants
(Lease Expiration /
Option Expiration) (3)
Kmart (2018 / 2053)
Walgreens (2032 / 2052)
Kmart (2018 / 2048)
JC Penney (2020 / 2035)
Staples (2020 / 2030)
$91
$6.53
$1,751
$4.64
70%
93%
Annualized base rent and gross leasable area are in thousands; any differences are a result of rounding.
(1) Represents annualized straight-line rent as of Decemb er 31, 2016.
(2) Calculated as total annualized b ase rent divided b y leased GLA.
(3) Only the tenant has the option to extend a lease b eyond the initial term.
20
Item 3:
Legal Proceedings
From time to time, we are involved in legal proceedings in the ordinary course of business. We are not presently
involved in any litigation nor, to our knowledge, is any other litigation threatened against us, other than routine
litigation arising in the ordinary course of business, which is expected to be covered by our liability insurance and
all of which collectively is not expected to have a material adverse effect on our liquidity, results of operations or
business or financial condition.
Item 4:
Mine Safety Disclosures
Not applicable.
PART II
Item 5:
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Our common stock is traded on the NYSE under the symbol “ADC.” The following table sets forth the high and low
closing prices of our common stock, as reported on the NYSE, and the dividends declared per share of common
stock by us for each calendar quarter in the last two fiscal years. Dividends were paid in the periods immediately
subsequent to the periods in which such dividends were declared.
Quarter Ended
March 31, 2016
June 30, 2016
September 30, 2016
December 31, 2016
March 31, 2015
June 30, 2015
September 30, 2015
December 31, 2015
High
$39.01
$48.24
$50.80
$49.25
$35.45
$33.36
$31.12
$34.47
Low
$32.49
$38.26
$46.02
$42.44
$31.46
$29.17
$27.80
$29.80
Dividends per
share declared
$0.465
$0.480
$0.480
$0.495
$0.450
$0.465
$0.465
$0.465
As of February 20, 2017, the reported closing sale price per share of common stock on the NYSE was $48.68.
At February 20, 2017, there were 26,146,543 shares of our common stock issued and outstanding which were held
by approximately 133 shareholders of record. The number of shareholders of record does not reflect persons or
entities that held their shares in nominee or “street” name. In addition, at February 20, 2017 there were 347,619
outstanding OP Units held by a limited partner other than our Company. The OP Units are exchangeable into
shares of common stock on a one-for-one basis.
For 2016, we paid $1.92 per share of common stock in dividends. Of the $1.92, 81.0% represented ordinary income,
and 19.0% represented return of capital, for tax purposes. For 2015, we paid $1.845 per share of common stock in
dividends. Of the $1.845, 82.3% represented ordinary income, and 17.7% represented return of capital, for tax
purposes.
We intend to continue to declare quarterly dividends to our shareholders. However, our distributions are determined
by our board of directors and will depend upon cash generated by operating activities, our financial condition, capital
requirements, annual distribution requirements under the REIT provisions of the Code and such other factors as
the board of directors deems relevant. We have historically paid cash dividends, although we may choose to pay
a portion in stock dividends in the future. To qualify as a REIT, we must distribute at least 90% of our REIT taxable
income prior to net capital gains to our shareholders, as well as meet certain other requirements. We must pay
these distributions in the taxable year the income is recognized; or in the following taxable year if they are declared
during the last three months of the taxable year, payable to shareholders of record on a specified date during such
period and paid during January of the following year. Such distributions are treated for REIT tax purposes as paid
by us and received by our shareholders on December 31 of the year in which they are declared. In addition, at our
21
election, a distribution for a taxable year may be declared in the following taxable year if it is declared before we
timely file our tax return for such year and if paid on or before the first regular dividend payment after such
declaration. These distributions qualify as dividends paid for the 90% REIT distribution test for the previous year
and are taxable to holders of our capital stock in the year in which paid.
During the year ended December 31, 2016, the Company sold $60.0 million of senior unsecured notes. On July
28, 2016 the Company entered into a Note Purchase Agreement with institutional purchasers. Pursuant to the Note
Purchase Agreement, the Operating Partnership completed a private placement of $60.0 million aggregate principal
amount of our 4.42% senior unsecured notes due July 28, 2028. The senior unsecured notes were only sold 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.
During the year ended December 31, 2016, we repurchased 20,569 of our equity securities.
For information about our equity compensation plan, please see “Item 12 – Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters” of this Annual Report on Form 10-K.
Item 6:
Selected Financial Data
The following table sets forth our selected financial information on a historical basis and should be read in
conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and
the Consolidated Financial Statements and Notes thereto included elsewhere in this Annual Report on Form 10-K.
Certain amounts have been reclassified to conform to the current presentation of discontinued operations. The
balance sheet for the periods ending December 31, 2012 through 2016 and operating data for each of the periods
presented were derived from our audited financial statements.
(in thousands, except per share information and number of properties)
2016
For the Year Ended December 31,
2014
2013
2015
2012
Operating Data
Total revenues
Expenses
Property costs (1)
General and administrative
Interest
Depreciation and amortization
Impairments
Total Expenses
Income From Operations
Loss on extinguishment of debt
Gain/(loss) on sale of assets
Income From Continuing Operations
Gain on sale of asset from discontinued operations
Income from discontinued operations
Net income
Less net income attributable to non-controlling interest
Net income attributable to Agree Realty Corporation
Share Data
Weighted average common shares - diluted
Net income per share - diluted
Cash dividends per share
Balance Sheet Data
Real Estate (before accumulated depreciation)
Total Assets
Total Debt, including accrued interest
Other Data
Number of Properties
Gross Leasable Area (Sq. Ft.)
Percentage Leased
$
91,527
$
69,966
$
53,559
$
43,518
$
34,624
8,596
8,015
15,343
23,407
-
55,361
36,166
(333)
9,964
45,797
-
-
45,797
679
$ 45,118
6,379
6,988
12,305
16,486
-
42,158
27,808
(181)
12,135
39,762
-
-
39,762
744
$ 39,018
4,916
6,629
8,587
11,103
3,020
34,255
19,304
-
(528)
18,776
123
14
18,913
425
$ 18,488
3,656
5,952
6,475
8,489
-
24,572
18,946
-
-
18,946
946
298
20,190
515
$ 19,675
3,328
5,682
5,134
6,241
-
20,385
14,239
-
-
14,239
2,097
2,267
18,603
554
$ 18,049
22,960
$ 1.97
$ 1.92
18,065
$ 2.16
$ 1.85
14,967
$ 1.24
$ 1.74
13,158
$ 1.50
$ 1.64
11,137
$ 1.62
$ 1.60
$ 1,019,957
$ 1,111,925
$ 406,261
$ 755,849
$ 789,907
$ 320,547
$ 589,147
$ 593,580
$ 222,483
$ 471,366
$ 462,742
$ 158,869
$ 398,812
$ 370,093
$ 161,242
366
7,033
100%
278
5,207
99%
209
4,315
99%
130
3,662
98%
109
3,259
98%
(1) Property costs include real estate taxes, insurance, maintenance and land lease expense.
22
Item 7:
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the consolidated financial statements, and related notes
thereto, included elsewhere in this Annual Report on Form 10-K and the “-Special Note Regarding Forward-Looking
Statements” in “Item 1A – Risk Factors” above.
Overview
We are a fully integrated REIT primarily focused on the ownership, acquisition, development and management of
retail properties net leased to industry leading tenants. We were founded in 1971 by our current Executive
Chairman, Richard Agree, and listed on the NYSE in 1994. Our assets are held by, and all of our operations are
conducted through, directly or indirectly, the Operating Partnership, of which we are the sole general partner and in
which we held a 98.7% interest as of December 31, 2016.
As of December 31, 2016, our portfolio consisted of 366 properties located in 43 states and totaling approximately
7.0 million square feet of gross leasable area. As of December 31, 2016, our portfolio was approximately 99.6%
leased and had a weighted average remaining lease term of approximately 10.6 years. 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.
Recent Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board (”FASB”) issued ASU No. 2017-01, “Business
Combinations: Clarifying the Definition of a Business” (“ASU 2017-01”). The objective of ASU 2017-01 is to clarify
the definition of a business by adding guidance on how entities should evaluate whether transactions should be
accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas
of accounting including acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 will be effective for public
business entities for fiscal years beginning after December 15, 2017, including interim periods in the year of
adoption. Early adoption is permitted for any interim or annual period. The Company is in the process of determining
the impact that the implementation of ASU 2017-01 will have on the Company’s financial statements.
In August 2016 and October 2016, the FASB issued ASU No. 2016-15 “Statement of Cash Flows (Topic 230):
Classification of Certain Cash Receipts and Cash Payments” and ASU No. 2016-18 “Statement of Cash Flows
(Topic 230): Restricted Cash.” The objective of these standards are to provide specific guidance on cash flow
classification issues and how to reduce diversity in how certain cash receipts and cash payments are presented
and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. The
amendments in this update are effective for public business entities for fiscal years beginning after December 15,
2017 and interim periods within those fiscal years. The Company is in the process of determining the impact that
the implementation of these standards will have on the Company’s financial statements.
In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments – Credit Losses (Topic 326):
Measurements of Credit Losses on Financial Instruments (“ASU 2016-13”).” The objective of ASU 2016-13 is to
provide financial statement users with more decision-useful information about the expected credit losses on financial
instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve
this objective, the current incurred impairment methodology in current GAAP is to be replaced by a methodology
that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable
information to inform credit loss estimates. ASU 2016-13 is effective for public business entities for fiscal years
beginning after December 15, 2019, and interim periods within those fiscal years. The Company evaluated the
impact that the implementation of ASU 2016-13 and concluded the standard will not have a material impact on the
Company’s financial statements upon adoption.
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting
(“ASU 2016-09”), which amends ASC Topic 718, Stock Compensation. ASU 2016-09 includes provisions intended
to simplify various aspects related to how share-based payments are accounted for and presented in the financial
statements. ASU 2016-09 will allow entities to make an accounting policy election for the impact of most types of
forfeitures on the recognition of expense for share-based payment awards by allowing the forfeitures to be either
estimated, as is currently required, or recognized when they actually occur. If elected, the change to recognize
23
forfeitures when they occur will be adopted using a modified retrospective approach, with a cumulative effect
adjustment recorded to retained earnings. ASU 2016-09 will be effective for the Company for fiscal years beginning
after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted in any interim or
annual period. The Company has adopted ASU 2016-09 in the context of how the Company accounts for stock
forfeitures, which is reflected in the Company’s financial statements. The adoption had no impact since we were
already using a 0% forfeiture rate.
In March 2016, the FASB issued ASU No. 2016-05 “Derivatives and Hedging (Topic 815): Effect of Derivative
Contract Novations on Existing Hedge Accounting Relationships” (“ASU 2016-05”). ASU 2016-05 addresses the
impact on hedge accounting due to a change in a counterparty to a derivative instrument that has been designated
as a hedging instrument under Topic 815. The amendments in this update apply to all reporting entities for which
there is a change in the counterparty to a derivative instrument that has been designated as a hedging instrument
under Topic 815. The amendments in this update clarify that a change in the counterparty to a derivative instrument
that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require dedesignation
of that hedging relationship provided that all other hedge accounting criteria (including those in paragraphs 815-20-
35-14 through 35-18) continue to be met. For public business entities, the amendments in this update are effective
for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those
fiscal years. The Company evaluated ASU 2016-05 in the context of our hedge accounting and concluded that it
will not have a material impact on the Company’s financial statements upon adoption.
In February 2016, the FASB issued ASU No. 2016-02 “Leases” (“ASU 2016-02”). The new standard creates Topic
842, Leases, in FASB Accounting Standards Codification (FASB ASC) and supersedes FASB ASC 840, Leases.
ASU 2016-02 requires a lessee to recognize the assets and liabilities that arise from leases (operating and finance).
However, for leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election
not to recognize lease assets and lease liabilities. The main difference between the existing guidance on accounting
for leases and the new standard is that operating leases will now be recorded in the statement of financial position
as assets and liabilities. The new standard requires lessors to account for leases using an approach that is
substantially equivalent to existing guidance for sales-type leases and operating leases. ASU 2016-02 is expected
to impact the Company’s consolidated financial statements as the Company has certain operating land lease
arrangements for which it is the lessee. Current GAAP requires only capital (finance) leases to be recognized in the
statement of financial position and amounts related to operating leases largely are reflected in the financial
statements as rent expense on the income statement and in disclosures to the financial statements. ASU 2016-02
is effective for annual reporting periods (including interim periods within those periods) beginning after December
15, 2018. Early adoption is permitted. The Company is in the process of determining the impact that the
implementation of ASU 2016-02 will have on the Company’s financial statements. We anticipate there will be an
immaterial impact for the leases in which the Company is the lessor and/or the lessee.
In April 2015, the FASB issued ASU No. 2015-03 “Interest – Imputation of Interest (Subtopic 835-30): Simplifying
the Presentation of Debt Issuance Costs” (“ASU 2015-03”). The objective of ASU 2015-03 is to identify, evaluate,
and improve areas of GAAP for which cost and complexity can be reduced while maintaining or improving the
usefulness of the information provided to users of financial statements. To simplify presentation of debt issuance
costs, the amendments require that debt issuance costs related to a recognized debt liability be presented in the
balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.
The recognition and measurement guidance for debt issuance costs are not affected by the amendments. ASU
2015-03 is effective for annual reporting periods (including interim periods within those periods) beginning after
December 15, 2015. Early adoption is permitted. The Company has adopted ASU 2015-03 and determined the
resulting impact on the statements is a reclassification of certain deferred financing costs from other assets to each
respective balance sheet debt account.
In May 2014, with subsequent updates issued in August 2015 and March, April and May 2016, the FASB issued
ASU No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 was
developed to enable financial statement users to better understand the nature, amount, timing and uncertainty of
revenue and cash flows arising from contracts with customers. The update’s core principle is that an entity should
recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. Companies are to
use a five-step contract review model to ensure revenue is recognized, measured and disclosed in accordance with
this principle. ASU 2014-09, as updated, is effective for fiscal years and interim periods beginning after December
15, 2017. The Company is in the process of engaging a professional services firm to assist in the implementation
of ASU 2014-09 and has not currently selected a transition method. In addition we are in the process of determining
24
the impact that the implementation of ASU 2014-09, as updated, will have on the Company’s financial statements
and it is considered likely the implementation will change the Company’s disclosures.
Critical Accounting Policies
Our accounting policies are determined in accordance with GAAP. The preparation of our financial statements
requires us to make estimates and assumptions that are subjective in nature and, as a result, our actual results
could differ materially from our estimates. Set forth below are the more critical accounting policies that require
management judgment and estimates in the preparation of our consolidated financial statements. This summary
should be read in conjunction with the more complete discussion of our accounting policies and procedures included
in Note 2 to our consolidated financial statements.
Revenue Recognition
We lease real estate to our tenants under long-term net leases which we account 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 by us after the tenant exceeds a sales breakpoint. Contractually obligated
reimbursements from tenants for recoverable real estate taxes and operating expenses are generally included in
operating costs reimbursement in the period when such expenses are recorded.
Real Estate Investments
We record the acquisition of real estate at cost, including acquisition and closing costs. For properties developed
by us, 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.
Accounting for Acquisitions of Real Estate
The acquisition of property for investment purposes is typically accounted for as an asset acquisition. We allocate
the purchase price to land, building 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, we may use a number
of sources, including data provided by independent third parties, as well as information obtained by the Company
as a result our due diligence, including expected future cash flows of the property and various characteristics of the
markets where the property is located.
Depreciation
Our real estate portfolio is depreciated using the straight-line method over the estimated remaining useful life of
the properties, which generally ranges from 30 to 40 years for buildings and 10 to 20 years for improvements.
Impairments
We review our real estate investments periodically for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. Events or circumstances that may occur include, but are
not limited to, significant changes in real estate market conditions or our ability to re-lease or sell properties that are
vacant or become vacant. Management determines whether an impairment in value has occurred by comparing
the estimated future cash flows (undiscounted and without interest charges), including the residual value of the real
estate, with the carrying cost of the individual asset. An asset is considered impaired if its carrying value exceeds
its estimated undiscounted cash flows and an impairment charge is recorded in the amount by which the carrying
value of the asset exceeds its estimated fair value.
Results of Operations
Comparison of Year Ended December 31, 2016 to Year Ended December 31, 2015
Minimum rental income increased $19.7 million, or 31%, to $84.0 million in 2016, compared to $64.3 million in 2015.
Approximately $20.2 million of the increase is due to the acquisition of 82 properties in 2016 and the full year impact
of 73 properties acquired in 2015. Approximately $1.2 million of the increase is attributable to nine development
projects completed in 2016 and the full year impact of one development project completed in 2015, and
approximately a $0.4 million increase due to other minimum rental income adjustments.. These increases were
25
partially offset by approximately a $2.1 reduction in minimum rental income from properties sold during 2016 that
were owned for all or part of 2015.
Percentage rents remained generally consistent with prior periods. The years ended December 31, 2016 and 2015
totaled approximately $0.2 million.
Operating cost reimbursements increased $2.0 million, or 38%, to $7.3 million in 2016, compared to $5.3 million in
2015. Operating cost reimbursements increased due to higher levels of recoverable property operating expenses,
including real estate taxes, acquisition, disposition, and development activity. The portfolio recovery rate remained
consistent at 91% for both 2016 and 2015, respectively.
Other income decreased $0.2 million in 2016 compared to $0.2 million in 2015. The primary driver of the decrease
is non-recurring fee income earned in 2015.
Real estate taxes increased $1.5 million, or 36%, to $5.5 million in 2016, compared to $4.0 million in 2015. The
increase is due to the ownership of additional properties in 2016 compared to 2015 for which we remit real estate
taxes and are subsequently reimbursed by tenants.
Property operating expenses increased $0.7 million, or 40%, to $2.5 million in 2016, compared to $1.8 million in
2015. The increase is primarily due to the ownership of additional properties in 2016 compared to 2015 which
contributed to higher property maintenance, utilities and insurance expenses. Our tenants subsequently
reimbursed us for the majority of these expenses.
Land lease payments increased $0.1 million, or 8%, to $0.7 million in 2016, compared to $0.6 million in 2015. The
increase is the result of the full year impact of additional properties acquired in 2015 that are subject to land leases.
General and administrative expenses increased $1.0 million, or 15%, to $8.0 million in 2016, compared to $7.0
million in 2015. The increase is primarily the result of increased employee count and associated professional costs.
General and administrative expenses as a percentage of total revenue decreased to 8.8% for 2016 from 10.0% in
2015.
Depreciation and amortization increased $6.9 million, or 42%, to $23.4 million in 2016, compared to $16.5 million
in 2015. The increase was primarily the result of the acquisition of 82 properties in 2016 and 73 properties in 2015.
We recorded no impairment charges during 2016 or 2015, respectively.
Interest expense increased $3.0 million, or 25%, to $15.3 million in 2016, from $12.3 million in 2015. The increase
in interest expense is primarily a result of additional debt issuance in 2016, including the $40.0 million unsecured
term loan facility we entered into in July 2016 and $60.0 million senior unsecured notes issued in July 2016, which
were offset by the repayment of the $8.6 million portfolio mortgage loan in March 2016.
We recognized a net gain on sale of properties of $10.0 million in 2016, including (i) a gain of $2.7 million on the
sale of a Walgreens in Port St. John, Florida; (ii) a gain of $3.5 million on the sale of a Walgreens in Rancho
Cordova, California; (iii) a gain of $1.0 million on the sale of a Walgreens in Macomb, Michigan; and (iv) a gain of
$2.8 million on the sale of a Walgreens in Silver Springs Shores, Florida. During 2015, the Company recognized a
net gain of $12.1 million on the sale of eight properties, including (i) a gain of $3.3 million on the sale of Marshall
Plaza, a Kmart-anchored shopping center in Marshall, Michigan; (ii) a gain of $0.4 million on the sale of a former
Border’s store in Lawrence, Kansas; (iii) a loss of $0.3 million on the sale of two outlots to the Company’s Meijer –
occupied store in Plainfield, Indiana; (iv) a gain of $0.1 million on the sale of a Sonic restaurant in Waynesboro,
Virginia; (v) a gain of $8.0 million on the sale of Lakeland Plaza, a shopping center in Lakeland, Florida; and (vi) a
gain of $0.6 million on the sale of Ferris Commons, a shopping center located in Big Rapids, Michigan.
We had no income from discontinued operations in 2016 or 2015.
Net Income attributable to the Company increased $6.1 million, or 16%, to $45.1 million in 2016, from $39.0 million
in 2015 for the reasons set forth above.
26
Comparison of Year Ended December 31, 2015 to Year Ended December 31, 2014
Minimum rental income increased $14.9 million, or 30%, to $64.3 million in 2015, compared to $49.4 million in 2014.
Approximately $16.7 million of the increase is due to the acquisition of 73 properties in 2015 and the full year impact
of 77 properties acquired in 2014. Approximately $1.1 million of the increase is attributable to one development
project completed in 2015 and the full year impact of five development projects completed in 2014. These increases
were partially offset by approximately a $3.0 million reduction in minimum rental income from properties sold during
2015 that were owned for all of 2014, and approximately a $0.1 million increase due to other minimum rental income
adjustments.
Percentage rents remained generally consistent with prior periods.
Operating cost reimbursements increased $1.5 million, or 38%, to $5.3 million in 2015, compared to $3.8 million in
2014. Operating cost reimbursements increased due to higher levels of recoverable property operating expenses,
including real estate taxes, acquisition, disposition, and development activity. Our portfolio recovery rate increased
to 91% in 2015 compared to 86% in 2014.
Other income remained generally consistent with prior periods.
Real estate taxes increased $1.2 million, or 45%, to $4.0 million in 2015, compared to $2.8 million in 2014. The
increase is due to the ownership of additional properties in 2015 compared to 2014 for which we remit real estate
taxes and are subsequently reimbursed by tenants.
Property operating expenses increased $0.1 million, or 5%, to $1.8 million in 2015, compared to $1.7 million in
2014. The increase is primarily due to the ownership of additional properties in 2015 compared to 2014 which
contributed to higher property maintenance, utilities and insurance expenses. Our tenants subsequently reimbursed
us for the majority of these expenses.
Land lease payments increased $0.1 million, or 29%, to $0.6 million in 2015, compared to $0.5 million for 2014.
The increase is the result of additional properties acquired in 2015 compared to 2014 that are subject to a land
leases.
General and administrative expenses increased $0.4 million, to $7.0 million in 2015, compared to $6.6 million in
2014. The increase is primarily due to an increase in the number of employees resulting in an increased employee
cost of $0.2 million and a net increase in other expenses of $0.1 million. General and administrative expenses as
a percentage of total revenue decreased to 10.0% for 2015 from 12.4% in 2014.
Depreciation and amortization increased $5.4 million, or 48%, to $16.5 million in 2015, compared to $11.1 million
in 2014. The increase was primarily the result of the acquisition of 73 properties in 2015 and 77 properties in 2014.
We had no impairment charges in 2015. We recognized impairment charges of $3.0 million in 2014, including (i)
$0.2 million as a result of writing down the carrying value of Petoskey Town Center, which was under contract for
sale, but not classified as held for sale at December 31, 2015 due to contingencies associated with the contract
and (ii) $2.8 million as a result of writing down the carrying value of Chippewa Commons due to an anchor tenant
declining to exercise an extension option which would contribute to vacancy and diminished cash flows and resulted
in a fair value that was less than the net book value of the asset.
Interest expense increased $3.7 million or 43%, to $12.3 million in 2015, from $8.6 million in 2014. The increase in
interest expense is a result of higher levels of borrowings to finance the acquisition and development of additional
properties in 2015 and 2014, including the private placement of $100.0 million of senior unsecured notes entered
into in May of 2015.
We recognized a net gain of $12.1 million in 2015 on the sale of eight properties, including (i) a gain of $3.3 million
on the sale of Marshall Plaza, a Kmart-anchored shopping center in Marshall, Michigan; (ii) a gain of $0.4 million
on the sale of a former Border’s store in Lawrence, Kansas; (iii) a loss of $0.3 million on the sale of two outlots to
the Company’s Meijer – occupied store in Plainfield, Indiana; (iv) a gain of $0.1 million on the sale of a Sonic
restaurant in Waynesboro, Virginia; (v) a gain of $8.0 million on the sale of Lakeland Plaza, a shopping center in
Lakeland, Florida; and (vi) a gain of $0.6 million on the sale of Ferris Commons, a shopping center located in Big
27
Rapids, Michigan. In 2014, the Company recognized a net loss on the sale of properties of $0.5 million, including
(i) a $0.2 million loss on the sale of Chippewa Commons, a Kmart-anchored shopping center in Chippewa Falls,
Michigan, and (ii) a loss of $0.3 million on the sale of a property in East Lansing, Michigan in August 2014 (the
property was subject to a purchase option exercised by the lessee). The Company also recognized a gain of $0.1
million on the sale of the Ironwood Commons in January 2014. This gain is reflected in discontinued operations in
2014.
We had no income from discontinued operations in 2015, compared to $15,000 in 2014. Income from discontinued
operations in 2014 was attributable to Ironwood Commons which was classified as held for sale at December 31,
2013 and subsequently sold in January 2014.
Net Income attributable to the Company increased $20.9 million, or 110%, to $39.8 million in 2015, from $18.9
million in 2014 for the reasons set forth above.
Liquidity and Capital Resources
Our principal demands for funds include payment of operating expenses, payment of principal and interest on our
outstanding indebtedness, distributions to our shareholders and future property acquisitions and development.
We expect to meet our short term liquidity requirements through cash provided from operations and borrowings
under our revolving credit facility. As of December 31, 2016, $14.0 million was outstanding on our revolving credit
facility and $236.0 million was available for future borrowings, subject to our compliance with covenants. We
anticipate funding our long term capital needs through cash provided from operations, borrowings under our
revolving credit facility, the issuance of debt and the issuance of common or preferred equity or other instruments
convertible into or exchangeable for common or preferred equity.
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.
Capitalization
As of December 31, 2016, our total market capitalization was approximately $1.6 billion. Market capitalization
consisted of $1.2 billion of common equity (based on the December 31, 2016 closing price of our common stock on
the NYSE of $46.05 per share and assuming the conversion of OP Units) and $404.0 million of total debt including
(i) $70.0 million of mortgage notes payable; (ii) $160.0 million of unsecured term loans; (Iii) $160.0 million of senior
unsecured notes; and (iv) $14.0 million of borrowings under our revolving credit facility. Our ratio of total debt to
total market capitalization was 24.9% at December 31, 2016.
At December 31, 2016, the non-controlling interest in our Operating Partnership consisted of a 1.3% ownership
interest in the Operating Partnership held by third parties. The OP Units may, under certain circumstances, be
exchanged for our shares of common stock on a one-for-one basis. We, as sole general partner of the Operating
Partnership, have the option to settle exchanged OP Units held by others for cash based on the current trading
price of our shares. Assuming the exchange of all OP Units, there would have been 26,512,596 shares of common
stock outstanding at December 31, 2016.
Debt
Senior Unsecured Notes
During the year ended December 31, 2016, the Company issued $60.0 million of senior unsecured notes. On July
28, 2016, the Company entered into a Note Purchase Agreement with institutional purchasers. Pursuant to the Note
Purchase Agreement, the Operating Partnership completed a private placement of $60.0 million aggregate principal
amount of our 4.42% senior unsecured notes due July 28, 2028. The senior unsecured notes were only sold 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.
Senior Unsecured Revolving Credit Facility
On December 15, 2016, we amended and restated the credit agreement that governs our senior unsecured
revolving credit facility and unsecured term loan facility to increase the aggregate borrowing capacity to $350.0
28
million. The agreement provides for a $250.0 million unsecured revolving credit facility, a $65.0 million unsecured
term loan facility and a $35.0 million unsecured term loan facility. The unsecured revolving credit facility matures in
January 2021 with options to extend the maturity date to January 2022. The unsecured term loan facilities mature
in January 2024. We have the ability to increase the aggregate borrowing capacity under the credit agreement up
to $500.0 million, subject to lender approval. Borrowings under the revolving credit facility bear interest at LIBOR
plus 1.30% to 1.95%, depending on our leverage ratio. Additionally, we are required to pay an unused commitment
fee at an annual rate of 0.15% or 0.25% of the unused portion of the revolving credit facility, depending on the
amount of borrowings outstanding. The credit agreement contains certain financial covenants, including a maximum
leverage ratio, a minimum fixed charge coverage ratio and a maximum percentage of secured debt to total asset
value.
Unsecured Term Loan Facilities
The amended and restated credit agreement described above extended the maturity dates of the $65.0 million
unsecured term loan facility and $35.0 million unsecured term loan facility to January 15, 2024. In connection with
entering into the amended and restated credit agreement, the prior notes evidencing the existing $65.0 million
unsecured term loan facility and $35.0 million unsecured term loan facility were canceled and new notes evidencing
the 2024 Term Loan Facilities were executed. Borrowings under the unsecured term loan facility bear interest at a
variable LIBOR plus 1.65% to 2.35%, depending on our leverage ratio. We utilized existing interest rate swaps to
effectively fix the LIBOR rate (see “Note 8 - Derivative and Hedging Activities”).
In July 2016, the Company completed a $40.0 million unsecured term loan facility that matures in July
2023. Borrowings under the unsecured term loan facility are priced at LIBOR plus 165 to 225 basis points,
depending on our leverage. We entered into interest rate swap to fix LIBOR at 1.40% until maturity. As of December
31, 2016, $40.0 million was outstanding under the unsecured term loan facility, which is subject to an all-in interest
rate of 3.05%.
In August 2016, we entered into a $20.3 million unsecured amortizing term loan that matures in May 2019.
Borrowings under the unsecured amortizing term loan are priced at LIBOR plus 170 basis points. In order to fix
LIBOR on the unsecured amortizing term loan at 1.92% until maturity, we have an interest rate swap agreement in
place, which was assigned by the lender under the prior secured facility to the lender under the unsecured
amortizing term loan. As of December 31, 2016, $20.0 million was outstanding under the unsecured amortizing
term loan bearing an all-in interest rate of 3.62%.
Mortgage Notes Payable
As of December 31, 2016, we had total mortgage indebtedness of $70.0 million, with a weighted average term to
maturity of 4.4 years. Including our mortgages that have been swapped to a fixed interest rate, our weighted
average interest rate on mortgage debt was 4.0%.
Mortgage Note Payable
Portfolio Mortgage Loan due 2016
Secured Term Loan due 2017
Secured Term Loan due 2018
Portfolio Mortgage Loan due 2020
Single Asset Mortgage Loan due 2020
CMBS Portfolio Loan due 2023
Single Asset Mortgage Loan due 2023
Portfolio Commerical Trust Lease ("CTL") due 2026
Total
Interest
Maturity
Rate (1)
6.56%
June 2016 (2)
3.62% May 2017 (3)
2.49%
6.90%
6.24%
3.60%
5.01%
6.27%
April 2018
January 2020
January 2020
January 2023
September 2023
July 2026
Principal Amount Outstanding
December 31, 2016
$
-
December 31, 2015
$
8,580
-
25,000
5,114
3,049
23,640
5,294
7,910
70,007
$
20,741
25,000
6,553
3,129
23,640
5,448
8,493
101,584
$
(1) Includes the effects of variab le interest rates that have b een swapped to fixed interest rates.
(2) Mortgage secured b y three Wawa locations was paid off on March 11, 2016 in the amount of $8.6 million.
(3) Secured Term Loan due 2017 secured b y seven locations was paid off August 18, 2016 in the amount of $20.3 million.
In August 2016, the Company prepaid a $20.3 million amortizing mortgage note due May 2017, secured by seven
properties, that had an interest rate of LIBOR plus 170 basis points. Concurrently therewith, we entered into a
$20.3 million unsecured amortizing term loan. Refer to unsecured term loan facility section for further detail.
29
The mortgage loans encumbering our 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 a material misrepresentation, misstatement or omission 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 December
31, 2016, the mortgage loan of $20.7 million was partially recourse to us and secured by a limited guaranty of
payment and performance for approximately 50% of the loan amount.
We have 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 we default 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.
Contractual Obligations
The following table summarizes our contractual obligations by due date as of December 31, 2016:
Mortgage Notes Payable
Revolving Credit Facility
Unsecured Term Loans
Senior Unsecured Notes
Land Lease Obligations
Estimated Interest Payments on Mortgage Notes
Payable, Unsecured Term Loans and Senior Unsecured
Notes
Total
$
Total
70,007
14,000
160,044
160,000
10,975
Less than 1
year
1-3 years
3-5 years
More than 5
years
$
$
2,412
-
736
-
640
$
$
30,326
-
19,308
-
1,275
4,865
14,000
100,000
-
1,220
32,404
-
40,000
160,000
7,840
109,367
524,393
$
$
15,612
19,400
$
29,202
80,111
$
24,510
144,595
$
40,043
280,287
Estimated interest payments are based on (i) the stated rates for mortgage notes payable, including the effect of
interest rate swaps and (ii) the stated rates for unsecured term loans, including the effect of interest rate swaps and
assuming the interest rate in effect for the most recent quarter remains in effect through the respective maturity
dates.
Dividends
During the quarter ended December 31, 2016, we declared a quarterly dividend of $0.495 per share. The cash
dividend was paid on January 3, 2017 to holders of record on December 23, 2016.
Inflation
Our leases typically contain provisions to mitigate the adverse impact of inflation on our results of operations. Tenant
leases generally provide for limited increases in rent as a result of fixed increases or increases in the consumer
price index. Certain of our leases contain clauses enabling us to receive percentage rents based on tenants’ gross
sales, which generally increase as prices rise. During times when inflation is greater than increases in rent, rent
increases will not keep up with the rate of inflation.
Substantially all of properties are leased to tenants under long-term, net leases which require the tenant to pay
certain operating expenses for a property, thereby reducing our exposure to operating cost increases resulting from
inflation. Inflation may have an adverse impact on our tenants.
Funds from Operations
Funds from Operations (“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
property, plus real estate related depreciation and amortization and any impairment charges on a depreciable real
estate asset, and after adjustments for unconsolidated partnerships and joint ventures. Management uses FFO as
a supplemental measure to conduct and evaluate the Company’s business because there are certain limitations
associated with using GAAP net income by itself as the primary measure of the Company’s operating performance.
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, management believes that the presentation of operating results for real estate companies that
use historical cost accounting is insufficient by itself.
30
FFO should not be considered as 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 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.
Adjusted Funds from Operations (“AFFO”) is a non-GAAP financial measure of operating performance used by
many companies in the REIT industry. AFFO further adjusts FFO for certain non-cash items that reduce or increase
net income 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 the Company’s 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. Note that, during the year ended December 31, 2015,
the Company adjusted its calculation of AFFO to exclude non-recurring capitalized building improvements and to
include non-real estate related depreciation and amortization. Management believes that these changes provide a
more useful measure of operating performance in the context of AFFO.
The following table provides a reconciliation of FFO and net income for the years ended December 31, 2016, 2015
and 2014:
Reconciliation from Net Income to Funds from Operations
Net income
Depreciation of real estate assets
Amortization of leasing costs
Amortization of lease intangibles
Impairment charge
(Gain) loss on sale of assets
Funds from Operations
December 31, 2016
$
45,797
Year Ended
December 31, 2015
$
39,762
December 31, 2014
$
18,913
15,200
125
8,010
-
(9,964)
59,168
$
11,466
98
4,859
-
(12,135)
44,050
$
8,362
125
2,491
3,020
405
33,316
$
Funds from Operations Per Share - Diluted
$
2.54
$
2.39
$
2.18
Weighted average shares and OP units outstanding
Basic
Diluted
23,216,355
23,307,418
18,350,741
18,413,034
15,230,205
15,314,514
The following table provides a reconciliation of AFFO and net income for the years ended December 31, 2016, 2015
and 2014:
Reconciliation from Net Income to Adjusted Funds from Operations December 31, 2016
45,797
Net income
Cumulative adjustments to calculate FFO
Funds from Operations
Straight-line accrued rent
Deferred revenue recognition
Stock based compensation expense
Amortization of financing costs
Non-Real Estate Depreciation
Debt Extinguishment Costs
Adjusted Funds from Operations
13,371
59,168
(3,582)
(541)
2,441
516
72
333
58,407
$
$
$
Year Ended
Year Ended
December 31, 2015
$
39,762
Year Ended
December 31, 2014
$
18,913
$
$
4,288
44,050
(2,450)
(463)
1,992
494
62
180
43,865
14,403
33,316
(1,416)
(463)
1,987
398
123
-
33,945
$
$
Adjusted Funds from Operations Per Share - Diluted
$
2.51
$
2.38
$
2.22
Additional supplemental disclosure
Scheduled principal repayments
Capitalized interest
Capitalized building improvements
$
$
$
2,954
210
541
$
$
$
2,772
39
310
$
$
$
3,599
263
145
31
Item 7A:
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to interest rate risk primarily through our 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 our future financing requirements.
Our interest rate risk is monitored using a variety of techniques. The table below presents the principal payments
(in thousands) and the weighted average interest rates on outstanding debt, by year of expected maturity, to
evaluate the expected cash flows and sensitivity to interest rate changes, assuming no mortgage defaults.
($ in thousands)
Mortgage Notes Payable
Average Interest Rate
Unsecured Revolving Credit Facility
Average Interest Rate
Unsecured Term Loans
Average Interest Rate
Senior Unsecured Notes
Average Interest Rate
$
$
$
$
2017
2018
2019
2020
2021
Thereafter
Total
2,412 $
6.59%
27,576 $
2.87%
2,751 $
6.59%
3,867 $
6.21%
998 $
6.02%
32,403 $
4.15%
70,007
- $
- $
- $
- $
14,000 $
1.92%
- $
14,000
736 $
761 $
3.62%
3.62%
18,547 $
3.62%
35,000 $
3.85%
65,000 $
3.74%
40,000 $
3.05%
160,044
- $
- $
- $
- $
- $
160,000 $
160,000
4.29%
The fair value is estimated at $75.8 million and $325.6 million for mortgage notes payable and unsecured term
loans and notes, respectively, as of December 31, 2016.
The table above incorporates those exposures that exist as of December 31, 2016; it does not consider those
exposures or positions which could arise after that date. As a result, our ultimate realized gain or loss with respect
to interest rate fluctuations will depend on the exposures that arise during the period and interest rates.
We seek to limit the impact of interest rate changes on earnings and cash flows and to lower the overall borrowing
costs by closely monitoring our variable rate debt and converting such debt to fixed rates when we deem such
conversion advantageous. From time to time, we 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, we 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 April 2012, the Company entered into an amortizing forward-starting interest rate swap agreement to hedge
against changes in future cash flows resulting from changes in interest rates on $22.3 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 mo. LIBOR and pays to the counterparty a fixed rate of 1.92%. This
swap effectively converted $22.3 million of variable-rate borrowings to fixed-rate borrowings from July 1, 2013 to
May 1, 2019. As of December 31, 2016, this interest rate swap was valued as a liability of approximately $0.2
million.
In December 2012, the Company entered into interest rate swap agreements to hedge against changes in future
cash flows resulting from changes in interest rates on $25.0 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 0.89%. This swap effectively converted $25.0
million of variable-rate borrowings to fixed-rate borrowings from December 6, 2012 to April 4, 2018. As of December
31, 2016, this interest rate swap was valued as an asset of approximately $0.1 million.
In September 2013, 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 2.20%. This swap effectively converted $35.0
32
million of variable-rate borrowings to fixed-rate borrowings from October 3, 2013 to September 29, 2020. As of
December 31, 2016, this interest rate swap was valued as a liability of approximately $0.7 million.
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 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 2.09%. This swap effectively converted $65.0 million
of variable-rate borrowings to fixed-rate borrowings from July 21, 2014 to July 21, 2021. As of December 31, 2016,
this interest rate swap was valued as a liability of approximately $1.0 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 December 31, 2016,
this interest rate swap was valued as an asset of approximately $1.4 million.
We do not use derivative instruments for trading or other speculative purposes and we did not have any other
derivative instruments or hedging activities as of December 31, 2016.
As of December 31, 2016, a 100 basis point increase in interest rates on the portion of our debt bearing interest at
variable rates would have resulted in an increase in interest expense of approximately $0.1 million.
Item 8:
Financial Statements and Supplementary Data
The financial statements and supplementary data are listed in the Index to Financial Statements and Financial
Statement Schedules appearing on Page F-1 of this Annual Report on Form 10-K and are included in this Annual
Report on Form 10-K following page F-1.
Item 9:
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
There are no disagreements with our independent registered public accounting firm on accounting matters or
financial disclosure.
Item 9A:
Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the
participation of our principal executive officer and principal financial officer, of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, the
principal executive officer and principal financial officer concluded that our disclosure controls and procedures are
effective to ensure that information required to be disclosed by us in reports that we file or submit under the
Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and
forms.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting,
as defined in Rules 13a15-(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting
is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP. Our internal control over financial reporting
includes those policies and procedures that:
1) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of our Company;
2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP, and that our receipts and expenditures are being made
only in accordance with authorizations of our management and directors; and
3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use,
or disposition of our assets that could have a material effect on the financial statements.
33
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Under the supervision of our principal executive officer and our principal financial officer, we conducted an
evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our assessment and those criteria, our management believes that we maintained effective
internal control over financial reporting as of December 31, 2016.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during our most recently completed fiscal quarter
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Attestation Report of Independent Registered Public Accounting Firm
The attestation report required under this item is contained on page F-2 of this Annual Report on Form 10-K.
Item 9B:
Other Information
None.
PART III
Item 10:
Directors, Executive Officers and Corporate Governance
Incorporated herein by reference to our definitive proxy statement with respect to our 2017 Annual Meeting of
Shareholders.
Item 11:
Executive Compensation
Incorporated herein by reference to our definitive proxy statement with respect to our 2017 Annual Meeting of
Shareholders.
Item 12:
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The following table summarizes the equity compensation plan under which our common stock may be issued as of
December 31, 2016.
Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights
(a)
Weighted Average Exercise
Price of Outstanding Options,
Warrant and Rights
(b)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column (a))
(c)
-
-
-
-
-
-
557,543 (1)
-
557,543
Plan Category
Equity Compensation Plans
Approved by Security Holders
Equity Compensation Plans Not
Approved by Security Holders
Total
(1) Relates to various stock-based awards available for issuance under our 2014 Omnibus Incentive Plan, including incentive stock options,
non-qualified stock options, stock appreciation rights, deferred stock awards, restricted stock awards, unrestricted stock awards and
dividend equivalent rights.
34
Additional information, including our Security Ownership of Certain Beneficial Owners and Management table, is
incorporated herein by reference to our definitive proxy statement with respect to our 2017 Annual Meeting of
Shareholders.
Item 13:
Certain Relationships, Related Transactions and Director Independence
Incorporated herein by reference to our definitive proxy statement with respect to our 2017 Annual Meeting of
Shareholders.
Item 14:
Principal Accounting Fees and Services
Incorporated herein by reference to our definitive proxy statement with respect to our 2017 Annual Meeting of
Shareholders.
35
PART IV
ITEM 15:
Exhibits and Financial Statement Schedules
15(a)(1).
The following documents are filed as a part of this Annual Report on Form 10-K:
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets as of December 31, 2016 and 2015
Consolidated Statements of Operations and Comprehensive Income for the Years Ended
December 31, 2016, 2015 and 2014
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2016,
2015 and 2014
Consolidated Statements of Cash Flow for the Years Ended December 31, 2016, 2015 and
2014
Notes to the Consolidated Financial Statements
15(a)(2).
The following is a list of the financial statement schedules required by Item 8:
Schedule III – Real Estate and Accumulated Depreciation
15(a)(3).
Exhibits
Exhibit No.
Description
3.1
3.2
3.3
4.1
Articles of Incorporation of the Company, (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly
Report on Form 10-Q (No. 001-12928) for the quarter ended June 30, 2013)
Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 8-K
(No. 001-12928) filed on May 9, 2013)
Articles of Amendment of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K (No.
001-12928) filed on May 3, 2016)
Rights Agreement, dated as of December 7, 1998, by and between Agree Realty Corporation, a Maryland
corporation, and Computershare Trust Company, N.A., f/k/a EquiServe Trust Company, N.A., a national banking
association, as successor rights agent to BankBoston, N.A., a national banking association (incorporated by
reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-3 (No. 333-161520) filed on November
13, 2009)
4.2 Second Amendment to Rights Agreement, dated as of December 8, 2008, by and between Agree Realty
Corporation, a Maryland corporation, and Computershare Trust Company, N.A., f/k/a EquiServe Trust Company,
N.A., a national banking association, as successor rights agent to BankBoston, N.A., a national banking association
(incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (No. 001-12928) filed on
December 9, 2008)
4.3
4.4
Amended and Restated Registration Rights Agreement, dated July 8, 1994 by and among the Company, Richard
Agree, Edward Rosenberg and Joel Weiner (incorporated by reference to Exhibit 10.2 to the Company’s Annual
Report on Form 10-K (No. 001-12928) for the year ended December 31, 1994)
Form of certificate representing shares of common stock (incorporated by reference to Exhibit 4.2 to the Company’s
Registration Statement on Form S-3 (No. 333-161520) filed on August 24, 2009
10.1* First Amended and restated Credit Agreement, dated as of December 15, 2016, among Agree Limited Partnership,
as the Borrower, Agree Realty Corporation, as the parent REIT and a guarantor, certain subsidiaries of the
Borrower, as guarantors, PNC Bank, National Association and the other lenders party thereto
10.2
The Term Loan Agreement dated July 1, 2016, among Agree Limited Partnership, Capital One and the other lenders
party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (No. 001-
12928) for the quarter ended June 30, 2016)
10.3* The First Amendment dated December 15, 2016 to the Term Loan Agreement dated July 1, 2016, among Agree
Limited Partnership, Capital One and the other lenders party thereto
36
10.4
10.5
First Amended and Restated Agreement of Limited Partnership of Agree Limited Partnership, dated as of April 22,
1994, as amended by and among the Company, Richard Agree, Edward Rosenberg and Joel Weiner (incorporated
by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K (No. 001-12928) for the year ended
December 31, 2012)
Second Amendment to First Amended and Restated Agreement of Limited Partnership of Agree Limited
Partnership, dated as of March 20, 2013, as amended by and among the Company, the Limited Partnership and
Richard Agree (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (No.
001-12928) for the quarter ended March 31, 2013)
10.6+ Agree Realty Corporation Profit Sharing Plan (incorporated by reference to Exhibit 10.13 to the Company’s Annual
Report on Form 10-K (No. 001-12928) for the year ended December 31, 1996)
10.7+ Amended Employment Agreement, dated July 1, 2014, by and between the Company and Richard Agree
(incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (No. 001-12928) for
the quarter ended September 30, 2014)
10.8+ Amended Employment Agreement, dated July 1, 2014, by and between the Company and Joey Agree (incorporated
by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (No. 001-12928) for the quarter
ended September 30, 2014)
10.9+ Letter Agreement of Employment dated April 5, 2010 between Agree Limited Partnership and Laith Hermiz
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (No. 001-12928) filed on
April 6, 2010)
10.10+Letter Agreement of Employment dated November 4, 2015 between Agree Limited Partnership and Matthew M.
Partridge (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (No. 001-12928)
filed on November 24, 2015)
10.11*Summary of Director Compensation
10.12+Agree Realty Corporation 2014 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.10 to the Company’s
Annual Report on 10-K (No. 001-12928) for the year ended December 31, 2014)
10.13+Form of Restricted Stock Agreement under the Agree Realty Corporation 2014 Omnibus Incentive Plan (incorporated
by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (No. 001-12928) for the quarter
ended September 30, 2014)
10.14* Agree Realty Corporation 2017 Executive Incentive Plan, dated February 23, 2017
10.15 Note Purchase Agreement, by Agree Limited Partnership dated May 28, 2015 (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K (No. 001-12928) filed on June 1, 2015)
10.16 Note Purchase and Guarantee Agreement, dated July 28, 2016, by and among Agree Realty Corporation, Agree
Limited Partnership, Teachers Insurance and Annuity Association of America, The Guardian Life Insurance
Company of America and Advantus Capital Management, Inc. (incorporated by reference Exhibit 10.1 of the
Company’s Quarterly Report on Form 10-Q (No. 001-12928) for the quarter ended September 30, 2016)
12.1* Statement of computation of ratios of earnings to combined fixed charges and preferred stock dividends
21*
Subsidiaries of Agree Realty Corporation
23.1* Consent of Grant Thornton LLP
24
Power of Attorney (included on the signature page of this Annual Report on Form 10-K)
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, Matthew M. Partridge, 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, Matthew M. Partridge, Chief Financial
Officer
99.1 Material Federal Income Tax Considerations (incorporated by reference to Exhibit 99.1 to the Company’s Annual
Report on Form 10-K (No. 001-12928) filed on March 11, 2016)
37
101*
The following materials from Agree Realty Corporation’s Annual Report on Form 10-K for the year ended December
31, 2016 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance
Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Income, (iii) the Consolidated
Statement of Shareholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and (v) related notes to these
consolidated financial statements, tagged as blocks of text
*
+
Filed herewith.
Management contract or compensatory plan or arrangement.
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the registrant has not filed debt instruments relating to long-
term debt that is not registered and for which the total amount of securities authorized thereunder does not exceed
10% of total assets of the registrant and its subsidiaries on a consolidated basis as of December 31, 2016. The
registrant agrees to furnish a copy of such agreements to the SEC upon request.
15(b) The Exhibits listed in Item 15(a)(3) are hereby filed with this Annual Report on Form 10-K.
15(c) The financial statement schedule listed at Item 15(a)(2) is hereby filed with this Annual Report on Form 10-
K.
38
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
AGREE REALTY CORPORATION
By:
/s/ Joel N. Agree
Joel N. Agree
President and Chief Executive Officer
Date: February 23, 2017
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and directors of Agree Realty Corporation, hereby
severally constitute Richard Agree, Joel N. Agree and Matthew M. Partridge, and each of them singly, our true and lawful
attorneys with full power to them, and each of them singly, to sign for us and in our names in the capacities indicated below, the
Annual Report on Form 10-K filed herewith and any and all amendments to said Annual Report on Form 10-K, and generally to
do all such things in our names and in our capacities as officers and directors to enable Agree Realty Corporation to comply with
the provisions of the Securities Exchange Act of 1934, as amended and all requirements of the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to said
Annual Report on Form 10-K and any and all amendments thereto.
PURSUANT to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities indicated on the 23rd day of February 2017.
By:
By:
By:
By:
By:
By:
By:
By:
By:
By:
/s/ Richard Agree
Richard Agree
Executive Chairman of the Board of Directors
/s/ Joel N. Agree
Joel N. Agree
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Matthew M. Partridge
Matthew M. Partridge
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
/s/ Merrie S. Frankel
Merrie S. Frankel
Director
/s/ Farris G. Kalil
Farris G. Kalil
Director
/s/ John Rakolta
John Rakolta Jr.
Director
/s/ Jerome Rossi
Jerome Rossi
Director
/s/ William S. Rubenfaer
William S. Rubenfaer
Director
/s/ Leon M. Schurgin
Leon M. Schurgin
Director
/s/ Gene Silverman
Gene Silverman
Director
39
Date: February 23, 2017
Date: February 23, 2017
Date: February 23, 2017
Date: February 23, 2017
Date: February 23, 2017
Date: February 23, 2017
Date: February 23, 2017
Date: February 23, 2017
Date: February 23, 2017
Date: February 23, 2017
40
Reports of Independent Registered Public Accounting Firm
Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Income
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Schedule III - Real Estate and Accumulated Depreciation
Page
F-2
F-4
F-5
F-6
F-7
F-9
F-30
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Agree Realty Corporation
We have audited the internal control over financial reporting of Agree Realty Corporation (a Maryland corporation) and
subsidiaries (the “Company”) as of December 31, 2016, based on criteria established in the 2013 Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2016, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated financial statements of the Company as of and for the year ended December 31, 2016, and our report dated
February 23, 2017 expressed an unqualified opinion on those financial statements.
/s/ GRANT THORNTON LLP
Southfield, Michigan
February 23, 2017
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Agree Realty Corporation
We have audited the accompanying consolidated balance sheets of Agree Realty Corporation (a Maryland corporation) and
subsidiaries (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations and
comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31,
2016. Our audits of the basic consolidated financial statements included the financial statement schedule listed in the index
appearing under Item 15. These financial statements and financial statement schedule are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Agree Realty Corporation and subsidiaries as of December 31, 2016 and 2015, and the results of their operations
and their cash flows for each of the three years in the period ended December 31, 2016 in conformity with accounting
principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the Company’s internal control over financial reporting as of December 31, 2016, based on criteria established in the 2013
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated February 23, 2017 expressed an unqualified opinion.
/s/ GRANT THORNTON LLP
Southfield, Michigan
February 23, 2017
F-3
AGREE REALTY CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
December 31,
2016
December 31,
2015
$
309,687
703,506
(69,696)
943,497
6,764
950,261
$
225,274
526,912
(56,401)
695,785
3,663
699,448
33,395
2,712
11,535
7,418
1,552
1,227
109,824
1,409
2,722
543
665
76,552
98
2,471
$
1,111,925
$
789,907
ASSETS
Real Estate Investments
Land
Buildings
Less accumulated depreciation
Property under development
Net Real Estate Investments
Cash and Cash Equivalents
Accounts Receivable - Tenants, net of allowance of
$50 and $35 for possible losses at December 31, 2016 and
December 31, 2015, respectively
Unamortized Deferred Expenses
Credit facility finance costs, net of accumulated amortization
of $1,262 and $1,532 at December 31, 2016 and December
31, 2015, respectively
Leasing costs, net of accumulated amortization of $677 and
$554 at December 31, 2016 and December 31, 2015,
respectively
Lease intangibles, net of accumulated amortization of
$18,588 and $10,578 at December 31, 2016 and December
31, 2015, respectively
Interest Rate Swaps
Other Assets
Total Assets
See accompanying notes to consolidated financial statements.
F-4
AGREE REALTY CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per-share data)
LIABILITIES
Mortgage Notes Payable, net
Unsecured Term Loans, net
Senior Unsecured Notes, net
Unsecured Revolving Credit Facility
Dividends and Distributions Payable
Deferred Revenue
Accrued Interest Payable
Accounts Payable and Accrued Expenses
Capital expenditures
Operating
Interest Rate Swaps
Deferred Income Taxes
Tenant Deposits
Total Liabilities
STOCKHOLDERS' EQUITY
Common stock, $.0001 par value, 45,000,000 shares
authorized, 26,164,977 and 20,637,301 shares issued
and outstanding, respectively
Preferred Stock, $.0001 par value per share, 4,000,000
shares authorized
Series A junior participating preferred stock, $.0001
par value, 200,000 authorized, no shares issued
and outstanding
Additional paid-in-capital
Dividends in excess of net income
Accumulated other comprehensive loss
Total Stockholders' Equity - Agree Realty Corporation
Non-controlling interest
Total Stockholders' Equity
December 31,
2016
December 31,
2015
$
69,067
$
100,391
158,679
159,176
14,000
13,124
1,823
2,210
677
4,866
1,994
705
94
99,390
99,161
18,000
9,758
1,708
963
122
2,759
3,301
705
29
426,415
336,287
3
2
-
712,069
(28,558)
(536)
682,978
2,532
685,510
-
482,514
(28,262)
(3,130)
451,124
2,496
453,620
Total Liabilities and Stockholders' Equity
$
1,111,925
$
789,907
See accompanying notes to consolidated financial statements.
F-5
AGREE REALTY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except for share and per-share data)
Revenues
Minimum rents
Percentage rents
Operating cost reimbursement
Other income
Total Revenues
Operating Expenses
Real estate taxes
Property operating expenses
Land lease payments
General and administrative
Depreciation and amortization
Impairment charge
Total Operating Expenses
Income from Operations
Other (Expense) Income
Interest expense, net
Gain (loss) on sale of assets
Loss on debt extinguishment
Income From Continuing Operations
Discontinued Operations
Gain on sale of assets from discontinued operations
Income from discontinued operations
For the Year Ended December 31,
2015
2014
2016
$
84,031
197
7,267
32
91,527
$
64,278
180
5,277
231
69,966
$
49,403
160
3,825
171
53,559
5,459
2,484
653
8,015
23,407
-
40,018
10.0%
51,509
(15,343)
9,964
(333)
45,797
-
-
4,005
1,768
606
6,988
16,486
-
29,853
10.0%
40,113
(12,305)
12,135
(181)
39,762
-
-
2,766
1,679
471
6,629
11,103
3,020
25,668
27,891
(8,587)
(528)
-
18,776
123
14
Net Income
45,797
39,762
18,913
Less Net Income Attributable to Non-Controlling
Interest
679
744
425
Net Income Attributable to Agree Realty Corporation
$
45,118
$
39,018
$
18,488
Basic Earnings Per Share
Continuing operations
Discontinued operations
Diluted Earnings Per Share
Continuing operations
Discontinued operations
$
$
$
$
$
$
$
$
$
$
$
$
1.97
-
1.97
1.97
-
1.97
2.17
-
2.17
2.16
-
2.16
1.23
0.01
1.24
1.23
0.01
1.24
Other Comprehensive Income
Net income
Other Comprehensive Income (Loss)
Total Comprehensive Income
Comprehensive Income Attributable to Non-Controlling
Interest
Comprehensive Income Attributable to
Agree Realty Corporation
Weighted Average Number of Common Shares
Outstanding - Basic:
Weighted Average Number of Common Shares
Outstanding - Diluted:
$
45,797
2,618
48,415
$
39,762
(1,093)
38,669
$
18,913
(2,584)
16,329
(703)
(724)
(373)
$
47,712
$
37,945
$
15,956
22,868,736
18,003,122
14,882,586
22,959,799
18,065,415
14,966,895
See accompanying notes to consolidated financial statements.
F-6
AGREE REALTY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except for share and per-share data)
Balance, December 31, 2013
Issuance of common stock, net of issuance costs
Issuance of restricted stock under the Equity Incentive Plan
Issuance of restricted stock under the Omnibus Incentive Plan
Forfeiture of restricted stock
Vesting of restricted stock
Dividends and distributions declared for the period
Other comprehensive income (loss) -
change in fair value of interest rate swap
Net income
Balance, December 31, 2014
Issuance of common stock, net of issuance costs
Issuance of restricted stock under the Omnibus Incentive Plan
Forfeiture of restricted stock
Vesting of restricted stock
Dividends and distributions declared for the period
Other comprehensive income (loss) - change in fair value
of interest rate swaps
Net income
Balance, December 31, 2015
Issuance of common stock, net of issuance costs
Repurchase of common shares
Issuance of restricted stock under the Omnibus Incentive Plan
Forfeiture of restricted stock
Vesting of restricted stock
Dividends and distributions declared for the period
Other comprehensive income (loss) - change in fair value
of interest rate swaps
Net income
Balance, December 31, 2016
Common Stock
Shares
14,883,314
2,587,500
81,864
2,128
(14,860)
-
-
-
-
-
17,539,946
3,043,812
85,597
(32,054)
-
-
-
-
-
20,637,301
5,461,459
(20,569)
93,363
(6,577)
-
-
Amount
$
1
-
-
-
-
-
-
-
-
-
1
$
1
-
-
-
-
-
-
-
Additional
Paid-In Capital
$
312,974
73,302
-
-
-
1,987
-
-
-
-
$
388,263
92,259
-
-
1,992
-
-
-
-
$
2
1
-
-
-
-
-
$
482,514
228,010
(712)
-
-
2,257
-
$
$
$
Dividends in
excess of net
income
$
Non-Controlling
Interest
$
Total
Equity
$
$
Accumulated
Other
Comprehensive
Income (Loss)
$
472
-
-
-
-
-
-
-
(2,532)
-
(2,060)
-
-
-
-
-
-
(1,070)
-
(3,130)
-
-
-
-
-
-
$
(23,879)
-
-
-
-
-
(27,193)
-
-
18,488
(32,584)
-
-
-
-
(34,696)
-
-
39,018
(28,262)
-
-
-
-
-
(45,414)
2,647
-
-
-
-
-
(605)
-
(52)
425
2,415
-
-
-
-
(640)
-
(23)
744
2,496
-
-
-
-
-
(667)
292,215
73,302
-
-
-
1,987
(27,798)
-
(2,584)
18,913
356,035
92,260
-
-
1,992
(35,336)
-
(1,093)
39,762
453,620
228,011
(712)
-
-
2,257
(46,081)
$
$
$
-
-
26,164,977
-
-
$
3
-
-
712,069
$
-
45,118
(28,558)
$
2,594
-
(536)
$
24
679
2,532
$
2,618
45,797
685,510
$
See accompanying notes to consolidated financial statements.
F-7
AGREE REALTY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash Flows from Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation
Amortization
Amortization from financing and credit facility costs
Stock-based compensation
Impairment charge
Write-off of deferred costs
(Gain) loss on sale of assets
(Increase) decrease in accounts receivable
(Increase) decrease in other assets
Increase (decrease) in accounts payable
Increase (decrease) in deferred revenue
Increase (decrease) in accrued interest
Increase (decrease) in tenant deposits
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities
Acquisition of real estate investments
Development of real estate investments and other
(including capitalized interest of $210 in 2016, $39 in 2015, and
$263 in 2014
Payment of leasing costs
Net proceeds from sale of assets
Net Cash Used In Investing Activities
Cash Flows from Financing Activities
Proceeds from common stock offering, net
Repurchase of common shares
Unsecured revolving credit facility borrowings
Unsecured revolving credit facility repayments
Payments of mortgage notes payable
Unsecured term loan proceeds
Payments of unsecured term loans
Senior unsecured notes proceeds
Dividends paid
Limited partners' distributions paid
Debt extinguishment costs
Payments for financing costs
Net Cash Provided by Financing Activities
For the Year Ended December 31,
2016
2015
2014
$
45,797
$
39,762
$
18,913
15,274
8,133
720
2,257
-
333
(9,964)
(4,117)
(109)
1,984
115
1,247
65
61,735
11,530
4,956
689
1,992
-
181
(12,135)
(2,911)
(197)
1,043
(463)
241
(8)
44,680
8,486
2,617
951
1,987
3,020
-
405
(1,245)
344
(311)
(463)
251
(4)
34,951
(297,868)
(223,871)
(143,273)
(27,919)
(686)
28,919
(297,554)
228,011
(712)
252,000
(256,000)
(31,578)
60,283
(239)
60,000
(42,058)
(657)
-
(2,548)
266,502
(6,970)
(66)
28,132
(202,775)
92,260
-
161,000
(158,000)
(5,178)
-
-
100,000
(32,992)
(636)
(150)
(896)
155,408
(16,527)
(354)
12,456
(147,698)
73,302
-
148,623
(143,123)
(12,767)
65,000
-
-
(25,403)
(591)
-
(1,432)
103,609
Net (Decrease) Increase in Cash and Cash Equivalents
Cash and Cash Equivalents, beginning of period
Cash and Cash Equivalents, end of period
30,683
2,712
33,395
$
(2,687)
5,399
2,712
$
(9,138)
14,537
5,399
$
Supplemental Disclosure of Cash Flow Information
Cash paid for interest (net of amounts capitalized)
Cash paid for income tax
Supplemental Disclosure of Non-Cash Investing and Financing
Activities
Shares issued under equity incentive plans (in dollars)
Real estate acquisitions financed with debt assumption
$
13,822
$
11,548
$
7,825
$
8
$
1
$
-
$
3,517
$
-
$
2,864
$
-
$
$
2,390
5,631
See accompanying notes to consolidated financial statements.
F-8
Agree Realty Corporation
Notes to Consolidated Financial Statements
December 31, 2016
Note 1 – Organization
Agree Realty Corporation, 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 listed on the New York Stock Exchange (“NYSE”) in 1994.
Our assets are held by, and all of our operations are conducted through, directly or indirectly, Agree Limited
Partnership (the “Operating Partnership”), of which Agree Realty Corporation is the sole general partner and in
which it held a 98.7% interest as of December 31, 2016. Under the partnership agreement of the Operating
Partnership, Agree Realty Corporation, 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
Principles of Consolidation
The consolidated financial statements of Agree Realty Corporation include the accounts of the Company, the
Operating Partnership and its wholly-owned subsidiaries. The Company controlled, as the sole general partner,
98.7% and 98.3% of the Operating Partnership as of December 31, 2016 and 2015. All material intercompany
accounts and transactions are eliminated.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“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.
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. As a result of the adoption of ASU 2015-03, unamortized
debt issuance cost is presented as a direct deduction from the carrying amount of the debt liability; in previously
filed reports the unamortized debt issuance cost was classified on the Balance Sheet as an Unamortized Deferred
Expense. Also, prepaid rents are presented on the Balance Sheet as Deferred Revenue; in previously filed reports
it was presented in Accounts Payable - Operating.
Segment Reporting
The Company is primarily in the business of acquiring, developing and managing retail real estate which is
considered to be one reporting segment. The Company has no other reportable segments.
Real Estate Investments
The Company records the acquisition of real estate at cost, including acquisition and closing costs. For properties
developed by the Company, all direct and indirect costs related to planning, development and construction,
including interest, real estate taxes and other miscellaneous costs incurred during the construction period, are
capitalized for financial reporting purposes and recorded as property under development until construction has
been completed. Properties classified as “held for sale” are recorded at the lower of their carrying value or their
fair value, less anticipated selling costs.
Accounting for Acquisitions of Real Estate
The acquisition of property for investment purposes is typically accounted for as an asset acquisition. The
Company allocates the purchase price to land, building 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 our due diligence, including expected future cash flows of the
property and various characteristics of the markets where the property is located.
F-9
Agree Realty Corporation
Notes to Consolidated Financial Statements
December 31, 2016
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 of the real estate and the Company’s estimate
of current market lease rates for the property, measured over a period equal to the remaining non-cancelable term
of the lease.
The fair value of identified intangible assets and liabilities acquired is amortized to depreciation and amortization
over the remaining term of the related leases.
Depreciation
The Company’s real estate portfolio is depreciated using the straight-line method over the estimated remaining
useful life of the properties, which generally ranges from 30 to 40 years for buildings and 10 to 20 years for
improvements. Properties classified as “held for sale” are not depreciated.
Impairments
The Company reviews its real estate investments periodically for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. Events or circumstances that may occur
include, but are not limited to, significant changes in real estate market conditions or our ability to re-lease or sell
properties that are vacant or become vacant. Management determines whether an impairment in value has
occurred by comparing the estimated future cash flows (undiscounted and without interest charges), including the
residual value of the real estate, with the carrying cost of the individual asset. An asset is considered impaired if
its carrying value exceeds its estimated undiscounted cash flows and an impairment charge is recorded in the
amount by which the carrying value of the asset exceeds its estimated fair value.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity date of three months or less from the date
purchased to be cash equivalents. Cash and cash equivalents consist of cash and money market accounts.
The account balances periodically exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance
coverage, and as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC
insurance coverage. The Company had $32.4 million and $1.7 million in cash as of December 31, 2016 and
2015, respectively, in excess of the FDIC insured limit.
Accounts Receivable – Tenants
The Company reviews its rent receivables for collectability on a regular basis, taking into consideration changes
in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the
industry in which the tenant operates and economic conditions in the area where the property is located. In the
event that the collectability of a receivable with respect to any tenant is in doubt, a provision for uncollectible
amounts will be established or a direct write-off of the specific rent receivable will be made. For accrued rental
revenues related to the straight-line method of reporting rental revenue, the Company performs a periodic review
of receivable balances to assess the risk of uncollectible amounts and establish appropriate provisions.
The Company’s leases provide for reimbursement from tenants for common area maintenance (“CAM”),
insurance, real estate taxes and other operating expenses ("Operating Cost Reimbursement Revenue"). A portion
of our Operating Cost Reimbursement Revenue is estimated each year end and is recognized as revenue in the
period the recoverable costs are incurred and accrued. Receivables from Operating Cost Reimbursement
Revenue is included in our Accounts Receivable - Tenants line item in our consolidated balance sheets. The
balance of unbilled Operating Cost Reimbursement Revenue at December 31, 2016 and 2015 are $1.1 million
and $0.5 million, respectively.
In addition, many of the Company’s leases contain rent escalations for which we recognize revenue on a straight-
line basis over the non-cancelable lease term. This method results in rental revenue in the early years of a lease
being higher than actual cash received, creating a straight-line rent receivable asset which is included in the
Accounts Receivable - Tenants line item in our consolidated balance sheets. The balance of straight-line rent
receivable at December 31, 2016 and 2015 are $9.6 million and $6.0 million, respectively. To the extent any of
F-10
Agree Realty Corporation
Notes to Consolidated Financial Statements
December 31, 2016
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 operating income.
Sales Tax
The Company collects various taxes from tenants and remits these amounts, on a net basis, to the applicable
taxing authorities.
Unamortized Deferred Expenses
Deferred expenses include debt financing costs, leasing costs and lease intangibles, and are amortized as follows:
(i) debt financing costs on a straight-line basis to interest expense over the term of the related loan, which
approximates the effective interest method; (ii) leasing costs on a straight-line basis to depreciation and
amortization over the term of the related lease entered into; and (iii) lease intangibles on a straight-line basis to
depreciation and amortization over the remaining term of the related lease acquired.
The following schedule summarizes the Company’s amortization of deferred expenses (in thousands) for the years
ended December 31, 2016, 2015 and 2014, respectively:
Year Ended December 31,
2016
2015
2014
Credit Facility Financing Costs
Leasing Costs
Lease Intangibles
Total
$
$
$
228
124
8,010
8,362
225
97
4,859
5,181
280
126
2,491
2,897
$
$
$
The following schedule represents estimated future amortization of deferred expenses as of December 31, 2016
(in thousands):
Year Ending December 31,
2017
2018
2019
2020
2021
Thereafter
Total
Credit Facility Financing Costs
Leasing Costs
Lease Intangibles
Total
$
$
$
$
$
394
162
9,813
10,369
379
159
9,637
10,175
379
157
9,135
9,671
379
137
8,870
9,386
$
$
$
$
$
21
117
8,592
8,730
-
$
495
63,777
64,272
$
$
1,552
1,227
109,824
112,603
$
Revenue Recognition
The Company leases real estate to its tenants under long-term net leases which we account 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. Contractually obligated
reimbursements from tenants for recoverable real estate taxes and operating expenses are generally included in
operating costs reimbursement in the period when such expenses are recorded.
Earnings per Share
Earnings per share have been computed by dividing the net income by the weighted average number of common
shares outstanding. Diluted earnings per share is computed by dividing net income by the weighted average
common and potentially dilutive common shares outstanding in accordance with the treasury stock method.
The following is a reconciliation of the denominator of the basic net earnings per common share computation to
the denominator of the diluted net earnings per common share computation for each of the periods presented:
F-11
Agree Realty Corporation
Notes to Consolidated Financial Statements
December 31, 2016
2016
Year Ended December 31,
2015
2014
Weighted average number of common shares outstanding
Less: Unvested restricted stock
23,096,267
(227,531)
18,215,628
(212,506)
15,121,212
(238,626)
Weighted average number of common shares
outstanding used in basic earnings per share
22,868,736
18,003,122
14,882,586
Weighted average number of common shares outstanding
used in basic earnings per share
Effect of dilutive securities: restricted stock
Weighted average number of common shares
outstanding used in diluted earnings per share
22,868,736
91,063
18,003,122
62,293
14,882,586
84,309
22,959,799
18,065,415
14,966,895
Income Taxes
The Company has made an election to be taxed as a REIT under Sections 856 through 860 of the Internal
Revenue Code of 1986, as amended (the “Internal Revenue Code”) and related regulations. The Company
generally will not be subject to federal income taxes on amounts distributed to stockholders, providing it
distributes 100% of its REIT taxable income and meets certain other requirements for qualifying as a REIT. For
each of the years in the three-year period ended December 31, 2016, the Company believes it has qualified as
a REIT. Notwithstanding the Company’s qualification for taxation as a REIT, the Company is subject to certain
state taxes on its income and real estate.
The Company and its taxable REIT subsidiaries (“TRS”) have made a timely TRS election pursuant to the
provisions of the REIT Modernization Act. A TRS is able to engage in activities resulting in income that
previously would have been disqualified from being eligible REIT income under the federal income tax
regulations. As a result, certain activities of the Company which occur within its TRS entity are subject to federal
and state income taxes (See Note 7). All provisions for federal income taxes in the accompanying consolidated
financial statements are attributable to the Company’s TRS.
Fair Values of Financial Instruments
The Company’s estimates of fair value of financial and non-financial assets and liabilities are based on the
framework established in the fair value accounting guidance. The framework specifies a hierarchy of valuation
inputs which was established to increase consistency, clarity and comparability in fair value measurements and
related disclosures. The guidance describes a fair value hierarchy based upon three levels of inputs that may be
used to measure fair value, two of which are considered observable and one that is considered unobservable. The
following describes the three levels:
Level 1 – Valuation is based upon quoted prices in active markets for identical assets or liabilities.
Level 2 – Valuation is based upon inputs other than Level 1 that are observable, either directly or indirectly, such
as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other
inputs that are observable or can be corroborated by observable market data for substantially the full
term of the assets or liabilities.
Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not
observable in the market. These unobservable assumptions reflect estimates of assumptions that
market participants would use in pricing the asset or liability. Valuation techniques include option pricing
models, discounted cash flow models and similar techniques.
Recent Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board (”FASB”) issued ASU No. 2017-01, “Business
Combinations: Clarifying the Definition of a Business” (“ASU 2017-01”). The objective of ASU 2017-01 is to clarify
the definition of a business by adding guidance on how entities should evaluate whether transactions should be
accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many
areas of accounting including acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 will be effective
for public business entities for fiscal years beginning after December 15, 2017, including interim periods in the
year of adoption. Early adoption is permitted for any interim or annual period. The Company is in the process of
determining the impact that the implementation of ASU 2017-01 will have on the Company’s financial statements.
F-12
Agree Realty Corporation
Notes to Consolidated Financial Statements
December 31, 2016
In August 2016 and October 2016, the FASB issued ASU No. 2016-15 “Statement of Cash Flows (Topic 230):
Classification of Certain Cash Receipts and Cash Payments” and ASU No. 2016-18 “Statement of Cash Flows
(Topic 230): Restricted Cash.” The objective of these standards are to provide specific guidance on cash flow
classification issues and how to reduce diversity in how certain cash receipts and cash payments are presented
and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. The
amendments in this update are effective for public business entities for fiscal years beginning after December 15,
2017 and interim periods within those fiscal years. The Company is in the process of determining the impact that
the implementation of these standards will have on the Company’s financial statements.
In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments – Credit Losses (Topic 326):
Measurements of Credit Losses on Financial Instruments (“ASU 2016-13”).” The objective of ASU 2016-13 is to
provide financial statement users with more decision-useful information about the expected credit losses on
financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To
achieve this objective, the current incurred impairment methodology in current GAAP is to be replaced by a
methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and
supportable information to inform credit loss estimates. ASU 2016-13 is effective for public business entities for
fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company
evaluated the impact that the implementation of ASU 2016-13 and concluded the standard will not have a material
impact on the Company’s financial statements upon adoption.
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting
(“ASU 2016-09”), which amends ASC Topic 718, Stock Compensation. ASU 2016-09 includes provisions intended
to simplify various aspects related to how share-based payments are accounted for and presented in the financial
statements. ASU 2016-09 will allow entities to make an accounting policy election for the impact of most types of
forfeitures on the recognition of expense for share-based payment awards by allowing the forfeitures to be either
estimated, as is currently required, or recognized when they actually occur. If elected, the change to recognize
forfeitures when they occur will be adopted using a modified retrospective approach, with a cumulative effect
adjustment recorded to retained earnings. ASU 2016-09 will be effective for the Company for fiscal years beginning
after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted in any interim
or annual period. The Company has adopted ASU 2016-09 in the context of how the Company accounts for stock
forfeitures, which is reflected in the Company’s financial statements. The adoption had no impact since we were
already using a 0% forfeiture rate.
In March 2016, the FASB issued ASU No. 2016-05 “Derivatives and Hedging (Topic 815): Effect of Derivative
Contract Novations on Existing Hedge Accounting Relationships” (“ASU 2016-05”). ASU 2016-05 addresses the
impact on hedge accounting due to a change in a counterparty to a derivative instrument that has been designated
as a hedging instrument under Topic 815. The amendments in this update apply to all reporting entities for which
there is a change in the counterparty to a derivative instrument that has been designated as a hedging instrument
under Topic 815. The amendments in this update clarify that a change in the counterparty to a derivative instrument
that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require
dedesignation of that hedging relationship provided that all other hedge accounting criteria (including those in
paragraphs 815-20-35-14 through 35-18) continue to be met. For public business entities, the amendments in this
update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim
periods within those fiscal years. The Company evaluated ASU 2016-05 in the context of our hedge accounting
and concluded that it will not have a material impact on the Company’s financial statements upon adoption.
In February 2016, the FASB issued ASU No. 2016-02 “Leases” (“ASU 2016-02”). The new standard creates Topic
842, Leases, in FASB Accounting Standards Codification (FASB ASC) and supersedes FASB ASC 840, Leases.
ASU 2016-02 requires a lessee to recognize the assets and liabilities that arise from leases (operating and
finance). However, for leases with a term of 12 months or less, a lessee is permitted to make an accounting policy
election not to recognize lease assets and lease liabilities. The main difference between the existing guidance on
accounting for leases and the new standard is that operating leases will now be recorded in the statement of
financial position as assets and liabilities. The new standard requires lessors to account for leases using an
approach that is substantially equivalent to existing guidance for sales-type leases and operating leases. ASU
2016-02 is expected to impact the Company’s consolidated financial statements as the Company has certain
operating land lease arrangements for which it is the lessee. Current GAAP requires only capital (finance) leases
to be recognized in the statement of financial position and amounts related to operating leases largely are reflected
F-13
Agree Realty Corporation
Notes to Consolidated Financial Statements
December 31, 2016
in the financial statements as rent expense on the income statement and in disclosures to the financial statements.
ASU 2016-02 is effective for annual reporting periods (including interim periods within those periods) beginning
after December 15, 2018. Early adoption is permitted. The Company is in the process of determining the impact
that the implementation of ASU 2016-02 will have on the Company’s financial statements. We anticipate there will
be an immaterial impact for the leases in which the Company is the lessor and/or the lessee.
In April 2015, the FASB issued ASU No. 2015-03 “Interest – Imputation of Interest (Subtopic 835-30): Simplifying
the Presentation of Debt Issuance Costs” (“ASU 2015-03”). The objective of ASU 2015-03 is to identify, evaluate,
and improve areas of GAAP for which cost and complexity can be reduced while maintaining or improving the
usefulness of the information provided to users of financial statements. To simplify presentation of debt issuance
costs, the amendments require that debt issuance costs related to a recognized debt liability be presented in the
balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.
The recognition and measurement guidance for debt issuance costs are not affected by the amendments. ASU
2015-03 is effective for annual reporting periods (including interim periods within those periods) beginning after
December 15, 2015. Early adoption is permitted. The Company has adopted ASU 2015-03 and determined the
resulting impact on the statements is a reclassification of certain deferred financing costs from other assets to
each respective balance sheet debt account.
In May 2014, with subsequent updates issued in August 2015 and March, April and May 2016, the FASB issued
ASU No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 was
developed to enable financial statement users to better understand the nature, amount, timing and uncertainty of
revenue and cash flows arising from contracts with customers. The update’s core principle is that an entity should
recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. Companies are
to use a five-step contract review model to ensure revenue is recognized, measured and disclosed in accordance
with this principle. ASU 2014-09, as updated, is effective for fiscal years and interim periods beginning after
December 15, 2017. The Company is in the process of engaging a professional services firm to assist in the
implementation of ASU 2014-09 and has not currently selected a transition method. In addition we are in the
process of determining the impact that the implementation of ASU 2014-09, as updated, will have on the
Company’s financial statements and it is considered likely the implementation will change the Company’s
disclosures.
Note 3 – Real Estate Investments
Real Estate Portfolio
The Company’s real estate investments consisted of the following as of December 31, 2016 and December 31,
2015 (in thousands, except number of properties):
Number of Properties
Gross Leasable Area
December 31,
2016
December 31,
2015
366
7,033
278
5,207
Land
Buildings
Property under Development
Gross Real Estate Investments
$
$
$
$
309,687
703,506
6,764
1,019,957
$
$
$
$
225,274
526,912
3,663
755,849
Less Accumulated Depreciation
Net Real Estate Investments
$
$
(69,696)
950,261
$
$
(56,401)
699,448
Lease Intangibles
The following table details lease intangibles, net of accumulated amortization, as of December 31, 2016 and
December 31, 2015 (in thousands):
F-14
Agree Realty Corporation
Notes to Consolidated Financial Statements
December 31, 2016
December 31,
2016
$
December 31,
2015
$
Intangible Lease Asset - In-Place Leases
Less: Accumulated Amortization
Intangible Lease Asset - Above-Market Leases
Less: Accumulated Amortization
Intangible Lease Liability - Below-Market Leases
Less: Accumulated Amortization
Lease Intangible Asset, net
62,422
(11,976)
103,116
(13,690)
(37,126)
7,078
109,824
$
$
47,052
(7,239)
61,241
(7,367)
(21,163)
4,028
76,552
As of December 31, 2016, our portfolio was approximately 99.6% leased and had a weighted average remaining
lease term of approximately 10.6 years.
Tenant Leases
The properties that the Company owns are typically leased to tenants under long term operating leases. The
leases are generally net leases which typically require the tenant to be responsible for minimum monthly rent and
property operating expenses including property taxes, insurance and maintenance. Certain of our properties are
subject to leases under which we retain responsibility for specific costs and expenses of the property. The leases
typically provide the tenant with one or more multi-year renewal options subject to generally the same terms and
conditions, including rent increases, consistent with the initial lease term.
As of December 31, 2016, the future minimum rental income to be received under the terms of all non-cancellable
tenant leases is as follows (in thousands):
For the Year Ending December 31,
2017
2018
2019
2020
2021
Thereafter
Total
$
91,308
90,109
87,285
84,578
81,195
575,249
1,009,724
$
Since lease renewal periods are exercisable at the option of the tenant, the above table only presents future
minimum lease payments due during the current lease terms. In addition, this table does not include amounts for
potential variable rent increases that are based on the Consumer Price Index (“CPI”) or future contingent rents
which may be received on the leases based on a percentage of the tenant’s gross sales.
Of these future minimum rents, approximately 11.6% of the total is attributable to Walgreens as of December 31,
2016. The loss of this tenant or the inability of them to pay rent could have an adverse effect on the Company’s
business.
No other tenant contributed 5.0% or more of the Company’s total revenues as of December 31, 2016.
Deferred Revenue
In July 2004, the Company’s tenant in a joint venture property located in Boynton Beach, FL repaid $4.0 million
that had been contributed by the Company’s joint venture partner. As a result of this repayment, the Company
became the sole member of the limited liability company holding the property. Total assets of the property were
approximately $4.0 million. The Company has treated the $4.0 million as deferred revenue and accordingly,
will recognize rental income over the term of the related leases. The remaining deferred revenue for the Boynton
Beach, FL property was fully recognized in 2016.
As of December 31, 2016 and December 31, 2015, there was $1.8 million and $1.7 million, respectively, in
deferred revenues resulting from rents paid in advance.
Land Lease Obligations
F-15
Agree Realty Corporation
Notes to Consolidated Financial Statements
December 31, 2016
The Company is subject to land lease agreements for certain of its properties. Land lease expense was $0.7
million, $0.6 million, and $0.5 million for the years ending December 31, 2016, 2015 and 2014, respectively. As
of December 31, 2016, future annual lease commitments under these agreements are as follows (in thousands):
For the Year Ending December 31,
2017
2018
2019
2020
2021
Thereafter
Total
$
640
641
634
632
588
7,840
10,975
$
Acquisitions
During 2016, the Company purchased 82 retail net lease assets for approximately $295.6 million, including
acquisition and closing costs. These properties are located in 27 states and 100% leased to 49 different tenants
operating in 22 unique retail sectors for a weighted average lease term of approximately 10.7 years. The
underwritten weighted average capitalization rate on our 2016 investments was approximately 7.8%. None of the
Company’s investments during 2016 caused any new or existing tenant to comprise 10% or more of the
Company’s total assets or generate 10% or more of the Company’s total annualized base rent at December 31,
2016.
The aggregate 2016 acquisitions were allocated approximately $84.3 million to land, $170.0 million to buildings
and improvements, and $41.3 million to lease intangible costs. The acquisitions were substantially all cash
purchases and there was no contingent consideration associated with these acquisitions.
During 2015, the Company purchased 73 retail net lease assets for approximately $220.6 million, including
acquisition and closing costs. These properties are located in 24 states and 100% leased to 40 different tenants
operating in 19 unique retail sectors for a weighted average lease term of approximately 12.2 years. The
underwritten weighted average capitalization rate on our 2015 investments was approximately 8.0%. None of the
Company’s investments during 2015 caused any new or existing tenant to comprise 10% or more of the
Company’s total assets or generate 10% or more of the Company’s total annualized base rent at December 31,
2015.
The aggregate 2015 acquisitions were allocated approximately $33.8 million to land, $152.8 million to buildings
and improvements, and $34.0 million to lease intangible costs. The acquisitions were substantially all cash
purchases and there was no contingent consideration associated with these acquisitions.
The Company calculates the weighted average capitalization rate on our investments by dividing annual expected
net operating income derived from the properties by the total investment in the properties. Annual expected net
operating income is defined as the straight-line rent for the base term of the lease less property level expenses (if
any) that are not recoverable from the tenant.
Unaudited Pro Forma Information
The following unaudited pro forma total revenue and income before discontinued operations for 2016, 2015 and
2014, assumes all of our 2016 acquisitions had taken place on January 1, 2016 for the 2016 pro forma information,
January 1, 2015 for the 2015 pro forma information, and on January 1, 2014 for the 2014 pro forma information
(in thousands):
F-16
Agree Realty Corporation
Notes to Consolidated Financial Statements
December 31, 2016
Supplemental pro forma for the year ended December 31, 2016 (1)
Total Revenue
Income before discontinued operations
Supplemental pro forma for the year ended December 31, 2015 (1)
Total Revenue
Income before discontinued operations
Supplemental pro forma for the year ended December 31, 2014 (1)
Total Revenue
Income before discontinued operations
$
104,178
$
56,375
$
79,056
$
36,149
$
57,840
$
19,369
(1) This unaudited pro forma supplemental information does not purport to be indicative of what our operating results would have been had
the acquisitions occurred on January 1, 2016, January 1, 2015 or January 1, 2014 and may not be indicative of future operating results.
Various acquisitions were of newly leased or constructed assets and may not have been in service for the full periods shown.
Developments
During the fourth quarter, construction continued on the Company’s four development and PCS projects with
anticipated total project costs of approximately $21.7 million. These projects include one Burger King development
in Heber, Utah; two Camping World projects in Tyler, Texas and Georgetown, Kentucky; and the redevelopment
and expansion of an existing property in Boynton Beach, Florida for Orchard Supply Hardware.
For the year ended December 31, 2016, the Company completed or commenced construction on 14 development
or PCS projects net leased to a number of industry-leading retail tenants. Total anticipated project costs for those
developments are approximately $38.0 million and include the following completed or commenced projects:
Tenant
Hobby Lobby
Family Fare Quick Stop
Burger King(1)
Chick-fil-A
Burger King(1)
Wawa
Starbucks
Burger King(1)
Texas Roadhouse
Burger King(1)
Camping World
Burger King(1)
Camping World
Orchard Supply
Location
Springfield, OH
Marshall, MI
Farr West, UT
Frankfort, KY
Devil's Lake, ND
Orlando, FL
North Lakeland, FL
Hamilton, MT
Mount Pleasant, MI
West Fargo, ND
Tyler, TX
Heber, UT
Georgetown, KY
Boynton Beach, FL
Lease Structure
Build-to-Suit
Ground Lease
Build-to-Suit
Ground Lease
Build-to-Suit
Ground Lease
Build-to-Suit
Build-to-Suit
Ground Lease
Build-to-Suit
Build-to-Suit
Build-to-Suit
Build-to-Suit
Build-to-Suit
Lease
Term
15 Years
10 Years
20 Years
20 Years
20 Years
20 Years
10 Years
20 Years
15 Years
20 Years
20 Years
20 Years
20 Years
15 Years
Actual or
Anticipated Rent
Commencement
Q1 2016
Q2 2016
Q2 2016
Q3 2016
Q3 2016
Q3 2016
Q4 2016
Q4 2016
Q4 2016
Q4 2016
Q1 2017
Q1 2017
Q3 2017
Q3 2017
Status
Completed
Completed
Completed
Completed
Completed
Completed
Completed
Completed
Completed
Completed
Under Construction
Under Construction
Under Construction
Under Construction
(1) Franchise restaurants operated by Meridian Restaurants Unlimited, LC.
Dispositions
During 2016, the Company sold four properties for aggregate gross proceeds of $29.7 million, which resulted in a
gain of $10.0 million. The four properties sold are single tenant buildings, all leased to Walgreens(Port St. John,
Florida; Rancho Cordova, California; Macomb, Michigan, and Silver Springs Shores, Florida).
During 2015, the Company sold eight properties for aggregate gross proceeds of $29.0 million, which resulted in
a gain of $12.1 million. Dispositions included three land parcels, two single tenant buildings and three non-core
community shopping centers (Marshall Plaza in Marshall, Michigan, Ferris Commons in Big Rapids, Michigan and
Lakeland Plaza in Lakeland, Florida).
F-17
Agree Realty Corporation
Notes to Consolidated Financial Statements
December 31, 2016
During 2014, the Company sold four properties for aggregate gross proceeds of $12.9 million, which resulted in a
loss of $0.4 million. Dispositions included three non-core community shopping centers (Ironwood Commons in
Ironwood, Michigan, Petoskey Town Center in Petoskey, Michigan and Chippewa Commons in Chippewa Falls,
Wisconsin) as well as a ground lease parcel in East Lansing, Michigan.
Impairments
As a result of our review of Real Estate Investments we recognized the following real estate impairment charges
for the year ended December 31(in thousands):
2016
2015
2014
Continuing operations
Discontinued operations
$
-
-
$
-
-
$
3,020
-
Total
$
-
$
-
$
3,020
In 2014, we recognized impairment charges of $0.2 million and $2.8 million, for Petoskey Town Center and
Chippewa Commons, respectively, which were included in continuing operations. Petoskey Town Center was
under contract for sale, but not classified as held for sale at September 30, 2014 due to contingencies associated
with the contract, and a $0.2 million impairment charge was taken to write down the carrying value of the property
to an amount that reflected the sales price. The property was subsequently sold in the fourth quarter of 2014.
In the second quarter of 2014, an anchor tenant at Chippewa Commons declined to exercise a lease extension
option which we deemed would contribute to vacancy and diminished cash flows and result in a fair value that
was less than the net book value of the asset. A $2.8 million impairment charge was taken to write down the
carrying value of the property to an amount that reflected management’s best estimate of fair market value.
Note 4 – Debt
In April 2015, FASB issued ASU 2015-03, which requires that debt issuance costs related to a recognized debt
liability be presented on the balance sheet as a direct deduction from the gross carrying amount of that debt
liability, consistent with debt discounts. We adopted ASU 2015-03, effective March 31, 2016, and applied the
guidance retrospectively to our Mortgage Notes Payable, Unsecured Term Loans and Senior Unsecured Notes
for all periods presented. Unamortized debt issuance costs of approximately $3.1 million and $2.6 million are
included as an offset to the respective debt balances as of December 31, 2016 and 2015, respectively (previously
included in Unamortized Deferred Expenses on our Consolidated Balance Sheets).
As of December 31, 2016, we had total indebtedness of $404.0 million, including (i) $70.0 million of mortgage
notes payable; (ii) $160.0 million of unsecured term loans; (iii) $160.0 million of senior unsecured notes; and (iv)
$14.0 million of borrowings under our Credit Facility.
Mortgage Notes Payable
As of December 31, 2016, the Company had total gross mortgage indebtedness of $70.0 million which was
collateralized by related real estate with an aggregate net book value of $90.3 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 4.79% as of December 31, 2016 and 4.17% as of December 31, 2015.
In August 2016, the Company prepaid a $20.3 million amortizing mortgage note due May 2017, secured by seven
properties, that had an interest rate of LIBOR plus 170 basis points. Concurrently therewith, the Company entered
into a $20.3 million unsecured amortizing term loan. Refer to unsecured term loan facility section for further detail.
In March 2016, the Company prepaid a mortgage note payable with an outstanding balance of $8.6 million. The
fully-amortizing loan carried a 6.56% interest rate and the final monthly payment was due in June 2016.
Mortgages payable consisted of the following (in thousands):
F-18
Agree Realty Corporation
Note payable in monthly installments of interest only at
6.56% annum, with a balloon payment in the amount of
$8,580,000 was repaid on March 11, 2016; collateralized by
related real estate and tenants’ leases
Note payable in monthly principal installments of $56,380
plus interest at 170 basis points over LIBOR, swapped to a
fixed rate of 3.62% as of December 31, 2015. A balloon
payment in the amount of $20,283,000 was repaid on August
19, 2016; collateralized by related real estate and tenants’
leases
Note payable in monthly installments of interest only at
LIBOR plus 160 basis points, swapped to a fixed rate of
2.49% with a balloon payment due April 4, 2018;
collateralized by related real estate and tenants' leases
Note payable in monthly installments of $153,838, including
interest at 6.90% per annum, with the final monthly payment
due January 2020; collateralized by related real estate and
tenants’ leases
Note payable in monthly installments of $23,004, including
interest at 6.24% per annum, with a balloon payment of
$2,781,819 due February 2020; collateralized by related real
estate and tenant lease
Note payable in monthly installments of interest only at
3.60% per annum, with a balloon payment due January 1,
2023; collateralized by related real estate and tenants' leases
Note payable in monthly installments of $35,673, including
interest at 5.01% per annum, with a balloon payment of
$4,034,627 due September 2023; collateralized by related
real estate and tenant lease
Note payable in monthly installments of $91,675 including
interest at 6.27% per annum, with a final monthly payment
due July 2026; collateralized by related real estate and
tenants’ leases
Notes to Consolidated Financial Statements
December 31, 2016
Decem ber 31, 2016
Decem ber 31, 2015
$
-
$
8,580
-
20,741
25,000
25,000
5,114
6,553
3,049
3,129
23,640
23,640
5,294
5,448
7,910
8,493
Total principal
Unamortized debt issuance costs
Total
70,007
(940)
69,067
$
101,584
(1,193)
100,391
$
The following table presents scheduled principal payments related to our debt as of December 31, 2016 (in
thousands):
F-19
Agree Realty Corporation
Notes to Consolidated Financial Statements
December 31, 2016
2017
2018
2019
2020
2021 (1)
Thereafter
Total
Scheduled
Principal
$
3,147
3,337
3,008
1,100
998
8,764
20,354
Balloon
Payment
$
-
25,000
18,290
37,767
79,000
223,640
383,697
$
Total
$
3,147
28,337
21,298
38,867
79,998
232,404
404,051
$
$
(1) The balloon payment balance includes the balance outstanding under the Credit Facility as of December 31, 2016. The Credit Facility
matures in January 2021, with options to extend the maturity for one year at the Company’s election, subject to certain conditions.
The mortgage loans encumbering our 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 a 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
December 31, 2016, there were no mortgage loans with partial recourse to us.
We have 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 we default 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.
The Company was in compliance with covenant terms for all mortgages payable at December 31, 2016.
Senior Unsecured Notes
The following table presents the Senior Unsecured Notes balance net of unamortized debt issuance costs as of
December 31, 2016, and 2015 (in thousands):
Decem ber 31, 2016 Decem ber 31, 2015
2025 Senior Unsecured Note
2027 Senior Unsecured Note
2028 Senior Unsecured Note
Total Principal
$
50,000
50,000
60,000
160,000
$
50,000
50,000
-
100,000
Unamortized debt issuance costs
Total
$
(824)
159,176
$
(839)
99,161
In May 2015, the Company 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 in May 2025 and
$50.0 million of 4.26% notes due in May 2027. The weighted average term of the senior unsecured notes is 11
years and the weighted average interest rate is 4.21%. Proceeds from the issuance were used to repay borrowings
under the Company's revolving credit facility and for general corporate purposes.
In July 2016, the Company completed a private placement of $60.0 million principal amount of senior unsecured
notes. The senior unsecured notes bear a fixed interest rate of 4.42% per annum and mature in July 2028.
Proceeds from the issuance were used to repay borrowings under the Company's revolving credit facility and for
general corporate purposes.
F-20
Agree Realty Corporation
Notes to Consolidated Financial Statements
December 31, 2016
Senior Unsecured Revolving Credit
In December 2016, the Company amended and restated the credit agreement that governs the Company's senior
unsecured revolving credit facility and the Company's unsecured term loan facility to increase the aggregate
borrowing capacity to $350.0 million. The agreement provides for a $250.0 million unsecured revolving credit
facility, a $65.0 million unsecured term loan facility and a $35.0 million unsecured term loan facility. The unsecured
revolving credit facility matures in January 2021 with options to extend the maturity date to January 2022. The
unsecured term loan facilities mature in January 2024. The Company has the ability to increase the aggregate
borrowing capacity under the credit agreement up to $500.0 million, subject to lender approval. Borrowings under
the revolving credit facility bear interest at LIBOR plus 1.30% to 1.95%, depending on the Company’s leverage
ratio. Additionally, the Company is required to pay an unused commitment fee at an annual rate of 0.15% or 0.25%
of the unused portion of the revolving credit facility, depending on the amount of borrowings outstanding. The
credit agreement contains certain financial covenants, including a maximum leverage ratio, a minimum fixed
charge coverage ratio, and a maximum percentage of secured debt to total asset value. As of December 31, 2016
and December 31, 2015, the Company had $14.0 million and $18.0 million outstanding borrowings under the
revolving credit facility, respectively, bearing weighted average interest rates of approximately 1.9% and 1.7%,
respectively. As of December 31, 2016, $236.0 million was available for borrowing under the revolving credit
facility and the Company was in compliance with the credit agreement covenants.
Additionally, conforming changes were made to the $40.0 million unsecured term loan facility and $20.0 million
unsecured amortizing term loan facility.
Unsecured Term Loan Facilities
The following table presents the Unsecured Term Loans balance net of unamortized debt issuance costs as of
December 31, 2016 and 2015 (in thousands):
2019 Term Loan
2024 Term Loan
2024 Term Loan
2023 Term Loan
Total Principal
Decem ber 31, 2016 Decem ber 31, 2015
$
20,044
35,000
65,000
40,000
160,044
-
$
35,000
65,000
-
100,000
Unamortized debt issuance costs
Total
$
(1,365)
158,679
$
(610)
99,390
The amended and restated credit agreement described above extended the maturity dates of the $65.0 million
unsecured term loan facility and $35.0 million unsecured term loan facility (together, the “2024 Term Loan
Facilities”) to January 2024. In connection with entering into the amended and restated credit agreement, the prior
notes evidencing the existing $65.0 million unsecured term loan facility and $35.0 million unsecured term loan
facility 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 1.65% to 2.35%, depending on
the Company's leverage ratio. The Company utilized existing interest rate swaps to effectively fix the LIBOR rate
(see “Derivative and Hedging Activities” below).
In August 2016, the Company entered into a $20.3 million unsecured amortizing term loan that matures in May
2019 (the “2019 Term Loan”). Borrowings under the 2019 Term Loan are priced at LIBOR plus 170 basis points.
In order to fix LIBOR on the 2019 Term Loan at 1.92% until maturity, the Company had an interest rate swap
agreement in place, which was assigned by the lender under the Mortgage Note to the 2019 Term Loan lender. As
of December 31, 2016, $20.0 million was outstanding under the 2019 Term Loan bearing an all-in interest rate of
3.62%.
In July 2016, the Company completed a $40.0 million unsecured term loan facility that matures in July 2023 (the
“2023 Term Loan”). Borrowings under the 2023 Term Loan are priced at LIBOR plus 165 to 225 basis points,
depending on the Company’s leverage. The Company entered into interest rate swap to fix LIBOR at 1.40% until
F-21
Agree Realty Corporation
Notes to Consolidated Financial Statements
December 31, 2016
maturity. As of December 31, 2016, $40.0 million was outstanding under the 2023 Term Loan, which is subject to
an all-in interest rate of 3.05%.
Note 5 – Common Stock
On May 6, 2015, the Company implemented a $100.0 million at-the-market equity program (“ATM program”) by
entering into multiple equity distribution agreements through which the Company may, from time to time, sell
shares of common stock. The Company uses the proceeds generated from its ATM program for general corporate
purposes including funding our investment activity, the repayment or refinancing of outstanding indebtedness,
working capital and other general purposes.
During the year ended December 31, 2016, the Company issued 499,209 shares of common stock under its ATM
program at an average price of $47.74, realizing gross proceeds of approximately $23.8 million. The Company
has approximately $36.2 million remaining under the ATM program as of December 31, 2016.
In March 2015, the Company filed, and the SEC declared effective, a shelf registration statement that expires in
March 2018. The securities covered by this registration statement cannot exceed $500.0 million in the aggregate
and include common stock, preferred stock, depositary shares and warrants. 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.
The Company completed a follow-on offering of 2,087,250 shares of common stock in October 2016. The offering,
which included the full exercise of the overallotment option by the underwriters, raised net proceeds of
approximately $95.0 million after deducting the underwriting discount. The proceeds from the offering were used
to repay borrowings under our revolving credit facility to fund property acquisitions and for general corporate
purposes..
The Company completed a follow-on offering of 2,875,000 shares of common stock in May 2016. The offering,
which included the full exercise of the overallotment option by the underwriters, raised net proceeds of
approximately $109.6 million after deducting the underwriting discount. The proceeds from the offering were used
to repay borrowings under our revolving credit facility to fund property acquisitions and for general corporate
purposes.
The Company completed a follow-on offering of 1,725,000 shares of common stock in December of 2015. The
offering, which included the full exercise of the overallotment option by the underwriters, raised net proceeds of
approximately $53.0 million after deducting the underwriting discount. The proceeds from the offering were used
to pay down amounts outstanding under the Credit Facility and for general corporate purposes.
Note 6 – Dividends and Distribution Payable
The Company declared dividends of $1.92, $1.845 and $1.74 per share during the years ended December 31,
2016, 2015 and 2014; the dividends have been reflected for federal income tax purposes as follows:
For the Year Ended December 31,
Ordinary Income
Return of Capital
$
2016
1.557
0.363
$
2015
1.519
0.326
$
2014
1.398
0.342
Total
$
1.920
$
1.845
$
1.740
On December 6, 2016, the Company declared a dividend of $0.495 per share for the quarter ended December
31, 2016. The holders Operating Partnership Units were entitled to an equal distribution per Operating
Partnership Unit held as of December 23, 2016. The dividends and distributions payable are recorded as
liabilities in the Company's consolidated balance sheet at December 31, 2016. The dividend has been reflected
as a reduction of stockholders' equity and the distribution has been reflected as a reduction of the limited
partners' non-controlling interest. These amounts were paid on January 3, 2017.
F-22
Agree Realty Corporation
Note 7 – Income Taxes
Notes to Consolidated Financial Statements
December 31, 2016
The Company is subject to the provisions of Financial Accounting Standards Board Accounting Standard
Codification 740-10 (“FASB 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 FASB ASC 740-10. The Company’s Federal income tax returns are
open for examination by taxing authorities for all tax years after December 31, 2011. 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.
For income tax purposes, the Company has certain TRS entities that have been established and in which certain
real estate activities are conducted.
As of December 31, 2016, and 2015, the Company had accrued a deferred income tax liability in the amount of
$705,000. This deferred income tax balance represents the federal and state tax effect of deferring income tax in
2007 on the sale of an asset under section 1031 of the Internal Revenue Code. This transaction was accrued
within the TRS entities described above. During the years ended December 31, 2016, and 2015, the Company
recognized total federal and state tax expense of $7,747, and $3,317, respectively.
Note 8 – Derivative Instruments and Hedging Activity
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 our derivatives see Note 10.
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.
In April 2012, the Company entered into an amortizing forward-starting interest rate swap agreement to hedge
against changes in future cash flows resulting from changes in interest rates on $22.3 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 1.92%. This
swap effectively converted $22.3 million of variable-rate borrowings to fixed-rate borrowings from July 1, 2013 to
May 1, 2019. As of December 31, 2016, this interest rate swap was valued as a liability of approximately $0.2
million.
In December 2012, the Company entered into interest rate swap agreements to hedge against changes in future
cash flows resulting from changes in interest rates on $25.0 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 0.89%. This swap effectively converted
$25.0 million of variable-rate borrowings to fixed-rate borrowings from December 6, 2012 to April 4, 2018. As of
December 31, 2016, this interest rate swap was valued as an asset of approximately $0.1 million.
In September 2013, 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 2.20%. This swap effectively converted
$35.0 million of variable-rate borrowings to fixed-rate borrowings from October 3, 2013 to September 29, 2020. As
of December 31, 2016, this interest rate swap was valued as a liability of approximately $0.7 million.
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
F-23
Agree Realty Corporation
Notes to Consolidated Financial Statements
December 31, 2016
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 2.09%. This swap effectively converted $65.0
million of variable-rate borrowings to fixed-rate borrowings from July 21, 2014 to July 21, 2021. As of December
31, 2016, this interest rate swap was valued as a liability of approximately $1.0 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 December
31, 2016, this interest rate swap was valued as a asset of approximately $1.4 million.
Companies are required to recognize all derivative instruments as either assets or liabilities at fair value on the
balance sheet. The Company has designated these derivative instruments as cash flow hedges. As such, the
effective portion of changes in the fair value of the derivatives designated and that qualify as cash flow hedges is
recorded as a component of other comprehensive income (loss). The ineffective portion of the change in fair value
of the derivative instrument is recognized directly in interest expense. For the years ended December 31, 2016
and 2015, the Company has not recorded any hedge ineffectiveness in earnings. Amounts in accumulated other
comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments
are made on the Company’s variable-rate debt. During the next twelve months, the Company estimates that an
additional $2.0 million will be reclassified as an increase to interest expense.
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):
Interest Rate Derivatives
Number of Instruments
Notional
December 31,
2016
December 31,
2015
December 31,
2016
December 31,
2015
Interest Rate Swap
5
4
$
185,044
$
145,741
The table below presents the estimated fair value of the Company’s derivative financial instruments as well as
their classification in the consolidated balance sheets (in thousands).
Asset Derivatives
December 31, 2016
December 31, 2015
Balance Sheet
Location
Fair Value
Balance Sheet
Location
Fair Value
Other Assets
$
1,409
Other Assets
$
98
Liability Derivatives
December 31, 2016
December 31, 2015
Balance Sheet
Location
Fair Value
Balance Sheet
Location
Fair Value
Other Liabilities
$
1,994
Other Liabilities
$
3,301
Derivatives designated as
cash flow hedges:
Interest Rate Swaps
Derivatives designated as
cash flow hedges:
Interest Rate Swaps
The table below presents the effect of the Company’s derivative financial instruments in the consolidated
statements of operations and other comprehensive loss for the years ended December 31, 2016 and 2015 (in
thousands).
F-24
Agree Realty Corporation
Derivatives in
Cash Flow
Hedging
Relationships
Amount of Income/(Loss) Recognized
in OCI on Derivative (Effective Portion)
Notes to Consolidated Financial Statements
December 31, 2016
Location of
Income/(Loss)
Reclassifed from
Accumulated OCI
into Income
(Effective Portion)
Amount of Income/(Loss) Reclassified
from Accumulated OCI into Expense
(Effective Portion)
Twelve months ended December 31
Interest rate swaps
$
2,618
$
(1,093)
Interest Expense
$
(2,493)
$
(2,796)
2016
2015
2016
2015
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 December 31, 2016.
Credit-risk-related Contingent Features
The Company has agreements with two of 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 December 31, 2016, 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 $2.1 million. As of December
31, 2016, the Company has not posted any collateral related to these net liability positions. If the Company had
breached any of these provisions as of December 31, 2016, it could have been required to settle its obligations
under the agreements at their termination value of $2.1 million.
Although the derivative contracts are subject to master netting arrangements, which serve as credit mitigants to
both us and our counterparties under certain situations, we do not net our derivative fair values or any existing
rights or obligations to cash collateral on the consolidated balance sheets.
The table below presents a gross presentation of the effects of offsetting and a net presentation of the Company’s
derivatives as of December 31, 2016 and December 31, 2015. 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 consolidated balance sheets (in thousands):
Offsetting of Derivative Assets
As of December 31, 2016
Gross Amounts Not Offset in the
Statement of Financial Position
Gross Amounts
of Recognized
Assets
Gross Amounts
Offset in the
Statement of
Financial Position
Net Amounts of
Assets presented
in the statement
of Financial
Position
Financial
Instruments
Cash Collateral
Received
Net Amount
Derivatives
$
1,409
$
-
$
1,409
$
50
$
-
$
1,359
Offsetting of Derivative Liabilities
As of December 31, 2016
Gross Amounts Not Offset in the
Statement of Financial Position
Gross Amounts
of Recognized
Liabilities
Gross Amounts
Offset in the
Statement of
Financial Position
Net Amounts of
Liabilities
presented in the
statement of
Financial Position
Financial
Instruments
Cash Collateral
Received
Net Amount
Derivatives
$
1,994
$
-
$
1,994
$
50
$
-
$
1,944
F-25
Agree Realty Corporation
Offsetting of Derivative Assets
As of December 31, 2015
Notes to Consolidated Financial Statements
December 31, 2016
Gross Amounts Not Offset in the
Statement of Financial Position
Gross Amounts
of Recognized
Assets
Gross Amounts
Offset in the
Statement of
Financial Position
Net Amounts of
Assets presented
in the statement
of Financial
Position
Financial
Instruments
Cash Collateral
Received
Net Amount
Derivatives
$
98
$
-
$
98
$
-
$
-
$
98
Offsetting of Derivative Liabilities
As of December 31, 2015
Gross Amounts
of Recognized
Liabilities
Gross Amounts
Offset in the
Statement of
Financial Position
Net Amounts of
Liabilities
presented in the
statement of
Financial Position
Financial
Instruments
Cash Collateral
Received
Net Amount
Derivatives
$
3,301
$
-
$
3,301
$
-
$
-
$
3,301
Gross Amounts Not Offset in the
Statement of Financial Position
Note 9 – Discontinued Operations
The Company elected to early adopt ASU 2014-08 "Reporting Discontinued Operations and Disclosures of
Disposals of Components of an Entity" in the first quarter of 2014. The adoption of this guidance had an effect on
the presentation of our consolidated financial statements. Beginning in 2014, activities related to individual asset
sales are generally no longer classified as discontinued operations except for the property classified as held for
sale as of December 31, 2014.
In January 2014, the Company sold a Kmart-anchored shopping center in Ironwood, Michigan, which was
classified as held for sale on December 31, 2013, for approximately $5,000,000. The results of operations for this
property are reported in discontinued operations for the year ending December 31, 2014, including revenues of
approximately $42,600, and expenses of approximately $28,000.
Note 10 – Fair Value Measurements
Assets and Liabilities Measured at Fair Value
The Company accounts for fair values in accordance with FASB Accounting Standards Codification Topic 820 Fair
Value Measurements and Disclosure (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.
that
fair value
ASC 820 emphasizes
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 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),
F-26
Agree Realty Corporation
Notes to Consolidated Financial Statements
December 31, 2016
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 December 31, 2016, 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.
The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of
December 31, 2016, aggregated by the level in the fair value hierarchy within which those measurements fall (in
thousands):
Quoted Prices in
Active Markets for
Identical Assets and
Liabilities (Level 1)
Significant
Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
Balance at
December 31,
2016
Asset:
Interest rate swaps
$
-
$
1,409
$
-
$
1,409
Liability:
Interest rate swaps
Mortgage notes payable
Unsecured term loans
Senior unsecured notes
Revolving credit facility
$
-
-
$
$
-
$
-
$
-
$
1,994
-
$
$
-
$
-
$
14,000
$
-
$
75,756
$
165,971
159,674
$
$
-
$
$
$
$
$
1,994
68,758
158,988
159,176
14,000
The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of
December 31, 2015, aggregated by the level in the fair value hierarchy within which those measurements fall (in
thousands):
F-27
Agree Realty Corporation
Asset:
Notes to Consolidated Financial Statements
December 31, 2016
Quoted Prices in
Active Markets for
Identical Assets and
Liabilities (Level 1)
Significant
Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
Balance at
December 31,
2015
Interest rate swaps
$
-
$
98
$
-
$
98
Liability:
Interest rate swaps
Mortgage notes payable
Unsecured term loans
Senior unsecured notes
Revolving credit facility
$
-
-
$
$
-
$
-
$
-
3,301
$
-
$
$
-
$
-
$
18,000
$
-
$
105,033
$
97,742
$
99,645
$
-
$
$
$
$
$
3,301
100,391
99,390
99,161
18,000
Note 11 – Equity Incentive Plan
In 2005, the Company’s stockholders approved the 2005 Equity Incentive Plan (the “2005 Plan”), which replaced
a stock incentive plan established in 1994. The 2005 Plan authorized the issuance of a maximum of 1,000,000
shares of common stock.
In 2014, the Company’s stockholders approved the 2014 Omnibus Incentive Plan (the “2014 Plan”), which
replaced the 2005 Equity Incentive Plan. The 2014 Plan authorizes the issuance of a maximum of 700,000 shares
of common stock.
No options were granted during 2016, 2015 or 2014.
Restricted common stock has been granted to certain employees under the 2014 Plan. As of December 31, 2016,
there was $5.3 million of unrecognized compensation costs related to the outstanding restricted stock, which is
expected to be recognized over a weighted average period of 3.4 years. The Company used 0% for both the
discount factor and forfeiture rate for determining the fair value of restricted stock.
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 Company granted 93,363, 85,597 and 83,210 shares of restricted
stock in 2016, 2015 and 2014, respectively to employees and Board of Directors. The restricted shares vest over
a five-year period based on continued service to the Company.
Restricted share activity is summarized as follows (in thousands, except per share data):
F-28
Agree Realty Corporation
Notes to Consolidated Financial Statements
December 31, 2016
Shares
Outstanding
Weighted Average
Grant Date
Fair Value
Unvested restricted stock at December 31, 2013
249
$
24.33
Restricted stock granted
Restricted stock vested
Restricted stock forfeited
83
(79)
(14)
$
$
$
28.72
22.64
26.03
Unvested restricted stock at December 31, 2014
239
$
26.24
Restricted stock granted
Restricted stock vested
Restricted stock forfeited
86
(80)
(32)
$
$
$
33.46
25.13
29.54
Unvested restricted stock at December 31, 2015
213
$
29.07
Restricted stock granted
Restricted stock vested
Restricted stock forfeited
93
(72)
(6)
$
$
$
37.67
27.07
35.58
Unvested restricted stock at December 31, 2016
228
$
33.02
Note 12 – Profit-Sharing Plan
The Company has a discretionary profit-sharing plan whereby it contributes to the plan such amounts as the
Board of Directors of the Company determines. The participants in the plan cannot make any contributions to
the plan. Contributions to the plan are allocated to the employees based on their percentage of compensation
to the total compensation of all employees for the plan year. Participants in the plan become fully vested after
six years of service. No contributions were made to the plan in 2016, 2015, or 2014.
Note 13 – Quarterly Financial Data (Unaudited)
The following summary represents the unaudited results of operations of the Company, expressed in thousands
except per share amounts, for the periods from January 1, 2015 through December 31, 2016. Certain amounts
have been reclassified to conform to the current presentation of discontinued operations:
F-29
Agree Realty Corporation
Revenue
Net Income
Notes to Consolidated Financial Statements
December 31, 2016
2016
Three Months Ended
March 31
June 30
September
30
December 31
$
20,224
$
21,844
$
24,161
$
25,299
$
7,586
$
10,828
$
14,476
$
12,906
Earnings per Share - diluted
$
0.36
$
0.48
$
0.61
$
0.50
2015
Three Months Ended
March 31
June 30
September
30
December 31
$
15,743
$
17,219
$
17,850
$
19,154
$
6,494
$
10,465
$
14,876
$
7,927
Revenue
Net Income
Earnings per Share - diluted
$
0.37
$
0.58
$
0.81
$
0.41
Note 14 – 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 15 – Subsequent Events
In February 2017, the Company granted shares of restricted stock to employees under the 2014 Plan. The fair
value of these grants were approximately $3.6 million and the restricted shares vest over a five year period based
on continued service to the Company.
There were no other reportable subsequent events or transactions as of February 23, 2017
F-30
Agree Realty Corporation
Schedule III – Real Estate and Accumulated Depreciation
December 31, 2016
COLUMN A
COLUMN B
COLUMN C
COLUMN D
COLUMN E
COLUMN F
COLUMN G
Description
Real Estate Held for Investment
Encumbrance
Land
Initial Cost
Costs Capitalized Gross Amount at Which Carried at Close of Period
Building and
Improvements
Subsequent to
Acquisition
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date of
Acquisition
Borman Center, MI
Capital Plaza, KY
Grayling Plaza, MI
Oscoda Plaza, MI
West Frankfort Plaza, IL
Omaha Store, NE
Wichita Store, KS
Monroeville, PA
Boynton Beach, FL
Waterford, MI
Chesterfield Township, MI
Grand Blanc, MI
Pontiac, MI
Mt Pleasant Shopping Ctr, MI
Rochester, MI
Ypsilanti, MI
Petoskey, MI
Flint, MI
Flint, MI
New Baltimore, MI
Flint, MI
Indianapolis, IN
Big Rapids, MI
Flint, MI
Canton Twp, MI
Flint, MI
Webster, NY
Albion, NY
Flint, MI
Lansing, MI
Boynton Beach, FL
Midland, MI
Grand Rapids, MI
Delta Township, MI
Roseville, MI
Mt Pleasant, MI
N Cape May, NJ
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,669,449
1,024,860
925,647
643,861
971,162
835,639
712,901
2,597,545
3,010,506
2,301,578
-
-
-
1,252,087
550,000
7,379
200,000
183,295
8,002
150,000
1,039,195
6,332,158
1,534,942
971,009
1,350,590
1,104,285
1,144,190
907,600
2,438,740
2,050,000
-
2,026,625
1,477,680
1,250,000
1,729,851
180,000
1,201,675
-
1,550,000
1,537,400
1,600,000
1,900,000
1,029,000
785,000
1,569,000
2,350,000
1,450,000
2,075,000
1,771,000
1,075,000
1,075,000
562,404
2,240,607
1,778,657
1,872,854
784,077
-
1,690,644
2,249,724
2,043,122
1,562,869
1,757,830
1,998,919
1,808,955
8,081,968
2,188,050
2,222,097
2,332,473
1,879,700
2,241,293
2,285,781
1,798,091
1,117,617
2,014,107
471,272
2,132,096
1,961,674
2,438,781
3,037,864
2,165,463
348,501
2,363,524
2,313,413
2,646,591
2,535,971
2,327,052
1,432,390
1,430,092
1,087,596
3,510,131
(46,867)
(39,150)
202,463
-
(149,392)
592,003
3,743,613
135,390
(46,164)
43,929
(113,506)
1,531,359
1,950
32,641
1,179
(1,200)
-
(16,503)
660
19,931
(2,000)
(201,809)
23,021
-
-
-
(6,666)
3,045
-
2,070
-
7,014
395
4,787
495
550,000
7,379
200,000
183,295
8,002
150,000
1,139,677
3,153,890
1,534,942
971,009
1,350,590
1,104,285
1,144,190
907,600
2,438,740
2,050,000
-
2,026,625
1,477,680
1,250,000
1,729,851
180,000
1,201,675
-
1,550,000
1,537,400
1,600,000
1,900,000
1,029,000
785,000
1,569,000
2,268,695
1,450,000
2,075,000
1,771,000
1,075,000
1,075,000
1,650,000
5,750,738
1,731,790
1,833,704
986,540
-
1,541,252
2,841,727
5,786,735
1,698,259
1,711,666
2,042,848
1,695,449
9,613,327
2,190,000
2,254,738
2,333,652
1,878,500
2,241,293
2,269,278
1,798,751
1,137,548
2,012,107
269,463
2,155,117
1,961,674
2,438,781
3,037,864
2,158,797
351,546
2,363,524
2,315,483
2,646,591
2,542,985
2,327,447
1,437,177
1,430,587
2,200,000
5,758,117
1,931,790
2,016,999
994,542
150,000
2,680,929
5,995,617
7,321,677
2,669,268
3,062,256
3,147,133
2,839,639
10,520,927
4,628,740
4,304,738
2,333,652
3,905,125
3,718,973
3,519,278
3,528,602
1,317,548
3,213,782
269,463
3,705,117
3,499,074
4,038,781
4,937,864
3,187,797
1,136,546
3,932,524
4,584,178
4,096,591
4,617,985
4,098,447
2,512,177
2,505,587
1,650,000
3,174,720
1,403,479
1,486,073
749,710
-
842,130
1,091,652
1,624,990
805,636
792,227
915,885
775,258
5,482,375
958,104
957,402
972,265
751,408
889,509
872,429
661,377
428,150
691,705
152,661
704,850
629,451
779,903
920,858
654,341
109,821
753,517
663,215
749,867
709,976
647,210
398,203
396,387
1977
1978
1984
1984
1982
1995
1995
1996
1996
1997
1998
1998
1998
1998
1999
1999
2000
2000
2001
2001
2002
2002
2003
2003
2003
2004
2004
2004
2004
2004
2004
2005
2005
2005
2005
2005
2005
COLUMN H
Life on Which
Depreciation in
Latest Income
Statement is
Computed
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
20 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
F-31
Agree Realty Corporation
Schedule III – Real Estate and Accumulated Depreciation
December 31, 2016
COLUMN A
COLUMN B
COLUMN C
COLUMN D
COLUMN E
COLUMN F
COLUMN G
Description
Encumbrance
Land
Building and
Improvements
Subsequent to
Acquisition
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date of
Acquisition
Initial Cost
Costs Capitalized Gross Amount at Which Carried at Close of Period
1,073,217
1,483,000
-
-
-
Baton Rouge, LA
Southfield, MI
Clifton Heights, PA
Newark, DE
Vineland, NJ
Fort Mill, SC
Spartanburg, SC
Springfield, IL
Jacksonville, NC
Morrow, GA
Charlotte, NC
Lyons, GA
Fuquay-Varina, NC
Minneapolis, MN
Lake Zurich, IL
Lebanon, VA
Harlingen, TX
Wichita, TX
Pensacola, FL
Pensacola, FL
Venice, FL
St. Joseph, MO
Statham, GA
North Las Vegas, NV
Memphis, TN
Rancho Cordova, CA
Kissimmee, FL
Pinellas Park, FL
Manchester, CT
Rapid City, SD
Chicago, IL
Brooklyn, OH
Madisonville, TX
Baton Rouge, LA
Forest, MS
Sun Valley, NV
Rochester, NY
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,178,215
2,543,941
2,117,547
4,102,710
750,000
250,000
302,520
676,930
525,000
1,822,900
121,627
2,042,225
1,088,015
780,974
300,000
430,000
340,000
650,000
400,000
1,300,196
377,620
191,919
214,552
322,520
3,889,612
1,453,500
2,625,000
397,800
1,017,800
272,222
3,643,700
96,680
271,400
-
308,495
2,500,000
1,188,322
-
3,038,561
4,777,516
1,501,854
1,187,380
765,714
653,654
1,482,748
1,383,489
3,531,275
2,155,635
1,763,768
345,958
7,909,277
612,582
1,614,378
1,530,971
1,165,415
1,507,583
-
7,639,521
3,851,073
717,435
748,890
3,232,662
971,683
874,542
325,705
2,348,032
649,063
15,079,714
1,087,642
1,086,434
1,298,176
1,373,336
7,398,639
-
-
(3,105)
(4,881)
7,986
-
-
1,960
-
(99,850)
(572,344)
(103,392)
(255,778)
206,950
28,174
20,380
12,854
12,855
12,854
12,854
-
-
-
-
-
(3,232,662)
-
4,163
-
-
2,451
1,553
-
-
-
3,992
1,722
-
1,178,215
2,543,941
2,117,547
4,102,710
750,000
250,000
302,520
676,930
525,000
1,822,900
121,627
2,042,225
826,635
780,974
300,000
430,000
340,000
650,000
400,000
1,305,088
377,620
191,919
214,552
322,520
1,339,612
1,453,500
2,625,000
397,800
1,017,800
272,222
3,643,700
96,680
271,400
-
253,495
2,500,000
1,188,322
-
3,035,456
4,772,635
1,509,840
1,187,380
765,714
655,614
1,482,748
1,283,639
2,958,931
2,052,243
1,507,990
552,908
7,937,451
632,962
1,627,232
1,543,826
1,178,269
1,520,437
-
7,639,521
3,851,073
717,435
748,890
-
971,683
878,705
325,705
2,348,032
651,514
15,081,267
1,087,642
1,086,434
1,298,176
1,377,328
7,400,361
1,188,322
1,178,215
5,579,397
6,890,182
5,612,550
1,937,380
1,015,714
958,134
2,159,678
1,808,639
4,781,831
2,173,870
3,550,215
1,379,543
8,718,425
932,962
2,057,232
1,883,826
1,828,269
1,920,437
1,305,088
8,017,141
4,042,992
931,987
1,071,410
1,339,612
2,425,183
3,503,705
723,505
3,365,832
923,736
18,724,967
1,184,322
1,357,834
1,298,176
1,630,823
9,900,361
136,162
-
338,330
532,013
168,288
131,106
83,752
71,015
160,630
137,012
310,604
207,435
154,474
56,014
801,983
68,870
162,721
154,383
117,825
152,045
-
748,036
377,082
69,501
71,772
-
91,096
78,643
29,858
212,789
58,270
1,319,541
95,170
92,798
110,887
114,707
608,895
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
COLUMN H
Life on Which
Depreciation in
Latest Income
Statement is
Computed
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
F-32
Agree Realty Corporation
Schedule III – Real Estate and Accumulated Depreciation
COLUMN C
COLUMN A
COLUMN B
COLUMN D
COLUMN E
COLUMN F
COLUMN G
December 31, 2016
Description
Encumbrance
Land
Building and
Improvements
Subsequent to
Acquisition
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date of
Acquisition
Initial Cost
Costs Capitalized Gross Amount at Which Carried at Close of Period
7,089,196
5,293,915
Allentown, PA
Casselberry, FL
Berwyn, IL
Grand Forks, ND
Ann Arbor, MI
Joplin, MO
Red Bay, AL
Birmingham, AL
Birmingham, AL
Birmingham, AL
Birmingham, AL
Montgomery, AL
Littleton, CO
St Petersburg, FL
St Augustine, FL
East Palatka, FL
Pensacola, FL
Jacksonville, FL
Jacksonville, FL
Fort Oglethorpe, GA
New Lenox, IL
Rockford, IL
Indianapolis, IN
Terre Haute, IN
Junction City, KS
Baton Rouge, LA
Lincoln Park, MI
Novi, MI
Bloomfield Hills, MI
Moorehead, MN
Fergus Falls, MN
Fergus Falls, MN
Park Rapids, MN
Jackson, MS
Belton, MO
Great Falls, MT
Irvington, NJ
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,525,051
1,804,000
186,791
1,502,609
3,000,000
1,208,225
38,981
230,106
245,234
98,271
235,641
325,389
819,000
1,225,000
200,000
730,000
136,365
297,066
299,312
1,842,240
2,010,000
303,395
575,000
103,147
78,271
226,919
543,303
1,803,857
1,340,000
511,645
405,617
327,247
413,151
256,789
714,775
945,765
315,000
7,896,613
793,101
933,959
2,301,337
4,595,757
1,160,843
2,528,437
231,313
251,339
179,824
127,477
217,850
8,756,266
1,025,247
1,523,230
575,236
398,773
312,818
348,862
2,844,126
6,206,252
2,436,873
1,871,110
2,477,263
2,504,294
347,691
1,408,544
1,488,505
2,003,406
870,732
561,332
655,973
706,884
172,184
7,173,999
753,222
1,313,025
-
-
5,400
1,801,028
277,040
-
3,856
(297)
(324)
-
(313)
-
399
6,592
-
6,911
-
10,077
12,497
7,307
107,873
-
-
9,676
10,831
-
-
22,490
357,881
8,369
100,344
(89,330)
5,925
-
-
12,712
-
2,525,051
1,804,000
186,792
1,502,609
3,000,000
1,208,225
38,981
230,106
245,234
98,271
235,641
325,389
819,000
1,225,000
200,000
730,000
136,365
297,066
299,312
1,842,240
2,010,000
303,395
575,000
103,147
78,271
226,919
543,303
1,803,857
1,341,900
511,645
405,617
327,247
413,151
256,789
714,775
945,765
315,000
7,896,613
793,101
939,359
4,102,365
4,872,797
1,160,843
2,532,293
231,016
251,015
179,824
127,164
217,850
8,756,665
1,031,839
1,523,230
582,147
398,773
322,895
361,359
2,851,433
6,314,125
2,436,873
1,871,110
2,486,939
2,515,125
347,691
1,408,544
1,510,995
2,361,287
879,101
661,676
566,643
712,809
172,184
7,173,999
765,934
1,313,025
10,421,664
2,597,101
1,126,151
5,604,974
7,872,797
2,369,068
2,571,274
461,122
496,249
278,095
362,805
543,239
9,575,665
2,256,839
1,723,230
1,312,147
535,138
619,961
660,671
4,693,673
8,324,125
2,740,268
2,446,110
2,590,086
2,593,396
574,610
1,951,847
3,314,852
3,703,187
1,390,746
1,067,293
893,890
1,125,960
428,973
7,888,774
1,711,699
1,628,025
649,826
67,744
72,398
317,266
374,987
91,899
137,152
12,033
13,075
9,366
6,624
11,347
492,558
70,661
85,681
32,704
20,769
16,122
18,039
207,897
344,320
137,074
128,638
124,336
125,756
18,108
96,837
75,515
124,481
47,570
35,807
30,663
38,575
8,968
358,699
38,287
90,269
2013
2013
2013
2013
2013
2013
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
F-33
COLUMN H
Life on Which
Depreciation in
Latest Income
Statement is
Computed
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
Agree Realty Corporation
Schedule III – Real Estate and Accumulated Depreciation
December 31, 2016
COLUMN A
COLUMN B
COLUMN C
COLUMN D
COLUMN E
COLUMN F
COLUMN G
Description
Encumbrance
Land
Initial Cost
Building and
Improvements
Costs
Subsequent
to Acquisition
Gross Amount at Which Carried at Close of Period
Building and
Improvements
Land
Total
Accumulated
Depreciation
Date of
Acquisition
East Grand Forks, ND
Fargo, ND
Fargo, ND
Jamestown, ND
Grand Forks, ND
Grand Forks, ND
Grand Forks, ND
Toledo, OH
Toledo, OH
Toledo, OH
Toledo, OH
Port Clinton, OH
Mansfield, OH
Orville, OH
Akron, OH
Akron, OH
Hubbard, OH
Youngstown, OH
Calcutta, OH
Columbus, OH
Tulsa, OK
Ligonier, PA
Clarion, PA
Mercer, PA
Limerick, PA
Harrisburg, PA
Anderson, SC
Easley, SC
Spartanburg, SC
Spartanburg, SC
Columbia, SC
Alcoa, TN
Knoxville, TN
Red Bank, TN
New Tazewell, TN
Maryville, TN
Morristown, TN
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
313,454
513,505
629,484
234,545
540,658
762,471
529,087
500,000
155,250
213,750
168,750
75,000
306,000
344,250
427,750
696,000
204,000
285,000
208,050
-
459,148
330,000
121,200
121,200
369,000
124,757
781,200
332,275
141,307
94,770
303,932
329,074
214,077
229,100
91,006
94,682
46,404
914,676
1,201,532
707,799
1,158,486
813,776
554,595
676,026
1,372,363
762,500
754,675
785,000
721,100
725,600
716,600
715,700
845,000
726,500
745,700
758,750
1,136,250
640,550
5,021,849
771,500
770,000
-
1,446,773
4,441,535
268,612
446,706
261,640
1,221,964
270,719
286,037
302,146
328,561
1,529,621
801,506
313,454
513,505
629,484
234,545
540,658
762,471
529,087
500,000
155,250
213,750
168,750
75,000
306,000
344,250
427,750
696,000
204,000
285,000
208,050
-
459,148
330,000
121,200
121,200
369,000
124,757
781,200
332,275
141,307
94,770
303,932
329,074
214,077
229,100
91,006
94,682
46,404
7,085
(548,994)
505,065
8,499
7,714
7,555
6,925
(12)
-
-
16,477
-
-
-
-
-
-
-
1,462
-
(16,477)
(9,500)
-
-
-
11,175
-
-
-
-
(13,830)
-
-
-
5,073
27,242
4,989
F-34
921,761
652,538
1,212,864
1,166,985
821,490
562,150
682,951
1,372,351
762,500
754,675
801,477
721,100
725,600
716,600
715,700
845,000
726,500
745,700
760,212
1,136,250
624,073
5,012,349
771,500
770,000
-
1,457,948
4,441,535
268,612
446,706
261,640
1,208,134
270,719
286,037
302,146
333,634
1,556,863
806,495
1,235,215
1,166,043
1,842,348
1,401,530
1,362,148
1,324,621
1,212,038
1,872,351
917,750
968,425
970,227
796,100
1,031,600
1,060,850
1,143,450
1,541,000
930,500
1,030,700
968,262
1,136,250
1,083,221
5,342,349
892,700
891,200
369,000
1,582,705
5,222,735
600,887
588,013
356,410
1,512,066
599,793
500,114
531,246
424,640
1,651,545
852,899
49,887
34,001
65,631
63,163
44,453
30,406
36,953
94,348
46,067
45,595
48,252
43,567
43,838
43,294
43,241
51,052
43,893
45,053
45,845
66,282
44,548
303,407
46,612
46,522
-
72,815
323,862
13,991
23,266
13,627
63,520
14,100
14,898
15,736
16,674
77,477
40,316
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
COLUMN H
Life on Which
Depreciation in
Latest Income
Statement is
Computed
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
Agree Realty Corporation
Schedule III – Real Estate and Accumulated Depreciation
December 31, 2016
COLUMN A
COLUMN B
COLUMN C
COLUMN D
COLUMN E
COLUMN F
COLUMN G
Description
Encumbrance
Land
Building and
Improvements
Subsequent to
Acquisition
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date of
Acquisition
Initial Cost
Costs Capitalized Gross Amount at Which Carried at Close of Period
Clinton, TN
Knoxville, TN
Sweetwater, TN
McKinney, TX
Forest Va
Colonial Heights, VA
Chester, VA
Midlothian, VA
Ashland, VA
Mecanicsville, VA
Glen Allen, VA
Burlington, WA
Wausau, WI
Foley AL
Sulligent, AL
Eutaw, AL
Tallassee, AL
Orange Park, AL
Aurora, CO
Pace, FL
Pensacola, FL
Orange Park, FL
Jacksonville Beach, FL
Freeport, FL
Glenwood, GA
Albany, GA
Belvidere, IL
Springfield, IL
Peru, IL
Davenport, IA
Le Mars, IA
Buffalo Center, IA
Sheffield, IA
Topeka, KS
Lenexa, KS
Tompkinsville , KY
Hazard, KY
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,189,490
2,277,951
1,016,029
6,785,815
956,027
1,053,594
790,640
798,763
960,875
902,365
1,122,627
3,642,676
1,405,899
506,203
1,085,906
1,214,941
850,448
1,775,000
2,001,394
524,400
775,059
354,876
370,612
1,277,386
1,027,370
641,123
644,492
2,870,606
2,125,498
6,623,542
613,534
700,460
729,543
12,427,839
2,186,864
1,132,033
13,731,876
1,259,115
2,438,008
1,095,129
9,456,835
1,238,627
1,601,286
1,091,223
1,031,100
1,387,271
1,121,861
1,712,728
4,252,676
2,314,991
811,535
1,144,709
1,318,687
1,004,885
2,424,652
2,978,259
562,260
1,084,666
636,729
993,643
1,590,001
1,056,859
689,078
828,628
3,550,651
2,505,752
7,399,908
666,732
859,813
861,337
14,281,440
2,490,039
1,202,285
22,124,717
59,463
113,875
50,789
424,113
59,750
54,879
41,182
41,605
50,049
47,000
58,474
191,111
87,868
26,238
49,705
55,608
35,435
59,167
54,201
25,027
36,949
16,235
16,171
47,902
44,902
27,969
28,083
119,608
66,422
248,383
23,008
24,808
25,838
569,024
54,672
51,815
343,297
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
69,625
160,057
79,100
2,671,020
282,600
547,692
300,583
232,337
426,396
219,496
590,101
610,000
909,092
305,332
58,803
103,746
154,437
649,652
976,865
37,860
309,607
281,853
623,031
312,615
29,489
47,955
184,136
680,045
380,254
776,366
53,198
159,353
131,794
1,853,601
303,175
70,252
8,392,841
1,177,927
2,265,025
1,009,290
6,785,815
956,027
1,059,557
794,417
802,602
965,925
906,590
1,129,495
3,647,279
1,405,899
506,203
1,085,906
1,212,006
850,448
1,775,000
1,999,651
524,400
775,084
354,876
370,612
1,277,386
1,027,370
641,123
644,492
2,870,606
2,125,498
6,623,542
613,534
700,460
729,543
12,427,839
2,186,864
1,132,033
13,731,648
11,563
12,926
6,739
-
-
(5,963)
(3,777)
(3,839)
(5,050)
(4,225)
(6,868)
(4,603)
-
-
-
2,935
-
-
1,743
-
(25)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
228
69,625
160,057
79,100
2,671,020
282,600
547,692
300,583
232,337
426,396
219,496
590,101
610,000
909,092
305,332
58,803
103,746
154,437
649,652
976,865
37,860
309,607
281,853
623,031
312,615
29,489
47,955
184,136
680,045
380,254
776,366
53,198
159,353
131,794
1,853,601
303,175
70,252
8,392,841
F-35
COLUMN H
Life on Which
Depreciation in
Latest Income
Statement is
Computed
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
COLUMN H
Life on Which
Depreciation in
Latest Income
Statement is
Computed
Agree Realty Corporation
Schedule III – Real Estate and Accumulated Depreciation
COLUMN C
COLUMN A
COLUMN B
COLUMN D
COLUMN E
COLUMN F
December 31, 2016
COLUMN G
Description
Encumbrance
Land
Building and
Improvements
Subsequent to
Acquisition
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date of
Acquisition
Initial Cost
Costs Capitalized Gross Amount at Which Carried at Close of Period
DeQuincy, LA
Portland, MA
Flint, MI
Hutchinson, MN
Lowry City, MO
Branson, MO
Branson, MO
Enfield, NH
Stanley, ND
Marietta, OH
Lorain, OH
Franklin, OH
Elyria, OH
Elyria, OH
Bedford Heights, OH
Newburgh Heights, OH
Warrensville Heights, OH
Heath, OH
Lima, OH
Elk City, OK
Salem, OR
Westfield, PA
Bloomsburg, PA
Altoona, PA
Grindstone, PA
Blythewood, SC
Columbia, SC
Liberty, SC
Blacksburg, SC
Easley, SC
Fountain Inn, SC
Walterboro, SC
Jackson, TN
Arlington, TX
Sweetwater, TX
Fort Worth, TX
Brenham, TX
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
114,407
-
120,078
67,914
103,202
564,066
721,135
93,628
341,597
319,157
293,831
264,153
82,023
126,641
226,920
224,040
186,209
325,381
335,386
45,212
1,450,000
47,346
152,645
555,903
288,246
475,393
249,900
27,929
27,547
51,325
107,633
21,414
277,000
494,755
626,578
2,999,944
355,486
1,881,056
3,831,860
2,561,015
720,799
614,065
940,585
717,081
1,295,320
3,611,702
1,225,026
1,044,956
1,191,777
910,404
695,072
959,528
959,099
920,496
757,994
592,154
1,242,220
2,951,167
1,117,723
1,091,115
9,489,791
500,379
878,586
809,935
1,222,856
1,468,101
1,187,506
1,076,633
1,156,820
495,103
710,416
652,127
6,198,198
17,280,895
-
3,172
20,489
-
-
175
760
125
912
-
-
-
-
-
-
-
4,900
135
-
-
1,346,565
-
-
896
-
-
-
90
-
-
-
-
-
-
-
-
-
114,407
-
120,078
67,914
103,202
564,066
721,135
93,628
341,597
319,157
293,831
264,153
82,023
126,641
226,920
224,040
186,209
325,381
335,386
45,212
1,450,000
47,346
152,645
555,903
288,246
475,393
249,900
27,929
27,547
51,325
107,633
21,414
277,000
494,755
626,578
2,999,944
355,486
1,881,056
3,835,032
2,581,504
720,799
614,065
940,760
717,841
1,295,445
3,612,614
1,225,026
1,044,956
1,191,777
910,404
695,072
959,528
959,099
925,396
758,129
592,154
1,242,220
4,297,732
1,117,723
1,091,115
9,490,687
500,379
878,586
809,935
1,222,946
1,468,101
1,187,506
1,076,633
1,156,820
495,103
710,416
652,127
6,198,198
17,280,895
1,995,463
3,835,032
2,701,582
788,713
717,267
1,504,826
1,438,976
1,389,073
3,954,211
1,544,183
1,338,787
1,455,930
992,427
821,713
1,186,448
1,183,139
1,111,605
1,083,510
927,540
1,287,432
5,747,732
1,165,069
1,243,760
10,046,590
788,625
1,353,979
1,059,835
1,250,875
1,495,648
1,238,831
1,184,266
1,178,234
772,103
1,205,171
1,278,705
9,198,142
17,636,381
86,111
143,774
64,538
25,528
23,026
27,438
20,934
61,960
90,312
53,537
43,540
47,175
34,140
26,065
33,983
33,968
32,642
22,112
14,804
49,171
107,440
53,457
43,190
296,573
12,509
39,281
35,335
53,416
61,171
47,006
42,617
45,790
12,378
33,748
31,248
258,259
720,037
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
F-36
Agree Realty Corporation
Schedule III – Real Estate and Accumulated Depreciation
COLUMN C
COLUMN A
COLUMN B
COLUMN D
COLUMN E
COLUMN F
COLUMN G
December 31, 2016
Description
Encumbrance
Land
Building and
Improvements
Subsequent to
Acquisition
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date of
Acquisition
Initial Cost
Costs Capitalized Gross Amount at Which Carried at Close of Period
Corpus Christi, TX
Harlingen, TX
Midland, TX
Rockwall, TX
Bluefield, VA
Princeton, WV
Beckley, WV
Martinsburg, WV
Grand Chute, WI
New Richmond, WI
Ashland, WI
Baraboo, WI
Mauston, WI
Decatur, AL
Greenville, AL
Bullhead City, AZ
Page, AZ
Safford, AZ
Tuscon, AZ
Bentonville, AR
Sunnyvale, CA
Upland, CA
Whittier, CA
Aurora, CO
Aurora, CO
Evergreen, CO
Apopka, FL
Lakeland, FL
Mt Dora, FL
North Miami Beach, FL
Orlando, FL
Port Orange, FL
Royal Palm Beach, FL
Sarasota, FL
Venice, FL
Vero Beach, FL
Dalton, GA
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
316,916
126,102
194,174
578,225
88,431
111,653
162,024
620,892
2,766,417
71,969
142,287
142,563
289,882
337,738
203,722
177,500
256,982
349,269
3,208,580
610,926
7,351,903
4,413,871
4,237,918
847,349
1,132,676
1,998,860
1,996,995
61,000
1,678,671
1,622,742
903,411
1,493,863
2,052,463
1,769,175
281,936
4,469,033
211,362
2,140,056
869,779
5,005,720
1,768,930
1,161,840
1,029,090
991,653
943,163
7,084,942
648,850
684,545
653,176
3,302,490
510,706
905,780
1,364,406
1,299,283
1,196,307
4,410,679
897,562
4,638,432
8,318,559
7,343,869
834,301
5,716,367
3,827,245
3,456,839
1,227,037
3,691,615
512,717
1,627,159
3,114,697
956,768
3,587,992
1,291,748
-
220,927
2,140,056
869,779
5,007,720
1,769,140
1,161,840
1,029,090
991,653
943,163
7,084,942
648,850
684,545
653,176
3,302,490
510,706
905,780
1,364,406
1,299,283
1,196,307
4,410,679
897,562
4,638,432
8,318,559
7,343,869
834,301
5,716,367
3,827,245
3,456,839
1,227,037
3,691,615
512,717
1,627,159
3,114,697
956,768
3,587,992
1,291,748
-
220,927
2,456,972
995,881
5,201,894
2,347,365
1,250,271
1,140,743
1,153,677
1,564,055
9,851,359
720,819
826,832
795,739
3,592,372
848,444
1,109,502
1,541,906
1,556,265
1,545,576
7,619,259
1,508,488
11,990,335
12,732,430
11,581,787
1,681,650
6,849,043
5,826,105
5,453,834
1,288,037
5,370,286
2,135,459
2,530,570
4,608,560
3,009,231
5,357,167
1,573,684
4,469,033
432,289
71,335
28,993
156,466
44,224
50,786
44,960
43,334
23,579
309,773
24,332
24,244
23,133
96,323
2,128
-
25,568
24,362
12,328
55,133
16,867
67,458
121,312
107,098
-
-
55,814
50,412
5,113
53,836
-
13,184
45,423
9,966
52,325
10,669
-
2,738
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
-
-
2,000
210
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
316,916
126,102
194,174
578,225
88,431
111,653
162,024
620,892
2,766,417
71,969
142,287
142,563
289,882
337,738
203,722
177,500
256,982
349,269
3,208,580
610,926
7,351,903
4,413,871
4,237,918
847,349
1,132,676
1,998,860
1,996,995
61,000
1,678,671
1,622,742
903,411
1,493,863
2,052,463
1,769,175
281,936
4,469,033
211,362
F-37
COLUMN H
Life on Which
Depreciation in
Latest Income
Statement is
Computed
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
Agree Realty Corporation
Schedule III – Real Estate and Accumulated Depreciation
COLUMN C
COLUMN A
COLUMN B
COLUMN D
COLUMN E
COLUMN F
Description
Encumbrance
Land
Initial Cost
Costs Capitalized Gross Amount at Which Carried at Close of Period
Building and
Improvements
Subsequent to
Acquisition
Land
Building and
Improvements
Total
Accumulated
Depreciation
COLUMN G
December 31, 2016
COLUMN H
Life on Which
Depreciation in
Latest Income
Statement is
Computed
Date of
Acquisition
Crystal Lake, IL
Glenwood, IL
Morris, IL
Wheaton, IL
Bicknell, IN
Fort Wayne, IN
Indianapolis, IN
Des Moines, IA
Frankfort, KY
DeRidder, LA
Lake Charles, LA
Shreveport, LA
Marshall, MI
Mt Pleasant, MI
Norton Shores, MI
Portage, MI
Stephenson, MI
Sterling, MI
Cambridge, MN
Eagle Bend, MN
Brandon, MS
Clinton, MS
Columbus, MS
Flowood, MS
Holly Springs, MS
Jackson, MS
Jackson, MS
Meridian, MS
Pearl, MS
Ridgeland, MS
Bowling Green, MO
St Robert, MO
Hamilton, MT
Beatty, NV
Alamogordo, NM
Alamogordo, NM
Alcalde, NM
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,446,521
815,483
1,206,749
447,291
215,037
711,430
734,434
322,797
-
814,891
1,308,418
891,872
339,813
-
495,605
262,181
223,152
127,844
536,812
96,558
428,464
370,264
1,103,458
360,267
413,316
242,796
732,944
396,329
299,839
407,041
360,201
394,859
558,047
198,928
654,965
524,763
435,486
7,012,819
970,108
2,062,495
751,458
2,381,471
1,258,357
970,175
1,374,153
514,277
2,156,542
4,235,719
2,058,257
-
511,282
667,982
1,102,990
1,044,947
905,607
1,334,601
1,165,437
969,346
1,057,143
2,128,089
1,044,807
952,574
963,188
2,862,813
1,152,729
616,351
864,498
2,809,170
1,305,366
1,083,570
1,265,084
2,716,166
941,615
836,499
7,012,819
970,108
2,062,495
751,458
2,381,471
1,258,357
970,175
1,374,153
514,277
2,156,542
4,235,719
2,058,257
-
511,282
667,982
1,102,990
1,044,947
905,607
1,334,601
1,165,437
969,346
1,057,143
2,128,089
1,044,807
952,574
963,188
2,862,813
1,152,729
616,351
864,498
2,809,170
1,305,366
1,083,570
1,265,084
2,716,166
941,615
836,499
9,459,340
1,785,591
3,269,244
1,198,749
2,596,508
1,969,787
1,704,609
1,696,950
514,277
2,971,433
5,544,137
2,950,129
339,813
511,282
1,163,587
1,365,171
1,268,099
1,033,451
1,871,413
1,261,995
1,397,810
1,427,407
3,231,547
1,405,074
1,365,890
1,205,984
3,595,757
1,549,058
916,190
1,271,539
3,169,371
1,700,225
1,641,617
1,464,012
3,371,131
1,466,378
1,271,985
14,610
4,042
30,078
12,524
19,738
28,837
18,190
20,040
4,828
26,980
8,824
25,738
-
-
1,392
11,489
-
3,773
19,463
7,222
16,156
17,619
44,335
17,413
11,782
16,053
17,893
19,190
-
14,408
17,511
-
2,257
7,907
16,934
1,962
-
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,446,521
815,483
1,206,749
447,291
215,037
711,430
734,434
322,797
-
814,891
1,308,418
891,872
339,813
-
495,605
262,181
223,152
127,844
536,812
96,558
428,464
370,264
1,103,458
360,267
413,316
242,796
732,944
396,329
299,839
407,041
360,201
394,859
558,047
198,928
654,965
524,763
435,486
F-38
Agree Realty Corporation
Schedule III – Real Estate and Accumulated Depreciation
December 31, 2016
COLUMN A
COLUMN B
COLUMN C
COLUMN D
COLUMN E
COLUMN F
COLUMN G
Initial Cost
Costs Capitalized Gross Amount at Which Carried at Close of Period
Description
Encumbrance
Land
Building and
Improvements
Subsequent to
Acquisition
Cimarron, NM
La Luz, NM
Fayetteville, NC
Gastonia, NC
Devils Lake, ND
West Fargo, ND
Cambridge, OH
Columbus, OH
Grove City, OH
Lorain, OH
Reynoldsburg, OH
Springfield, OH
Ardmore, OK
Dillon, SC
Jasper, TN
Austin, TX
Carthage, TX
Cedar Park, TX
Granbury, TX
Hemphill, TX
Lampasas, TX
Lubbock, TX
Odessa, TX
Port Arthur, TX
Tyler, TX
Farr West, UT
Provo, UT
St George, UT
Tappahannock, VA
Kirkland, WA
Manitowoc, WI
Oak Creek, WI
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Subtotal
70,006,575
Property Under Development
345,693
487,401
1,267,529
401,119
323,508
789,855
168,717
1,109,044
334,032
808,162
843,336
982,451
571,993
85,896
190,582
4,986,082
597,995
1,386,802
944,223
250,503
245,312
1,501,556
921,043
1,889,732
4,446,648
679,206
1,692,785
313,107
1,076,745
816,072
879,237
487,277
317,752,804
1,236,437
835,455
2,527,462
979,803
1,133,773
600,976
1,113,232
1,291,313
176,274
1,390,481
1,197,966
3,957,512
1,590,151
1,697,160
966,125
5,179,446
1,965,290
4,656,229
2,362,540
1,955,918
1,063,701
2,341,031
2,434,384
8,121,417
3,178,302
1,040,737
5,874,584
1,009,161
14,904
-
4,467,960
3,082,180
694,003,714
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9,501,919
Land
345,693
487,401
1,267,529
401,119
323,508
789,855
168,717
1,109,044
334,032
808,162
843,336
982,451
571,993
85,896
190,582
4,986,082
597,995
1,386,802
944,223
250,503
245,312
1,501,556
921,043
1,889,732
4,446,648
679,206
1,692,785
313,107
1,076,745
816,072
879,237
487,277
309,687,125
Building and
Improvements
1,236,437
835,455
2,527,462
979,803
1,133,773
600,976
1,113,232
1,291,313
176,274
1,390,481
1,197,966
3,957,512
1,590,151
1,697,160
966,125
5,179,446
1,965,290
4,656,229
2,362,540
1,955,918
1,063,701
2,341,031
2,434,384
8,121,417
3,178,302
1,040,737
5,874,584
1,009,161
14,904
-
4,467,960
3,082,180
703,505,633
Total
1,582,130
1,322,856
3,794,991
1,380,922
1,457,281
1,390,831
1,281,949
2,400,357
510,306
2,198,643
2,041,302
4,939,963
2,162,144
1,783,056
1,156,707
10,165,528
2,563,285
6,043,031
3,306,763
2,206,421
1,309,013
3,842,587
3,355,427
10,011,149
7,624,950
1,719,943
7,567,369
1,322,268
1,091,649
816,072
5,347,197
3,569,457
1,013,192,758
Accumulated
Depreciation
Date of
Acquisition
2,576
1,741
5,266
2,041
8,976
-
23,192
16,058
2,184
26,072
14,909
82,291
23,191
38,893
-
118,696
24,573
67,903
29,540
12,176
13,291
29,273
30,439
67,440
24,231
11,736
61,083
18,922
152
-
37,061
64,212
69,696,727
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
COLUMN H
Life on Which
Depreciation in
Latest Income
Statement is
Computed
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
Various
Sub Total
Total
-
-
-
-
6,763,571
6,763,571
-
-
-
-
6,763,571
6,763,571
6,763,571
6,763,571
-
-
N/A
N/A
$
70,006,575
$
317,752,804
$
700,767,285
$
9,501,919
$
309,687,125
$
710,269,204
$
1,019,956,329
$
69,696,727
F-39
Agree Realty Corporation
Notes to Schedule III
December 31, 2016
1. Reconciliation of Real Estate Properties
The following table reconciles the Real Estate Properties from January 1, 2014 to December 31, 2016.
2016
2015
2014
Balance at January 1
Construction and acquisition cost
Impairment charge
Disposition of real estate
$
755,848,938
284,968,286
$
589,147,012
196,672,924
-
-
(20,860,895)
(29,970,998)
$
476,168,824
143,365,974
(3,020,000)
(27,367,786)
Balance at December 31
$
1,019,956,329
$
755,848,938
$
589,147,012
2. Reconciliation of Accumulated Depreciation
The following table reconciles the Real Estate Properties from January 1, 2014 to December 31, 2016.
2016
2015
2014
Balance at January 1
Current year depreciation expense
Disposition of real estate
$
56,401,423
15,201,469
(1,906,165)
$
59,089,851
11,464,695
(14,153,123)
$
65,436,739
8,361,698
(14,708,586)
Balance at December 31
$
69,696,727
$
56,401,423
$
59,089,851
3. Tax Basis of Building and Improvements
The aggregate cost of Building and Improvements for federal income tax purposes is approximately
$29,401,000 less than the cost basis used for financial statement purposes.
F-40
AGREE REALTY CORPORATION
Financial Highlights
NYSE: ADC
Financial - For Year Ended December 31,
2016
2015
2014
Total revenues ($000's)
Operating income ($000's)
Funds from operations ($000's)
Funds from operations per share
Dividends per share
Property Portfolio
Real estate assets, at cost ($000's)
Total assets ($000's)
Total debt and accrued interest ($000's)
Number of properties
Gross leasable area (sq. ft)
$
91,527
$
69,966
$
53,559
$
35,833
$
27,627
$
19,318
$
59,168
$
44,051
$
33,316
$
2.54
$
2.39
$
2.18
$
1.92
$
1.845
$
1.74
2016
2015
2014
$
1,019,957
$
755,849
$
589,147
$
1,111,925
$
789,907
$
593,581
$
403,332
$
317,905
$
222,483
366
278
209
7,033,000
5,207,000
4,315,000
TOTAL RETURN PERFORMANCE
260
220
180
140
l
e
u
a
V
x
e
d
n
I
100
12.31.11
12.31.12
12.31.13
12.31.14
12.31.15
12.31.16
Agree Realty Corporation
Russell 2000
SNL REIT Retail Shopping Ctr
Index
12.31.11
12.31.12
12.31.13
12.31.14
12.31.15
12.31.16
Agree Realty Corporation
Russell 2000
SNL REIT Retail Shopping Ctr
100.00
100.00
100.00
117.48
116.35
126.26
134.63
161.52
134.90
152.88
169.43
174.80
177.32
161.95
184.16
250.67
196.45
190.57
Period Ending
$60,000
$50,000
$40,000
$30,000
$20,000
AGREE REALTY CORPORATION
Financial Highlights
NYSE: ADC
FUNDS FROM OPERATIONS
(in thousands)
2012
2013
2014
2015
2016
REAL ESTATE ASSETS
(in thousands)
$1,000,000
$900,000
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
2012
2013
2014
2015
2016
CORPORATE INFORMATION
EXECUTIVE OFFICERS
DIRECTORS
Richard Agree
Executive Chairman
Board of Directors
Joey Agree
President
Chief Executive Officer
Director
John Rakolta, Jr.
Chairman
Chief Executive Officer
Walbridge
William S. Rubenfaer
President
Rubenfaer Associates, PC
Leon Schurgin
Of Counsel
Dawda Mann
Farris Kalil
Former, Director of Business
Development of
Commercial Lending
Michigan National Bank
Annual Meeting of Stockholders
Friday, May 19, 2017 at 10:00 am
Embassy Suites
850 Tower Drive
Troy, MI 48098
Auditors
Grant Thornton LLP
27777 Franklin Road
Southfield, MI 48034
Matthew Partridge
Chief Financial Officer
Secretary
Laith Hermiz
Chief Operating Officer
Daniel Ravid
Chief Administrative Officer
Jerry Rossi
Former, Group President
The TJX Companies
n
Chief Executive Officer
R&R Consulting
Merrie S. Frankel
President
Minerva Realty Consultants, LLC
Adjunct Professor
Columbia University
New York University
Gene Silverman
Former, President
Chief Executive Officer
Polygram Video
Counsel
Honigman
39400 Woodward Ave., Ste. 101
Bloomfield Hills, MI 48304
Registrar & Transfer Agent
Computershare
P.O. Box 30170
College Station, TX 77842