x
|
Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
|
¨
|
Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
|
Maryland
|
38-3148187
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(State
or other jurisdiction
|
(I.R.S.
Employer
|
of
incorporation or organization)
|
Identification
No.)
|
31850
Northwestern Highway, Farmington Hills, Michigan
|
48334
|
(Address
of principal executive offices)
|
(Zip
code)
|
Yes x
|
No ¨
|
Yes ¨
|
No ¨
|
Large Accelerated Filer
¨
|
Accelerated Filer
x
|
Non-accelerated Filer ¨
|
Smaller reporting
company ¨
|
|||
|
|
(Do not check if a smaller reporting
company)
|
|
Yes ¨
|
No x
|
Page
|
|||||
Part
I:
|
Financial
Information
|
|
|||
Item
1.
|
Interim
Consolidated Financial Statements
|
||||
Consolidated
Balance Sheets as of June 30, 2009 (Unaudited) and December 31,
2008
|
1-2 | ||||
Consolidated
Statements of Income (Unaudited) for the three months ended June 30, 2009
and 2008
|
3 | ||||
Consolidated
Statements of Income (Unaudited) for the six months ended June 30, 2009
and 2008
|
4 | ||||
Consolidated
Statements of Stockholders’ Equity (Unaudited) for the six months ended
June 30, 2009
|
5 | ||||
Consolidated
Statements of Cash Flows (Unaudited) for the six months ended June 30,
2009 and 2008
|
6-7 | ||||
Notes
to Consolidated Financial Statements (Unaudited)
|
8-12 | ||||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
13-20 | |||
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
20-21 | |||
Item
4.
|
Controls
and Procedures
|
21-22 | |||
Part
II:
|
Other
Information
|
||||
Item
1.
|
Legal
Proceedings
|
22 | |||
Item
1A.
|
Risk
Factors
|
22 | |||
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
22 | |||
Item
3.
|
Defaults
Upon Senior Securities
|
22 | |||
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
22-23 | |||
Item
5
|
Other
Information
|
23 | |||
Item
6.
|
Exhibits
|
23 | |||
Signatures
|
24 |
June 30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
(Unaudited)
|
||||||||
Assets
|
||||||||
Real
Estate Investments
|
||||||||
Land
|
$ | 92,895,149 | $ | 87,309,289 | ||||
Buildings
|
218,454,225 | 210,650,491 | ||||||
Property
under development
|
6,326,595 | 13,383,102 | ||||||
317,675,969 | 311,342,882 | |||||||
Less
accumulated depreciation
|
(61,249,815 | ) | (58,502,384 | ) | ||||
Net
Real Estate Investments
|
256,426,154 | 252,840,498 | ||||||
Cash
and Cash Equivalents
|
265,455 | 668,677 | ||||||
Accounts Receivable - Tenants,
net of allowance of $49,190 and
|
||||||||
$195,000
for possible losses at June 30, 2009 and December 31, 2008
|
923,987 | 964,802 | ||||||
Unamortized
Deferred Expenses
|
||||||||
Financing
costs, net of accumulated amortization of $4,977,789 and $4,838,098 at
June 30, 2009 and December 31, 2008
|
997,774 | 951,745 | ||||||
Leasing
costs, net of accumulated amortization of $808,019 and $775,450 at June
30, 2009 and December 31, 2008
|
539,071 | 484,781 | ||||||
Other
Assets
|
772,145 | 986,332 | ||||||
$ | 259,924,586 | $ | 256,896,835 |
June 30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
(Unaudited)
|
||||||||
Liabilities
and Stockholders’ Equity
|
||||||||
Mortgages
Payable
|
$ | 65,955,255 | $ | 67,623,697 | ||||
Notes
Payable
|
38,336,535 | 32,945,000 | ||||||
Dividends
and Distributions Payable
|
4,262,017 | 4,233,232 | ||||||
Deferred
Revenue
|
10,380,079 | 10,724,854 | ||||||
Accrued
Interest Payable
|
238,575 | 500,796 | ||||||
Accounts
Payable
|
||||||||
Capital
expenditures
|
203,961 | 850,225 | ||||||
Operating
|
914,525 | 1,261,810 | ||||||
Interest
Rate Swap
|
226,782 | — | ||||||
Deferred
Income Taxes
|
705,000 | 705,000 | ||||||
Tenant
Deposits
|
73,525 | 70,077 | ||||||
Total
Liabilities
|
121,296,254 | 118,914,691 | ||||||
Stockholders’
Equity
|
||||||||
Common
stock, $0.0001 par value; 20,000,000 shares authorized, 8,191,574 and
7,863,930 shares issued and outstanding
|
819 | 786 | ||||||
Additional
paid-in capital
|
146,876,344 | 143,892,158 | ||||||
Deficit
|
(11,068,620 | ) | (11,257,541 | ) | ||||
Accumulated
other comprehensive income (loss)
|
(212,018 | ) | — | |||||
Total
stockholders’ equity—Agree Realty Corporation
|
135,596,525 | 132,635,403 | ||||||
Non-controlling
interest
|
3,031,807 | 5,346,741 | ||||||
Total
Stockholders’ Equity
|
138,628,332 | 137,982,144 | ||||||
$ | 259,924,586 | $ | 256,896,835 |
Three
Months Ended
|
Three
Months Ended
|
|||||||
June 30, 2009
|
June 30, 2008
|
|||||||
Revenues
|
||||||||
Minimum
rents
|
$ | 8,431,041 | $ | 8,133,119 | ||||
Percentage
rents
|
782 | - | ||||||
Operating
cost reimbursements
|
681,962 | 654,325 | ||||||
Other
income
|
8,772 | 1,657 | ||||||
Total
Revenues
|
9,122,557 | 8,789,101 | ||||||
Operating
Expenses
|
||||||||
Real
estate taxes
|
488,520 | 450,864 | ||||||
Property
operating expenses
|
332,468 | 359,268 | ||||||
Land
lease payments
|
214,800 | 171,050 | ||||||
General
and administrative
|
998,428 | 1,130,155 | ||||||
Depreciation
and amortization
|
1,419,860 | 1,347,452 | ||||||
Total
Operating Expenses
|
3,454,076 | 3,458,789 | ||||||
Income
From Operations
|
5,668,481 | 5,330,312 | ||||||
Other
Expense
|
||||||||
Interest
expense, net
|
(1,160,791 | ) | (1,238,977 | ) | ||||
Net
Income
|
4,507,690 | 4,091,335 | ||||||
Less
Net Income Attributable to Non-Controlling Interest
|
(268,113 | ) | (324,877 | ) | ||||
Net
Income Attributable to Agree Realty Corporation
|
$ | 4,239,577 | $ | 3,766,458 | ||||
Earnings
Per Share – Basic
|
$ | 0.54 | $ | 0.49 | ||||
Earnings
Per Share – Dilutive
|
$ | 0.54 | $ | 0.49 | ||||
Dividend
Declared Per Share
|
$ | 0.50 | $ | 0.50 | ||||
Weighted
Average Number of Common Shares Outstanding – Basic
|
7,879,183 | 7,676,258 | ||||||
Weighted
Average Number of Common Shares Outstanding – Dilutive
|
7,894,349 | 7,683,039 |
Six
Months Ended
|
Six
Months Ended
|
|||||||
June 30, 2009
|
June 30, 2008
|
|||||||
Revenues
|
||||||||
Minimum
rents
|
$ | 16,941,667 | $ | 16,111,767 | ||||
Percentage
rents
|
7,777 | 4,758 | ||||||
Operating
cost reimbursements
|
1,401,308 | 1,437,082 | ||||||
Other
income
|
12,533 | 3,249 | ||||||
Total
Revenues
|
18,363,285 | 17,556,856 | ||||||
Operating
Expenses
|
||||||||
Real
estate taxes
|
967,461 | 916,177 | ||||||
Property
operating expenses
|
790,978 | 953,646 | ||||||
Land
lease payments
|
429,600 | 339,600 | ||||||
General
and administrative
|
2,249,718 | 2,225,850 | ||||||
Depreciation
and amortization
|
2,814,358 | 2,642,718 | ||||||
Total
Operating Expenses
|
7,252,115 | 7,077,991 | ||||||
Income
From Operations
|
11,111,170 | 10,478,865 | ||||||
Other
Expense
|
||||||||
Interest
expense, net
|
(2,286,415 | ) | (2,499,053 | ) | ||||
Net
Income
|
8,824,755 | 7,979,812 | ||||||
Less
Net Income Attributable to Non-Controlling Interest
|
(574,532 | ) | (634,402 | ) | ||||
Net
Income Attributable to Agree Realty Corporation
|
$ | 8,250,223 | $ | 7,345,410 | ||||
Earnings
Per Share – Basic
|
$ | 1.05 | $ | 0.96 | ||||
Earnings
Per Share – Dilutive
|
$ | 1.05 | $ | 0.96 | ||||
Dividend
Declared Per Share
|
$ | 1.00 | $ | 1.00 | ||||
Weighted
Average Number of Common Shares Outstanding – Basic
|
7,825,957 | 7,672,500 | ||||||
Weighted
Average Number of Common Shares Outstanding – Dilutive
|
7,834,403 | 7,682,947 |
Additional
|
Accumulated
Other
|
|||||||||||||||||||||||
Common Stock
|
Paid-In
|
Non-Controlling
|
Comprehensive
|
|||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Interest
|
Deficit
|
Income (loss)
|
|||||||||||||||||||
Balance, January 1,
2009
|
7,863,930 | $ | 786 | $ | 143,892,158 | $ | 5,346,741 | $ | (11,257,541 | ) | $ | — | ||||||||||||
Issuance
of shares under the Equity Incentive Plan
|
69,850 | 7 | — | — | — | — | ||||||||||||||||||
Conversion
of OP Units
|
257,794 | 26 | 2,398,186 | (2,398,186 | ) | — | — | |||||||||||||||||
Vesting
of restricted stock
|
— | — | 586,000 | — | — | — | ||||||||||||||||||
Dividends
and distributions declared for the period January 1, 2009 to June 30,
2009
|
— | — | — | (476,516 | ) | (8,061,302 | ) | — | ||||||||||||||||
Other
comprehensive loss
|
— | — | — | (14,764 | ) | — | (212,018 | ) | ||||||||||||||||
Net income for the period January 1, 2009 to June
30, 2009
|
— | — | — | 574,532 | 8,250,223 | — | ||||||||||||||||||
Balance, June 30, 2009
|
8,191,574 | $ | 819 | $ | 146,876,344 | $ | 3,031,807 | $ | (11,068,620 | ) | $ | (212,018 | ) |
Six
Months Ended
|
Six
Months Ended
|
|||||||
June
30, 2009
|
June
30, 2008
|
|||||||
Cash
Flows From Operating Activities
|
||||||||
Net
income attributable to Agree Realty Corporation
|
$ | 8,250,223 | $ | 7,345,410 | ||||
Adjustments
to reconcile net income attributable to Agree Realty Corporation to net
cash provided by operating activities
|
||||||||
Depreciation
|
2,781,789 | 2,609,942 | ||||||
Amortization
|
172,260 | 110,776 | ||||||
Stock-based
compensation
|
586,000 | 581,000 | ||||||
Net
income attributable to non-controlling interest
|
574,532 | 634,402 | ||||||
Decrease
in accounts receivable
|
40,815 | 113,213 | ||||||
Decrease
in other assets
|
179,828 | 20,948 | ||||||
Decrease
in accounts payable
|
(347,285 | ) | (618,526 | ) | ||||
Decrease
in deferred revenue
|
(344,775 | ) | (344,776 | ) | ||||
(Decrease)
increase in accrued interest
|
(262,221 | ) | 158,361 | |||||
Increase
in tenant deposits
|
3,448 | 5,991 | ||||||
Net
Cash Provided By Operating Activities
|
11,634,614 | 10,616,741 | ||||||
Cash
Flows From Investing Activities
|
||||||||
Acquisition
of real estate investments (including capitalized interest of $132,572 in
2009 and $286,000 in 2008)
|
(6,129,126 | ) | (10,921,084 | ) | ||||
Net
Cash Used In Investing Activities
|
(6,129,126 | ) | (10,921,084 | ) | ||||
Cash
Flows From Financing Activities
|
||||||||
Payments
of mortgages payable
|
(1,668,442 | ) | (1,352,221 | ) | ||||
Dividends
and limited partners’ distributions paid
|
(8,508,999 | ) | (8,447,948 | ) | ||||
Line-of-credit
net borrowings
|
5,391,535 | 10,950,000 | ||||||
Repayments
of capital expenditure payables
|
(850,225 | ) | (1,069,734 | ) | ||||
Payments
of financing costs
|
(185,720 | ) | (26,705 | ) | ||||
Payments
of leasing costs
|
(86,859 | ) | (112,951 | ) | ||||
Net
Cash Used In Financing Activities
|
(5,908,710 | ) | (59,559 | ) | ||||
Net
Decrease In Cash and Cash Equivalents
|
(403,222 | ) | (363,902 | ) | ||||
Cash and Cash
Equivalents, beginning of period
|
668,677 | 544,639 | ||||||
Cash and Cash
Equivalents, end of period
|
$ | 265,455 | $ | 180,737 |
Six
Months Ended
|
Six
Months Ended
|
|||||||
June
30, 2009
|
June
30, 2008
|
|||||||
Supplemental
Disclosure of Cash Flow Information
|
||||||||
Cash
paid for interest (net of amounts capitalized)
|
$ | 2,408,944 | $ | 2,263,133 | ||||
Supplemental
Disclosure of Non-Cash Transactions
|
||||||||
Dividends
and limited partners’ distributions declared and unpaid
|
$ | 4,262,017 | $ | 4,234,891 | ||||
Real
estate investments financed with accounts payable
|
$ | 203,961 | $ | 710,919 |
1.
Basis of Presentation
|
The
accompanying unaudited consolidated financial statements of Agree Realty
Corporation (the “Company”) for the six months ended June 30, 2009 have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for audited financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. The consolidated balance sheet at December 31, 2008 has
been derived from the audited consolidated financial statements at that
date. Operating results for the six months ended June 30, 2009 are
not necessarily indicative of the results that may be expected for the
year ending December 31, 2009 or for any other interim period. For
further information, refer to the audited consolidated financial
statements and footnotes thereto included in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2008.
|
|
2.
Stock Based Compensation
|
In
accordance with Statement of Financial Accounting Standards (“SFAS”) No.
123 (R), “Share-Based
Payments” (“SFAS No. 123R”), the Company estimates the
fair value of restricted stock and stock option grants at the date of
grant and amortizes those amounts into expense on a straight line basis or
amount vested, if greater, over the appropriate vesting
period.
|
|
|
As
of June 30, 2009, there was $2,964,200 of total unrecognized compensation
costs related to the outstanding restricted shares, which is expected to
be recognized over a weighted average period of 3.30 years. The
Company used a 0% discount factor and forfeiture rate for determining the
fair value of restricted stock. The forfeiture rate was based
on historical results and trends.
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 shareholder of the Company, including the right to vote the
shares and the right to receive dividends on the
shares.
|
Shares
Outstanding
|
Weighted
Average
Grant
Date
Fair
Value
|
|||||||
Unvested
restricted shares at January 1, 2009
|
104,050 | $ | 30.57 | |||||
Restricted
shares granted
|
69,850 | 15.24 | ||||||
Restricted
shares vested
|
(21,720 | ) | 29.92 | |||||
Restricted
shares forfeited
|
— | — | ||||||
Unvested
restricted shares at June 30, 2009
|
152,180 | $ | 23.63 |
3. Earnings
Per
Share
|
Earnings
per share has been computed by dividing the net income attributable to
Agree Realty Corporation by the weighted average number of common shares
outstanding. The per share amounts reflected in the consolidated
statements of income are presented in accordance with SFAS No. 128
“Earnings per
Share.”
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:
|
Three
Months Ended
June 30,
|
||||||||
2009
|
2008
|
|||||||
Weighted
average number of common shares outstanding
|
8,031,363 | 7,797,808 | ||||||
Unvested
restricted stock
|
(152,180 | ) | (121,550 | ) | ||||
Weighted
average number of common shares outstanding used in basic earnings per
share
|
7,879,183 | 7,676,258 | ||||||
Weighted
average number of common shares outstanding used in basic earnings per
share
|
7,879,183 | 7,676,258 | ||||||
Effect
of dilutive securities:
|
||||||||
Restricted
stock
|
15,166 | 6,781 | ||||||
Common
stock options
|
— | — | ||||||
Weighted
average number of common shares outstanding used in diluted earnings per
share
|
7,894,349 | 7,683,039 |
Six
Months Ended
June 30,
|
||||||||
2009
|
2008
|
|||||||
Weighted
average number of common shares outstanding
|
7,978,137 | 7,794,050 | ||||||
Unvested
restricted stock
|
(152,180 | ) | (121,550 | ) | ||||
Weighted
average number of common shares outstanding used in basic earnings per
share
|
7,825,957 | 7,672,500 | ||||||
Weighted
average number of common shares outstanding used in basic earnings per
share
|
7,825,957 | 7,672,500 | ||||||
Effect
of dilutive securities:
|
||||||||
Restricted
stock
|
8,446 | 10,447 | ||||||
Common
stock options
|
— | — | ||||||
Weighted
average number of common shares outstanding used in diluted earnings per
share
|
7,834,403 | 7,682,947 |
4. Derivative
Instruments and Hedging Activity
|
On
January 2, 2009, the Company entered into an interest rate swap agreement
for a notional amount of $24,501,280, effective on January 2, 2009 and
ending on July 1, 2013. The notional amount decreases over the term to
match the outstanding balance of the hedge borrowing. The Company entered
into this derivative instrument to hedge against the risk of changes in
future cash flows related to changes in interest rates on $24,501,280 of
the total variable-rate borrowings outstanding. Under the terms of the
interest rate swap agreement, the Company will receive from the
counterparty interest on the notional amount based on 1.5% plus one-month
LIBOR and will pay to the counterparty a fixed rate of 3.744%. This swap
effectively converted $24,501,280 of variable-rate borrowings to
fixed-rate borrowings beginning on January 2, 2009 and through July 1,
2013.
SFAS No. 133,
“Accounting for
Derivative Instruments and Hedging Activities” (“SFAS
No. 133”), requires companies to recognize all derivative instruments
as either assets or liabilities at fair value on the balance sheet. In
accordance with SFAS No. 133, the Company has designated this
derivative instrument as a cash flow hedge. As such, changes in the fair
value of the derivative instrument are recorded as a component of other
comprehensive income (loss) (“OCI”) for the three and six months ended
June 30, 2009 to the extent of effectiveness. The ineffective portion of
the change in fair value of the derivative instrument is recognized in
interest expense. For the three and six month periods ending
June 30, 2009, the Company has determined this derivative instrument to be
an effective hedge.
The Company does not use derivative instruments for trading or
other speculative purposes and we did not have any other derivative
instruments or hedging activities as of June 30,
2009.
|
5. Fair
Value of Financial Instruments
|
Certain
of our assets and liabilities are disclosed at fair value. As defined in
SFAS No. 157, “Fair
Value Measurements,” fair value is the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. In
determining fair value, the Company uses various valuation methods
including the market, income and cost approaches. The
assumptions used in the application of these valuation methods are
developed from the perspective of market participants, pricing the asset
or liability. Inputs used in the valuation methods can be
either readily observable, market corroborated, or generally unobservable
inputs. Whenever possible the Company attempts to utilize
valuation methods that maximize the uses of observable inputs and
minimizes the use of unobservable inputs. Based on the
operability of the inputs used in the valuation methods the Company is
required to provide the following information according to the fair value
hierarchy. The fair value hierarchy ranks the quality and
reliability of the information used to determine fair
values. Assets and liabilities measured, reported and/or
disclosed at fair value will be classified and disclosed in one of the
following three categories: The carrying amounts of the
Company’s financial instruments, which consist of cash, cash equivalents,
receivables, and accounts payable approximate their fair
values.
Level
1 – Quoted market prices in active markets for identical assets or
liabilities.
Level
2 – Observable market based inputs or unobservable inputs that are
corroborated by market data.
Level
3 – Unobservable inputs that are not corroborated by market
data.
The
table below sets forth our fair value hierarchy for liabilities measured
or disclosed at fair value as of June 30,
2009.
|
Level
1
|
Level
2
|
Level
3
|
||||||||||
Liability:
|
||||||||||||
Interest
rate swap
|
$ | — | $ | 226,782 | $ | — | ||||||
Fixed
rate mortgage
|
$ | — | $ | 40,426,874 | $ | — | ||||||
Variable
rate mortgage
|
$ | — | $ | 21,567,092 | $ | — | ||||||
Variable
rate debt
|
$ | — | $ | 38,336,535 | $ | — |
6. Recent
Accounting Pronouncements
|
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements”
(“SFAS No. 160”). SFAS No. 160 establishes accounting and reporting
standards for the noncontrolling interest in a subsidiary, previously
referred to as minority interest. This statement requires noncontrolling
interests to be treated as a separate component of equity, not as a
liability or other item outside of permanent equity. Consolidated net
income and comprehensive income is required to include the noncontrolling
interest’s share. The calculation of earnings per share will continue to
be based on income amounts attributable to the parent. The Company
adopted the provisions of SFAS No. 160 in the first quarter of 2009.
Certain presentation requirements of the standard were applied
retrospectively.
In
March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities” (“SFAS No. 161”). SFAS No. 161 requires
enhanced disclosures about an entity’s derivative and hedging activities.
It clarifies (a) how and why an entity uses derivative instruments, (b)
how derivative instruments and related hedged items are accounted for
under SFAS No.133 and its related interpretations, and (c) how derivative
instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. We adopted SFAS No. 161
effective beginning on January 1, 2009. The adoption of this statement
resulted in new disclosures in the notes to our financial
statements.
In
June 2008, the FASB ratified FASB Staff Position No. EITF 03-6-01 “Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities” (“FSP No. EITF 03-6-01”). FSP No. EITF 03-6-01
addresses whether instruments granted in share-based payment transactions
are participating securities prior to vesting and, therefore, need to be
included in the earnings allocation in computing earnings per share
(“EPS”) under the two-class method of SFAS No. 128. It clarifies that
unvested share-based payment awards that contain nonforfeitable right to
dividends or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the computation of EPS
pursuant to the two-class method. FSP No. EITF 03-6-01 is effective for
fiscal years beginning after December 15, 2008. The implementation of FSP
No. EITF 06-6-01 did not have a material impact on our computation of
EPS.
In
April 2009, the FASB issued FASB Staff Position No. 157-4, “Determining
Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly.” This Staff Position clarifies the application of FASB
Statement No. 157, Fair
Value Measurements, when the volume and level of activity for the
asset or liability have significantly decreased. This FSP also includes
guidance on identifying circumstances that indicate a transaction is not
orderly. Additionally, FASB Staff Position No. 157-4 emphasizes that even
if there has been a significant decrease in the volume and level of
activity for the asset or liability and regardless of the valuation
technique(s) used, the objective of a fair value measurement remains the
same. Fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction (that is, not a
forced liquidation or distressed sale) between market participants at the
measurement date under current market conditions. The guidance in this
Staff Position is effective for interim and annual reporting periods
ending after June 15, 2009, and must be applied prospectively. The
Company is currently evaluating the application of Staff Position No.
157-4, but does not expect the standard to have a material impact on the
Company’s consolidated financial position, results of operations, or cash
flows.
|
7.
Total Comprehensive Income
|
In
May 2009, the FASB issued Statement No. 165, “Subsequent Events”
(“SFAS No. 165”). SFAS No. 165 requires that an entity shall recognize in
the financial statements the effects of all subsequent events that provide
additional evidence about conditions that existed at the date of the
balance sheet, including the estimates inherent in the process of
preparing financial statements. The standard also requires
entities to disclose the date through which subsequent events have been
evaluated, as well as whether the date is the date the financial
statements were issued or the date the financial statements were available
to be issued. SFAS No. 165 is effective for interim or annual
financial periods ending after June15, 2009, and is to be applied
prospectively. Accordingly, the Company adopted the provisions
of SFAS No. 165 in the second quarter of 2009. The adoption of
the provisions of SFAS No. 165 did not have a material effect on the
Company’s consolidated financial condition, results of operations, or cash
flows.
In
June 2009, the FASB issued Statement No. 168, “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles
– a replacement of FASB Statement No. 162” (“SFAS
168”). SFAS No. 168, or the FASB Accounting Standards
Codification (“Codification”), will become the source of authoritative
U.S. generally accepted accounting principles (“GAAP”) recognized by the
FASB to be applied by nongovernmental entities. On the
effective date of SFAS No. 168, the Codification will supersede all
then-existing non-SEC accounting and reporting standards. All
other non-grandfathered non-Sec accounting literature not included in the
Codification will become non-authoritative. SFAS No. 168 is
effective for financial statements issued for interim and annual periods
ending after September 15, 2009. The Company does not expect
the standard to have a material impact on the Company’s consolidated
financial position, results of operations, or cash
flows.
The
following is a reconciliation of net income to comprehensive income
attributable to Agree Realty Corporation for the three and six months
ended June 30, 2009.
|
Three
months ended
June
30, 2009
|
Six
months ended
June
30, 2009
|
|||||||
Net
income
|
$ | 4,507,690 | $ | 8,824,755 | ||||
Other
comprehensive income (loss)
|
53.188 | (226,782 | ) | |||||
Total
comprehensive income before non-controlling interest
|
4,560,878 | 8,597,973 | ||||||
Less: non-controlling
interest
|
268,113 | 574,532 | ||||||
Total
comprehensive income after non-controlling interest
|
4,292,765 | 8,023,441 | ||||||
Add: non-controlling
interest of comprehensive loss
|
5,114 | 14,764 | ||||||
Comprehensive
income attributable to Agree Realty Corporation
|
$ | 4,287,651 | $ | 8,038,205 | ||||
For
the three and six month’s ended June 30, 2008, total comprehensive income
and net income were
equal.
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Total
|
July 1, 2009 –
June 30, 2010
|
July 1, 2010 –
June 30, 2012
|
July 1, 2012 –
June 31, 2014
|
Thereafter
|
||||||||||||||||
Mortgages
Payable
|
$ | 65,955 | $ | 3,509 | $ | 7,740 | $ | 30,536 | $ | 24,170 | ||||||||||
Notes
Payable
|
38,337 | 3,837 | 34,500 | — | — | |||||||||||||||
Land
Lease Obligation
|
13,963 | 878 | 1,813 | 1,813 | 9,459 | |||||||||||||||
Estimated
Interest Payments on Mortgages and Notes Payable
|
20,905 | 4,125 | 7,193 | 4,607 | 4,980 | |||||||||||||||
Other
Long-Term Liabilities
|
— | — | — | — | — | |||||||||||||||
Total
|
$ | 139,160 | $ | 12,349 | $ | 51,246 | $ | 36,956 | $ | 38,609 |
Three Months Ended
June 30,
|
||||||||
2009
|
2008
|
|||||||
Net
income
|
$ | 4,239,577 | $ | 3,766,458 | ||||
Depreciation
of real estate assets
|
1,386,112 | 1,313,910 | ||||||
Amortization
of leasing costs
|
16,546 | 15,200 | ||||||
Income
attributable to non-controlling interest
|
268,113 | 324,877 | ||||||
Funds
from Operations
|
$ | 5,910,347 | $ | 5,420,445 | ||||
Weighted
Average Shares and Operating Partnership Units Outstanding –
Dilutive
|
8,400,610 | 8,356,586 |
Six Months Ended
June 30,
|
||||||||
2009
|
2008
|
|||||||
Net
income
|
$ | 8,250,223 | $ | 7,345,410 | ||||
Depreciation
of real estate assets
|
2,747,430 | 2,576,406 | ||||||
Amortization
of leasing costs
|
32,569 | 30,000 | ||||||
Income
attributable to non-controlling interest
|
574,532 | 634,402 | ||||||
Funds
from Operations
|
$ | 11,604,754 | $ | 10,586,218 | ||||
Weighted
Average Shares and Operating Partnership Units Outstanding –
Dilutive
|
8,389,967 | 8,356,494 |
Year ended June 30,
|
||||||||||||||||||||||||||||
2010
|
2011
|
2012
|
2013
|
2014
|
Thereafter
|
Total
|
||||||||||||||||||||||
Fixed
rate mortgage
|
$ | 3,036 | $ | 3,243 | $ | 3,464 | $ | 3,700 | $ | 3,953 | $ | 24,170 | $ | 41,566 | ||||||||||||||
Average
interest rate
|
6.64 | % | 6.64 | % | 6.64 | % | 6.64 | % | 6.64 | % | 6.64 | % | — | |||||||||||||||
Variable
rate mortgage
|
$ | 473 | $ | 502 | $ | 532 | $ | 564 | $ | 22,318 | — | $ | 24,389 | |||||||||||||||
Average
interest rate
|
3.74 | % | 3.74 | % | 3.74 | % | 3.74 | % | 3.74 | % | — | — | ||||||||||||||||
Other
variable rate debt
|
$ | 3,837 | — | $ | 34,500 | — | — | — | $ | 38,337 | ||||||||||||||||||
Average
interest rate
|
2.50 | % | — | 1.32 | % | — | — | — | — |
|
·
|
We
lack segregation of duties in the period-end financial reporting
process. Our chief financial officer and director of finance
are the only employees with any significant knowledge of generally
accepted accounting principles. The chief financial officer and
the director of accounting are the only employees in charge of the general
ledger (including the preparation of routine and non-routine journal
entries and journal entries involving accounting estimates), the
preparation of accounting reconciliations, the selection of accounting
principles, and the preparation of interim and annual financial statements
(including report combinations, consolidation entries and footnote
disclosures) in accordance with generally accepted accounting
principles.
|
Richard Agree
|
Michael Rotchford
|
|||||||
Votes
cast for
|
4,638,760 | 4,603,487 | ||||||
Votes
withheld
|
2,989,097 | 3,024,370 |
Votes
cast for
|
7,566,821 | |||
Votes
against
|
34,242 | |||
Votes
abstained
|
26,794 |
3.1
|
Articles
of Incorporation and Articles of Amendment of the Company (incorporated by
reference to Exhibit 3.1 to the Company’s Registration Statement on Form
S-11 (Registration Statement No. 33-73858, as amended)
|
|
3.2
|
Articles
Supplementary, establishing the terms of the Series A Preferred Stock
(incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed
on December 9, 2008)
|
|
3.3
|
Articles
Supplementary, classifying additional shares of Common Stock and Excess
Stock (incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K
filed on December 9, 2008)
|
|
3.4
|
Bylaws
of the Company (incorporated by reference to Exhibit 3.2 to the Company’s
Annual Report on Form 10-K for the year ended December 31,
2006)
|
|
*31.1
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Richard Agree,
Chief Executive Officer and Chairman of the Board of
Directors
|
|
*31.2
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Kenneth R.
Howe, Vice President, Finance and Secretary
|
|
*32.1
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Richard Agree,
Chief Executive Officer and Chairman of the Board of
Directors
|
|
*32.2
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Kenneth R.
Howe, Vice President, Finance and
Secretary
|
Agree
Realty Corporation
|
/s/ RICHARD AGREE
|
Richard
Agree
|
Chief
Executive Officer
|
and
Chairman of the Board of Directors
|
(Principal
Executive Officer)
|
/s/ KENNETH R. HOWE
|
Kenneth
R. Howe
|
Vice
President, Finance and
|
Secretary
|
(Principal
Financial and Accounting Officer)
|
Date: August 7,
2009
|