UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Mark One


☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~September~~June 30, ~~2019,~~2020, or


☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 1-12928

AGREE REALTY CORPORATION

(Exact name of registrant as specified in its charter)


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

~~70 E. Long Lake Road~~, ~~Bloomfield Hills~~, ~~Michigan~~~~48304~~

~~(Address of Principal Executive Offices)~~

~~Registrant’s telephone number, including area code:~~ (248) 737-4190

(Registrant's telephone number, including area code)

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


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $0.0001 par value	ADC	New York Stock Exchange

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


Yes	☒	No	◻

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


Yes	☒	No	◻

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


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

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

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


Yes	☐	No	☒

As of ~~October 18, 2019,~~July 17, 2020, the Registrant had ~~42,412,827~~53,851,032 shares of common stock issued and outstanding.

Table of Contents

AGREE REALTY CORPORATION

Index to Form 10-Q


		Page

PART I	Financial Information

Item 1:	Interim Condensed Consolidated Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019	1

	Condensed Consolidated Statements of ~~Income~~Operations and Comprehensive Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	3

	Condensed Consolidated Statements of Equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	4

	Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3033

Item 3:	Quantitative and Qualitative Disclosures about Market Risk	4146

Item 4:	Controls and Procedures	4348

PART II

Item 1:	Legal Proceedings	4449

Item 1A:	Risk Factors	4449

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	4450

Item 3:	Defaults Upon Senior Securities	4450

Item 4:	Mine Safety Disclosures	4450

Item 5:	Other Information	4450

Item 6:	Exhibits	4551

SIGNATURES		4652

Table of Contents

AGREE REALTY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(Unaudited)

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements


	September 30,		December 31,
	2019		2018		June 30,		December 31,
					2020		2019
ASSETS
Real Estate Investments
Land	$	713,711	$	553,704	$	856,113	$	735,991
Buildings		1,510,423		1,194,985		1,927,114		1,600,293
Less accumulated depreciation		(121,444)		(100,312)		(146,267)		(127,748)
		2,102,690		1,648,377		2,636,960		2,208,536
Property under development		16,238		12,957		6,171		10,056
Net Real Estate Investments		2,118,928		1,661,334		2,643,131		2,218,592

Real Estate Held for Sale, net		7,928		—		—		3,750

Cash and Cash Equivalents		9,353		53,955		29,341		15,603

Cash Held in Escrows		1,449		20		7,043		26,554

Accounts Receivable - Tenants		25,495		21,547		33,996		26,808

Lease intangibles, net of accumulated amortization of
$82,297 and $62,543 at September 30, 2019 and December 31, 2018, respectively		335,840		280,153
$105,296 and $89,118 at June 30, 2020 and December 31, 2019, respectively						368,812		343,514

Other Assets, net		24,328		11,180		29,319		29,709

Total Assets	$	2,523,321	$	2,028,189	$	3,111,642	$	2,664,530

See accompanying notes to condensed consolidated financial statements.

Table of Contents

AGREE REALTY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(Unaudited)


	September 30,		December 31,		June 30,		December 31,
	2019		2018		2020		2019
LIABILITIES
Mortgage Notes Payable, net	$	58,423	$	60,926	$	33,513	$	36,698

Unsecured Term Loans, net		237,984		256,419		237,274		237,403

Senior Unsecured Notes, net		384,171		384,064		509,253		509,198

Unsecured Revolving Credit Facility		248,000		19,000		—		89,000

Dividends and Distributions Payable		24,353		21,031		32,519		25,014

Accounts Payable, Accrued Expenses, and Other Liabilities		52,644		21,045		80,088		48,987

Lease intangibles, net of accumulated amortization of
$18,607 and $15,177 at September 30, 2019 and December 31, 2018, respectively		27,332		27,218
$21,758 and $19,307 at June 30, 2020 and December 31, 2019, respectively						33,019		26,668

Total Liabilities		1,032,907		789,703		925,666		972,968

EQUITY
Common stock, $.0001 par value, 90,000,000 shares
authorized, 42,412,827 and 37,545,790 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively		4		4
authorized, 53,851,092 and 45,573,623 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively						5		5
Preferred Stock, $.0001 par value per share, 4,000,000 shares authorized		—		—		—		—
Additional paid-in-capital		1,556,124		1,277,592		2,295,235		1,752,912
Dividends in excess of net income		(54,841)		(42,945)		(69,595)		(57,094)
Accumulated other comprehensive income (loss)		(13,068)		1,424		(41,544)		(6,492)

Total Equity - Agree Realty Corporation		1,488,219		1,236,075		2,184,101		1,689,331
Non-controlling interest		2,195		2,411		1,875		2,231
Total Equity		1,490,414		1,238,486		2,185,976		1,691,562

Total Liabilities and Equity	$	2,523,321	$	2,028,189	$	3,111,642	$	2,664,530

See accompanying notes to condensed consolidated financial statements.

Table of Contents

AGREE REALTY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF ~~INCOME~~OPERATIONS AND COMPREHENSIVE INCOME

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

(Unaudited)

Three Months Ended

Nine Months Ended


September 30, 2019

September 30, 2018

September 30, 2019

September 30, 2018
Revenues








Rental Income

$
48,020

$
33,971

$
135,240

$
99,279
Other

55

82

102

173
Total Revenues

48,075

34,053

135,342

99,452








Operating Expenses








Real estate taxes

3,674

2,824

11,016

7,825
Property operating expenses

1,598

978

4,832

3,655
Land lease expense

354

172

922

511
General and administrative

3,832

2,947

11,746

8,994
Depreciation and amortization

11,897

8,142

32,597

23,949
Provision for impairment

—

488

1,609

1,651
Total Operating Expenses

21,355

15,551

62,722

46,585








Income from Operations

26,720

18,502

72,620

52,867








Other (Expense) Income








Interest expense, net

(8,352)

(6,538)

(23,363)

(17,965)
Gain (loss) on sale of assets, net

2,597

3,917

8,973

10,949
Income tax expense

(184)

(125)

(210)

(391)
Net Income

20,781

15,756

58,020

45,460








Less Net Income Attributable to Non-Controlling Interest

170

170

498

499





Net Income Attributable to Agree Realty Corporation

$
20,611

$
15,586

$
57,522

$
44,961








Net Income Per Share Attributable to Agree Realty Corporation








Basic

$
0.49

$
0.49

$
1.43

$
1.43
Diluted

$
0.48

$
0.48

$
1.41

$
1.42








Other Comprehensive Income








Net income

$
20,781

$
15,756

$
58,020

$
45,460
Changes in fair value of interest rate swaps

(7,418)

454

(14,617)

3,166
Realized gain (loss) on settlement of interest rate swaps

—

—

802

—
Total Comprehensive Income

13,363

16,210

44,205

48,626
Less Comprehensive Income Attributable to Non-Controlling Interest

109

174

367

534








Comprehensive Income Attributable to Agree Realty Corporation

$
13,254

$
16,036

$
43,838

$
48,092








Weighted Average Number of Common Shares Outstanding - Basic

41,832,457

31,758,925

39,992,703

31,131,530






Weighted Average Number of Common Shares Outstanding - Diluted

42,318,042

32,287,352

40,625,441

31,471,251

							��
	Three Months Ended				Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
Revenues
Rental Income	$	57,476	$	44,875	$	113,259	$	87,219
Other		59		45		85		49
Total Revenues		57,535		44,920		113,344		87,268

Operating Expenses
Real estate taxes		4,840		3,720		9,542		7,342
Property operating expenses		1,860		1,496		4,195		3,235
Land lease expense		325		372		652		568
General and administrative		4,587		3,880		9,244		7,914
Depreciation and amortization		15,607		10,836		29,740		20,700
Provision for impairment		1,128		1,193		1,128		1,609
Total Operating Expenses		28,347		21,497		54,501		41,368

Income from Operations		29,188		23,423		58,843		45,900

Other (Expense) Income
Interest expense, net		(8,479)		(7,455)		(18,149)		(15,012)
Gain (loss) on sale of assets, net		4,952		2,949		6,597		6,376
Income tax (expense) benefit		(260)		(195)		(520)		(26)
Other (expense) income		23		—		23		—
Net Income		25,424		18,722		46,794		37,238

Less Net Income Attributable to Non-Controlling Interest		166		158		308		327

Net Income Attributable to Agree Realty Corporation	$	25,258	$	18,564	$	46,486	$	36,911

Net Income Per Share Attributable to Agree Realty Corporation
Basic	$	0.47	$	0.45	$	0.94	$	0.94
Diluted	$	0.47	$	0.45	$	0.93	$	0.92

Other Comprehensive Income
Net income	$	25,424	$	18,722	$	46,794	$	37,238
Changes in fair value of interest rate swaps		(2,244)		(3,794)		(35,269)		(7,199)
Realized gain (loss) on settlement of interest rate swaps		(17)		—		(33)		—
Total Comprehensive Income (Loss)		23,163		14,928		11,492		30,039
Less Comprehensive Income (Loss) Attributable to Non-Controlling Interest		151		125		42		264

Comprehensive Income (Loss) Attributable to Agree Realty Corporation	$	23,012	$	14,803	$	11,450	$	29,775

Weighted Average Number of Common Shares Outstanding - Basic		52,726,230		40,612,372		49,082,616		39,058,743

Weighted Average Number of Common Shares Outstanding - Diluted		53,266,740		41,141,659		49,423,546		39,745,337

See accompanying notes to condensed consolidated financial statements.

Table of Contents

AGREE REALTY CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

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

(Unaudited)


									Accumulated														Accumulated
							Dividends in		Other			��									Dividends in		Other
		Common Stock			Additional		excess of net		Comprehensive		Non-Controlling		Total			Common Stock			Additional		excess of net		Comprehensive		Non-Controlling		Total
		Shares	Amount		Paid-In Capital		income		Income (Loss)		Interest		Equity			Shares	Amount		Paid-In Capital		income		Income (Loss)		Interest		Equity
Balance, December 31, 2018		37,545,790	$	4	$	1,277,592	$	(42,945)	$	1,424	$	2,411	$	1,238,486
Balance, December 31, 2019																45,573,623	$	5	$	1,752,912	$	(57,094)	$	(6,492)	$	2,231	$	1,691,562
Issuance of common stock, net of issuance costs		874,268		—		57,845		—		—		—		57,845		1,400,251		—		104,615		—		—		—		104,615
Repurchase of common shares		(21,868)		—		(1,398)		—		—		—		(1,398)		(20,707)		—		(1,627)		—		—		—		(1,627)
Issuance of restricted stock under the Omnibus Incentive Plan		56,592		—		—		—		—		—		—		48,942		—		—		—		—		—		—
Stock-based compensation		—		—		913		—		—		—		913		—		—		1,014		—		—		—		1,014
Dividends and distributions declared for the period		—		—		—		(21,342)		—		(193)		(21,535)		—		—		—		(26,677)		—		(203)		(26,880)
Other comprehensive income (loss) - change in fair value of interest rate swaps		—		—		—		—		(3,374)		(31)		(3,405)
Other comprehensive income (loss) - change in fair value and realized gain (loss) on settlement of interest rate swaps																—		—		—		—		(32,799)		(243)		(33,042)
Net income		—		—		—		18,347		—		169		18,516		—		—		—		21,229		—		141		21,370
Balance, March 31, 2019		38,454,782	$	4	$	1,334,952	$	(45,940)	$	(1,950)	$	2,356	$	1,289,422
Issuance of common stock, net of issuance costs		3,512,500		—		186,667		—		—		—		186,667
Stock-based compensation		—		—		1,025		—		—		—		1,025
Dividends and distributions declared for the period		—		—		—		(23,922)		—		(197)		(24,119)
Other comprehensive income (loss) - change in fair value and settlement of interest rate swaps		—		—		—		—		(3,761)		(33)		(3,794)
Net income		—		—		—		18,564		—		158		18,722
Balance, June 30, 2019		41,967,282	$	4	$	1,522,644	$	(51,298)	$	(5,711)	$	2,284	$	1,467,923
Balance, March 31, 2020																47,002,109	$	5	$	1,856,914	$	(62,542)	$	(39,291)	$	1,926	$	1,757,012
Issuance of common stock, net of issuance costs		444,251		—		32,452		—		—		—		32,452		6,851,695		—		437,100		—		—		—		437,100
Repurchase of common shares		(82)		—		(4)		—		—		—		(4)		(51)		—		(3)		—		—		—		(3)
Issuance of restricted stock under the Omnibus Incentive Plan		1,399		—		—		—		—		—		—
Forfeiture of restricted stock		(23)		—		(2)		—		—		—		(2)		(2,661)		—		—		—		—		—		—
Stock-based compensation		—		—		1,034		—		—		—		1,034		—		—		1,224		—		—		—		1,224
Dividends and distributions declared for the period		—		—		—		(24,154)		—		(198)		(24,352)		—		—		—		(32,311)		—		(209)		(32,520)
Other comprehensive income (loss) - change in fair value and settlement of interest rate swaps		—		—		—		—		(7,357)		(61)		(7,418)
Other comprehensive income (loss) - change in fair value and realized gain (loss) on settlement of interest rate swaps																—		—		—		—		(2,253)		(8)		(2,261)
Net income		—		—		—		20,611		—		170		20,781		—		—		—		25,258		—		166		25,424
Balance, September 30, 2019		42,412,827	$	4	$	1,556,124	$	(54,841)	$	(13,068)	$	2,195	$	1,490,414
Balance, June 30, 2020																53,851,092	$	5	$	2,295,235	$	(69,595)	$	(41,544)	$	1,875	$	2,185,976

Cash dividends declared per common share:	Cash dividends declared per common share:														Cash dividends declared per common share:
For the three months ended March 31, 2019			$	0.555
For the three months ended June 30, 2019			$	0.570
For the three months ended September 30, 2019			$	0.570

For the three months ended March 31, 2020															For the three months ended March 31, 2020		$	0.585
For the three months ended June 30, 2020															For the three months ended June 30, 2020		$	0.600

See accompanying notes to condensed consolidated financial statements.

Table of Contents

AGREE REALTY CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

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

(Unaudited)


									Accumulated														Accumulated
							Dividends in		Other												Dividends in		Other
		Common Stock			Additional		excess of net		Comprehensive		Non-Controlling		Total			Common Stock			Additional		excess of net		Comprehensive		Non-Controlling		Total
		Shares	Amount		Paid-In Capital		income		Income (Loss)		Interest		Equity			Shares	Amount		Paid-In Capital		income		Income (Loss)		Interest		Equity
Balance, December 31, 2017		31,004,900	$	3	$	936,046	$	(28,763)	$	1,375	$	2,529	$	911,190
Balance, December 31, 2018																37,545,790	$	4	$	1,277,592	$	(42,945)	$	1,424	$	2,411	$	1,238,486
Issuance of common stock, net of issuance costs		—		—		(93)		—		—		—		(93)		874,268		—		57,845		—		—		—		57,845
Repurchase of common shares		(22,071)		—		(1,074)		—		—		—		(1,074)		(21,868)		—		(1,398)		—		—		—		(1,398)
Issuance of restricted stock under the Omnibus Incentive Plan		50,841		—		—		—		—		—		—		56,592		—		—		—		—		—		—
Forfeiture of restricted stock		(411)		—		—		—		—		—		—
Stock-based compensation		—		—		602		—		—		—		602		—		—		913		—		—		—		913
Dividends and distributions declared for the period		—		—		—		(16,137)		—		(181)		(16,318)		—		—		—		(21,342)		—		(193)		(21,535)
Other comprehensive income (loss) - change in fair value of interest rate swaps		—		—		—		—		1,899		21		1,920
Other comprehensive income (loss) - change in fair value and realized gain (loss) on settlement of interest rate swaps																—		—		—		—		(3,374)		(31)		(3,405)
Net income		—		—		—		16,451		—		185		16,636		—		—		—		18,347		—		169		18,516
Balance, March 31, 2018		31,033,259	$	3	$	935,481	$	(28,449)	$	3,274	$	2,554	$	912,863
Balance, March 31, 2019																38,454,782	$	4	$	1,334,952	$	(45,940)	$	(1,950)	$	2,356	$	1,289,422
Issuance of common stock, net of issuance costs		—		—		(339)		—		—		—		(339)		3,512,500		—		186,667		—		—		—		186,667
Stock-based compensation		—		—		686		—		—		—		686		—		—		1,025		—		—		—		1,025
Dividends and distributions declared for the period		—		—		—		(16,759)		—		(187)		(16,946)		—		—		—		(23,922)		—		(197)		(24,119)
Other comprehensive income (loss) - change in fair value and settlement of interest rate swaps		—		—		—		—		783		9		792
Other comprehensive income (loss) - change in fair value and realized gain (loss) on settlement of interest rate swaps																—		—		—		—		(3,761)		(33)		(3,794)
Net income		—		—		—		12,924		—		144		13,068		—		—		—		18,564		—		158		18,722
Balance, June 30, 2018		31,033,259	$	3	$	935,828	$	(32,284)	$	4,057	$	2,520	$	910,124
Issuance of common stock, net of issuance costs		3,450,000		—		160,036		—		—		—		160,036
Repurchase of common shares		(277)		—		(68)		—		—		—		(68)
Issuance of restricted stock under the Omnibus Incentive Plan		—		—		—		—		—		—		—
Forfeiture of restricted stock		(1,437)		—		—		—		—		—		—
Stock-based compensation		—		—		883		—		—		—		883
Dividends and distributions declared for the period		—		—		—		(18,619)		—		(188)		(18,807)
Other comprehensive income (loss) - change in fair value and settlement of interest rate swaps		—		—		—		—		449		5		454
Net income		—		—		—		15,586		—		170		15,756
Balance, September 30, 2018		34,481,545	$	3	$	1,096,679	$	(35,317)	$	4,506	$	2,507	$	1,068,378
Balance, June 30, 2019																41,967,282	$	4	$	1,522,644	$	(51,298)	$	(5,711)	$	2,284	$	1,467,923

Cash dividends declared per common share:	Cash dividends declared per common share:														Cash dividends declared per common share:
For the three months ended March 31, 2018			$	0.520
For the three months ended June 30, 2018			$	0.540
For the three months ended September 30, 2018			$	0.540

For the three months ended March 31, 2019															For the three months ended March 31, 2019		$	0.555
For the three months ended June 30, 2019															For the three months ended June 30, 2019		$	0.570

See accompanying notes to condensed consolidated financial statements.

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AGREE REALTY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended				Six Months Ended
	September 30, 2019		September 30, 2018		June 30, 2020		June 30, 2019
Cash Flows from Operating Activities
Net income	$	58,020	$	45,460	$	46,794	$	37,238
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		32,597		23,949		29,740		20,700
Amortization from above (below) lease intangibles, net		9,882		7,794
Amortization from above (below) market lease intangibles, net						7,588		6,501
Amortization from financing and credit facility costs		966		768		647		650
Stock-based compensation		2,972		2,171		2,238		1,938
Provision for impairment		1,609		1,651		1,128		1,609
Settlement of interest rate swap		802		—		(33)		802
(Gain) loss on sale of assets		(8,973)		(10,949)		(6,597)		(6,376)
(Increase) decrease in accounts receivable		(4,468)		(5,122)		(8,125)		(3,837)
(Increase) decrease in other assets		47		(934)		(435)		(963)
Increase (decrease) in accounts payable, accrued expenses, and other liabilities		(4,911)		(536)		(5,166)		(663)
Net Cash Provided by Operating Activities		88,543		64,252		67,779		57,599

Cash Flows from Investing Activities
Acquisition of real estate investments and other assets		(568,523)		(352,085)		(504,390)		(320,930)
Development of real estate investments and other assets
(including capitalized interest of $321 in 2019 and $381 in 2018)		(13,880)		(17,390)
(including capitalized interest of $55 in 2020, $203 in 2019)						(6,961)		(10,363)
Payment of leasing costs		(292)		(1,191)		(388)		(224)
Net proceeds from sale of assets		34,513		60,038		42,599		26,803
Net Cash Used in Investing Activities		(548,182)		(310,628)		(469,140)		(304,714)

Cash Flows from Financing Activities
Proceeds (costs) from common stock offerings, net		276,960		159,604		541,715		244,512
Repurchase of common shares		(1,400)		(1,142)		(1,630)		(1,398)
Unsecured revolving credit facility borrowings (repayments), net		229,000		—		(89,000)		35,000
Payments of mortgage notes payable		(2,650)		(26,915)		(3,238)		(1,353)
Unsecured term loan proceeds		—		125,000
Payments of unsecured term loans		(18,543)		(571)		—		(18,543)
Dividends paid		(66,102)		(49,018)		(51,488)		(42,180)
Distributions to Non-Controlling Interest		(582)		(549)		(407)		(386)
Payments for financing costs		(217)		(568)		(364)		(83)
Net Cash Provided by Financing Activities		416,466		205,841		395,588		215,569

Net Increase (Decrease) in Cash and Cash Equivalents		(43,173)		(40,535)		(5,773)		(31,546)
Cash and cash equivalents and cash held in escrow, beginning of period		53,975		58,782		42,157		53,975
Cash and cash equivalents and cash held in escrow, end of period	$	10,802	$	18,247	$	36,384	$	22,429

Supplemental Disclosure of Cash Flow Information
Cash paid for interest (net of amounts capitalized)	$	25,496	$	18,944	$	17,930	$	15,510
Cash paid for income tax	$	754	$	387	$	841	$	748

Supplemental Disclosure of Non-Cash Investing and Financing Activities
Operating lease right of use assets added upon implementation of leases standard on January 1, 2019	$	7,505	$	—	$	—	$	7,505
Additional operating lease right of use assets added under new ground leases after January 1, 2019	$	12,167	$	—	$	—	$	12,167
Operating lease right of use assets disposed of upon acquisition of underlying ground leased land	$	(3,059)	$	—
Dividends and limited partners’ distributions declared and unpaid	$	24,353	$	18,808	$	32,519	$	24,119
Accrual of development, construction and other real estate investment costs	$	7,331	$	4,422	$	1,787	$	6,588

See accompanying notes to condensed consolidated financial statements.

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AGREE REALTY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2019~~2020

(Unaudited)

Note 1 – Organization

Agree Realty Corporation (the “Company”), a Maryland corporation, is a fully integrated real estate investment trust (“REIT”) primarily focused on the ownership, acquisition, development and management of retail properties net leased to industry leading tenants. The Company was founded in 1971 by its current Executive Chairman, Richard Agree, and its common stock was listed on the New York Stock Exchange (“NYSE”) in 1994.

The Company’s assets are held by, and all of its operations are conducted through, directly or indirectly, Agree Limited Partnership (the “Operating Partnership”), a Delaware limited partnership, of which Agree Realty Corporation is the sole general partner and in which it held a ~~99.2%~~99.4% interest as of ~~September~~June 30, ~~2019.~~2020. There is a one-for-one relationship between Operating Partnership units (“Operating Partnership Units”) owned by the Company and Company common shares outstanding. Under the partnership agreement of the Operating Partnership, the Company, as the sole general partner, has exclusive responsibility and discretion in the management and control of the Operating Partnership.

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

Note 2 – Summary of Significant Accounting Policies

Basis of Accounting and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for audited financial statements. The unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the results for the interim period presented. Operating results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 may not be indicative of the results that may be expected for the year ending December 31, ~~2019.~~2020. Amounts as of December 31, ~~2018~~2019 included in the condensed consolidated financial statements have been derived from the audited consolidated financial statements as of that date. The unaudited condensed consolidated financial statements, included herein, should be read in conjunction with the audited consolidated financial statements and notes thereto, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations, in the Company’s Form 10-K for the year ended December 31, ~~2018.~~2019.

The unaudited condensed consolidated financial statements include the accounts of the Company, the Operating Partnership and its ~~wholly-owned~~wholly owned subsidiaries. The Company, as the sole general partner, held 99.4% and 99.2% of the Operating Partnership as of June 30, 2020 and December 31, 2019, respectively. All material intercompany accounts and transactions have been eliminated.

~~Use~~At June 30, 2020 and December 31, 2019, the non-controlling interest in the Operating Partnership consisted of ~~Estimates~~

a 0.6% and 0.8% ownership interest in the Operating Partnership held by the Company’s founder/chairman, respectively. The ~~preparation~~Operating Partnership Units may, under certain circumstances, be exchanged for shares of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of (1) assets and liabilities and the disclosure of contingent assets and liabilitiescommon stock. The Company as sole general partner of the ~~date~~Operating Partnership has the option to settle exchanged Operating Partnership Units held by others for cash based on the current trading price of our shares. Assuming the ~~financial statements, and (2) revenues and expenses during the reporting period. Actual results could differ from those estimates.~~exchange of all non-controlling Operating Partnership Units, there would have been 54,198,711 shares of common stock outstanding at June 30, 2020.

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~~Reclassifications~~Significant Risks and Uncertainties

Currently, one of the most significant risks and uncertainties is the potential adverse effect of the current pandemic of the novel coronavirus, or COVID-19. The COVID-19 pandemic has had repercussions across regional and global economies and financial markets. The outbreak of COVID-19 in many countries, including the United States, has significantly adversely impacted economic activity and has contributed to significant volatility and negative pressure in financial markets. The COVID-19 pandemic has resulted in a number of our tenants temporarily closing their stores and requesting rent deferral or rent abatement during this pandemic.

The ~~Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 842~~ ~~Leases~~ ~~(“ASC 842”) using~~COVID-19 pandemic could have material and adverse effects on our financial condition, results of operations and cash flows in the ~~modified retrospective approach as of January 1, 2019 and elected~~near term due to, ~~apply~~but not limited to, the transition provisions of the standard at the beginning of the period of adoption. The Company adopted the practical expedient in ASC 842 that alleviates the requirement to separately present lease and non-lease rental income. following:

●

reduced economic activity severely impacts our tenants' businesses, financial condition and liquidity and may cause tenants to be unable to fully meet their obligations to us. Certain tenants have already sought to modify such obligations and may seek additional relief and additional tenants may seek modifications of such obligations, resulting in increases in uncollectible receivables and reductions in rental income;

●

the negative financial impact of the pandemic could impact our future compliance with financial covenants of our credit facility and other debt agreements; and

●

weaker economic conditions could cause us to recognize impairment in value of our tangible or intangible assets.

As a result ~~all income earned pursuant to tenant leases is reflected as one line, “Rental Income,”~~of COVID-19, we have received numerous rent relief requests, most often in the ~~2019 condensed consolidated statement~~form of ~~operations. To facilitate comparability,~~rent deferrals. We have evaluated, and continue to evaluate, each tenant rent relief request on an individual basis, considering a number of factors. Not all tenant requests have resulted in modification agreements, nor is the Company ~~has reclassified prior periods’~~forgoing its contractual rights under its lease ~~and non-lease income consistently with the classification employed in 2019.~~

~~The Company recognizes above- and below-market~~agreements. To date, we have entered into lease ~~intangibles in connection with most acquisitions~~modifications that deferred 3% of ~~real estate (see~~ ~~Accounting for Acquisitions of Real Estate~~ below). The capitalized above- and below-market lease intangibles are amortized over the remaining term of the related leases. The Company historically presented this amortization as a component of Depreciation and Amortization expense within the Consolidated Statement of Income and Comprehensive Income. During 2019, the Company changed this classification to recognize this amortization as an adjustment of Rental Income. The prior period results have been reclassified to conform to the current year classification. The Company incurred amortization of capitalized above- and below-market lease intangibles of $3.4 million and $3.0 millionrent originally contracted for the three months ended ~~September~~June 30, ~~2019~~2020, and ~~2018, respectively~~have collected approximately 90% of rent payments originally contracted for this period.

The extent to which the COVID-19 pandemic continues to impact our operations and ~~$9.9 million~~those of our tenants will depend on future developments, which are highly uncertain and ~~$7.8 million for~~cannot be predicted with confidence, including the ~~nine months ended September 30, 2019~~scope, severity and ~~2018, respectively.~~

~~Certain other reclassifications have been made~~duration of the pandemic, the actions taken to ~~prior year financial statements to conform to classifications used in~~contain the ~~current year. These reclassifications had no~~pandemic or mitigate its impact, ~~on net income or shareholders’ equity as previously reported.~~

~~Segment Reporting~~and the direct and indirect economic effects of the pandemic and containment measures, among others.

The Company ~~is primarily in~~continues to closely monitor the impact of the COVID-19 pandemic on all aspects of its business and geographies. However, as a result of ~~acquiring, developing~~the many uncertainties surrounding the COVID-19 pandemic, we are unable to predict the impact that it ultimately will have on its financial condition, results of operations and ~~managing retail real estate which is considered to be 1 reportable segment. The Company has no other reportable segments.~~cash flows.

Real Estate Investments

The Company records the acquisition of real estate at cost, including acquisition and closing costs. For properties developed by the Company, all direct and indirect costs related to planning, development and construction, including interest, real estate taxes and other miscellaneous costs incurred during the construction period, are capitalized for financial reporting purposes and recorded as property under development until construction has been completed.

Assets are classified as held for sale based on specific criteria as outlined in ~~ASC~~Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 360, Property, Plant & Equipment. Properties classified as “held for sale” are recorded at the lower of their carrying value or their fair value, less anticipated selling costs. Any properties classified as held for sale are not depreciated. Assets are generally classified as held for sale once management has actively engaged in marketing the asset and has received a firm purchase commitment that is expected to close within ~~one year. The Company classified 2 operating properties as held for sale at September 30, 2019, the assets for which are separately presented in the Condensed Consolidated Balance Sheet.~~

~~Real estate held for sale consisted of the following as of September 30, 2019 and December 31, 2018 (in thousands):~~

September 30, 2019

December 31, 2018

Land

$
2,171

$
—
Building

4,286

—
Lease Intangibles - Asset

2,061

—

8,518

—
Accumulated depreciation and amortization

(590)

—
Total Real Estate Held for Sale, net

$
7,928

$
—

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one year. The Company did not classify any operating properties as held for sale at June 30, 2020, the assets for which would have been separately presented in the Company’s Condensed Consolidated Balance Sheet.

Real estate held for sale consisted of the following as of June 30, 2020 and December 31, 2019 (in thousands):


	June 30, 2020		December 31, 2019
Land	$	-	$	2,269
Building		-		2,315
Lease Intangibles - Asset		-		—
		-		4,584
Accumulated depreciation and amortization		-		(834)
Total Real Estate Held for Sale, net	$	-	$	3,750

Acquisitions of Real Estate

The acquisition of property for investment purposes is typically accounted for as an asset acquisition. The Company allocates the purchase price to land, buildings and identified intangible assets and liabilities, based in each case on their relative estimated fair values and without giving rise to goodwill. Intangible assets and liabilities represent the value of in-place leases and above- or below-market leases. In making estimates of fair values, the Company may use a number of sources, including data provided by independent third parties, as well as information obtained by the Company as a result of its due diligence, including expected future cash flows of the property and various characteristics of the markets where the property is located.

In allocating the fair value of the identified intangible assets and liabilities of an acquired property, in-place lease intangibles are valued based on the Company’s estimates of costs related to tenant acquisition and the carrying costs that would be incurred during the time it would take to locate a tenant if the property were vacant, considering current market conditions and costs to execute similar leases at the time of the acquisition. ~~In-place lease intangible assets are amortized to amortization expense over the remaining term of the related leases.~~ Above- and below-market lease intangibles are recorded based on the present value of the difference between the contractual amounts to be paid pursuant to the leases at the time of acquisition and the Company’s estimate of current market lease rates for the property. In the case of sale-leaseback transactions, it is typically assumed that the lease is not in-place prior to the close of the transaction.

Depreciation and Amortization

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

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

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The following schedule summarizes the Company’s amortization of lease intangibles for the three and six months ended June 30, 2020 and 2019 (in thousands):


	Three Months Ended				Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
Lease Intangibles (In-place)	$	4,055	$	2,392	$	7,563	$	4,443
Lease Intangibles (Above-Market)		5,218		4,360		10,269		8,734
Lease Intangibles (Below-Market)		(1,439)		(1,135)		(2,681)		(2,233)
Total	$	7,834	$	5,617	$	15,151	$	10,944

The following schedule represents estimated future amortization of lease intangibles as of June 30, 2020 (in thousands):


	2020
Year Ending December 31,	(remaining)		2021		2022		2023		2024		Thereafter		Total
Lease Intangibles (In-place)	$	16,380	$	14,426	$	14,138	$	13,098	$	11,925	$	61,972	$	131,939
Lease Intangibles (Above-Market)		20,828		20,585		19,609		18,442		16,916		140,493		236,873
Lease Intangibles (Below-Market)		(5,928)		(5,032)		(4,428)		(3,503)		(2,905)		(11,223)		(33,019)
Total	$	31,280	$	29,979	$	29,319	$	28,037	$	25,936	$	191,242	$	335,793

Impairments

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

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

Cash and Cash Equivalents and Cash Held in Escrows

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents consist of cash and money market accounts. Cash held in escrows relates to delayed like-kind exchange transactions pursued under Section 1031 of the Internal Revenue Code. The account balances of cash and cash held in escrow periodically exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance coverage, and as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Company had ~~$9.7~~$35.4 million and ~~$52.7~~$40.9 million in cash and cash held in escrow as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, in excess of the FDIC insured limit.

Revenue Recognition and Accounts Receivable

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.

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Recognizing rent escalations on a straight-line method results in rental revenue in the early years of a lease being higher than actual cash received, creating a straight-line rent receivable asset which is included in the Accounts Receivable –- Tenants line item in the Condensed Consolidated Balance Sheets. The balance of straight-line rent receivables at June 30, 2020 and December 31, 2019 was $25.4 million and $23.0 million, respectively. To the extent any of the tenants under these leases become unable to pay their contractual cash rents, the Company may be required to write down the straight-line rent receivable from those tenants, which would reduce rental income.

The Company reviews the collectability of charges under its tenant operating leases on a regular basis, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area where the property is located. During 2020, the Company’s assessment has specifically included the impact of the COVID-19 pandemic, which represents a material risk to collectability (see Significant Risks and Uncertainties above.) In the event that collectability with respect to any tenant changes ~~beginning with the adoption of ASC 842 as of January 1, 2019,~~ the Company recognizes an adjustment to rental income. ~~Prior to the adoption of ASC 842, the Company recognized a provision for uncollectible amounts or a direct write-off of the specific rent receivable.~~ The Company’s review of collectability of charges under its operating leases includes any accrued rental revenues related to the straight-line method of reporting rental revenue. During the quarter ended June 30, 2020, the Company identified 3 tenants where collection was no longer considered probable. The determination to record revenue on a cash basis and write off any outstanding receivable from these 3 tenants had an immaterial impact to net income for the three and six month period ended June 30, 2020.

The Company’s leases provide for reimbursement from tenants for common area maintenance, ~~(“CAM”),~~ insurance, real estate taxes and other operating expenses. A portion of the Company’s operating cost reimbursements is estimated each period and is recognized as revenue in the period the recoverable costs are incurred and accrued. Receivables from operating cost reimbursements are included in the Accounts Receivable - Tenants line item in the condensed consolidated balance sheets. The balance of unbilled operating cost reimbursement receivable at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 was ~~$2.8~~$1.3 million and ~~$3.3~~$2.6 million, respectively.

~~In addition, many~~The Company adopted FASB ASC Topic-842, Leases (“ASC 842”) using the modified retrospective approach as of January 1, 2019 and elected to apply the transition provisions of the ~~Company’s~~standard at the beginning of the period of adoption. The Company adopted the practical expedient in ASC 842 that alleviates the requirement to separately present lease and non-lease rental income. As a result, all income earned pursuant to tenant leases ~~contain escalations for which revenue~~ is recognized on a straight-line basis over the non-cancelable lease term. This method results in revenue in the early years of a lease being higher than actual cash received, creating a straight-line rental income receivable asset which is included in the Accounts Receivable - Tenantsreflected as one line, ~~item~~“Rental Income,” in the condensed consolidated ~~balance sheets.~~statement of operations.

Rent Concessions – COVID-19

During the second quarter of 2020, the Company has provided lease concessions to certain tenants in response to the impact of COVID-19, in the form of rent deferrals. The ~~balance~~Company has made an election to account for such lease concessions consistent with how those concessions would be accounted for under ASC 842 if enforceable rights and obligations for those concessions had already existed in the leases. This election is available for concessions related to the effects of ~~straight-line~~the COVID-19 pandemic that do not result in a substantial increase in our rights as lessor, including concessions that result in the total payments required by the modified lease being substantially the same as or less than total payments required by the original lease.

Substantially all of the Company’s concessions to date provide for a deferral of payments with no substantive changes to the consideration in the original lease. These deferrals affect the timing, but not the amount, of the lease payments. The Company is accounting for these deferrals as if no changes to the lease were made. Under this accounting, the Company increases its lease receivable as tenant payments accrue and continues to recognize rental ~~income receivables~~income. To date, the Company has entered in to lease modifications that deferred 3% of rent originally contracted for the three months ended June 30, 2020.

Sales Tax

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

911

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at September 30, 2019 and December 31, 2018 was $21.3 million and $16.7 million, respectively. To the extent any of the tenants under these leases become unable to pay its contractual cash rents, the Company may be required to write-off the straight-line receivable from the tenants, which would reduce rental 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 recognized as Lease Intangibles and within Other Assets, net on the condensed consolidated balance sheets include debt financing costs related to the Company’s revolving credit facility, leasing costs and lease intangibles, and are amortized as follows: (i) debt financing costs related to the line of credit 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 amortization expense over the term of the related lease entered into; (iii) in-place lease intangibles on a straight-line basis to amortization expense over the remaining term of the related lease acquired; and (iv) above- and below- market lease intangibles on a straight-line basis as a net reduction of rental income over the remaining lease term. See ~~Reclassifications~~ ~~above regarding changes in presentation relating to above-and below- market lease intangibles.~~

~~The following schedule summarizes the Company’s amortization of deferred expenses for the three and nine months ended September 30, 2019 and 2018 (in thousands):~~

Three Months Ended

Nine Months Ended


September 30, 2019

September 30, 2018

September 30, 2019

September 30, 2018

Deferred Financing Costs

$
140

$
133

$
425

$
335

Leasing Costs

84

82

245

166

Lease Intangibles (In-place)

2,854

1,877

7,298

5,819

Lease Intangibles (Above-Market)

4,562

3,935

13,297

10,898

Lease Intangibles (Below-Market)

(1,181)

(897)

(3,415)

(3,104)

Total

$
6,459

$
5,130

$
17,850

$
14,114

~~The following schedule represents estimated future amortization of deferred expenses as of September 30, 2019 (in thousands):~~

2019

Year Ending December 31,

(remaining)


2020

2021

2022

2023

Thereafter

Total

Deferred Financing Costs

$
142


$
561

$
37

$
—

$
—

$
—

$
740
Leasing Costs

85



405


385


373


314

1,117


2,679
Lease Intangibles (In-place)

3,147



12,385


11,237


10,371


9,594

56,716


103,450
Lease Intangibles (Above-Market)

4,631

19,114

18,827

18,534

17,680

153,641

232,427
Lease Intangibles (Below-Market)

(1,211)

(4,765)

(4,332)

(3,422)

(2,852)

(10,750)

(27,332)
Total

$
6,794


$
27,700

$
26,154

$
25,856

$
24,736

$
200,724

$
311,964

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Earnings per Share

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

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


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018		June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
Net income attributable to Agree Realty Corporation	$	20,611	$	15,586	$	57,522	$	44,961	$	25,258	$	18,564	$	46,486	$	36,911
Less: Income attributable to unvested restricted shares		(98)		(95)		(283)		(296)		(83)		(89)		(164)		(185)
Net income used in basic and diluted earnings per share	$	20,513	$	15,491	$	57,239	$	44,665	$	25,175	$	18,475	$	46,322	$	36,726

Weighted average number of common shares outstanding		42,034,685		31,969,749		40,194,931		31,342,354		52,902,628		40,813,436		49,259,014		39,259,807
Less: Unvested restricted stock		(202,228)		(210,824)		(202,228)		(210,824)		(176,398)		(201,064)		(176,398)		(201,064)
Weighted average number of common shares outstanding used in basic earnings per share		41,832,457		31,758,925		39,992,703		31,131,530		52,726,230		40,612,372		49,082,616		39,058,743

Weighted average number of common shares outstanding used in basic earnings per share		41,832,457		31,758,925		39,992,703		31,131,530		52,726,230		40,612,372		49,082,616		39,058,743
Effect of dilutive securities: Share-based compensation		109,027		80,211		102,845		71,855
Effect of dilutive securities: March 2018 forward equity offering		—		439,761		—		265,048
Effect of dilutive securities: share-based compensation										68,294		82,836		74,926		80,030
Effect of dilutive securities: September 2018 forward equity offering		—		8,455		359,713		2,818		—		312,464		—		539,570
Effect of dilutive securities: April 2019 forward equity offering		376,558		—		170,180		—		—		133,987		—		66,994
Effect of dilutive securities: 2019 ATM forward equity offerings										—		—		28,579		—
Effect of dilutive securities: 2020 ATM forward equity offerings										25,652		—		14,144		—
Effect of dilutive securities: April 2020 forward equity offering										446,563		—		223,281		—
Weighted average number of common shares outstanding used in diluted earnings per share		42,318,042		32,287,352		40,625,441		31,471,251		53,266,740		41,141,659		49,423,546		39,745,337

~~Forward Equity Sales~~

~~In March 2018,~~For the ~~Company entered into a forward sale agreement to sell an aggregate of 3,450,000 shares of its common stock, which included the underwriters option to purchase an additional 450,000~~three months ended June 30, 2020, 11,296 shares of common stock ~~at a public offering price of $48.00 per share, before underwriting discounts. In September 2018,~~included in the ~~Company settled, in its entirety, the~~2019 at-the-market (“ATM”) forward ~~sale agreement and received proceeds of $160.2 million, net of underwriting discounts, fees and expenses.~~

~~In September 2018, the Company entered into a forward sale agreement to sell an aggregate of 3,500,000~~offerings, 70,769 shares of ~~its~~ common stock ~~at a public offering price of $55.20 per share, before issuance costs, underwriters’ discount, and further adjustments as provided for~~included in the 2020 ATM forward ~~sale agreement. In May 2019, the Company settled, in its entirety, the forward sale agreement and received proceeds of $186.0 million, net of underwriting discounts, fees, and expenses.~~

~~In April 2019, the Company entered into forward sale agreements to sell an aggregate of 3,162,500~~offerings, 7,606 shares of ~~its~~restricted common stock ~~at a public offering price~~granted in 2020, and 7,416 performance units granted in 2020 were anti-dilutive and were not included in the computation of ~~$65.85~~diluted earnings per ~~share, before underwriting discounts. The Company is obligated to settle~~share.

For the six months ended June 30, 2020, 34,230 shares of common stock included in the 2019 ATM forward ~~sale agreement no later than May 1, 2020.~~offerings, 50,093 shares of common stock included in the 2020 ATM forward offerings, 4,682 shares of restricted common stock granted in 2020 and 5,635 performance units granted in 2020 were anti-dilutive and were not included in the computation of diluted earnings per share.

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Forward Equity Sales

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

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

The Company also ~~considered~~considers the potential dilution resulting from the forward sale agreements on the earnings per share calculations. The Company uses the treasury stock method to determine the dilution resulting from the forward sale agreements during the period of time prior to settlement. The impact to the Company’s weighted-average number of common shares – diluted for the three and nine months ended September 30, 2019, was 376,558 and 529,893 weighted-average incremental shares, respectively.

Income Taxes ~~(not presented in thousands)~~

The Company 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 the periods ending ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company believes it has qualified as a REIT. Notwithstanding its qualification for taxation as a REIT, the Company is subject to certain state taxes on its income and real estate.

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

The Company and its taxable REIT subsidiaries (“TRS”) have made a timely TRS election pursuant to the provisions of the REIT Modernization Act. A TRS is able to engage in activities resulting in income that previously would have been disqualified from being eligible REIT income under the federal income tax regulations. As a result, certain activities of the Company which occur within its TRS entity are subject to federal and state income taxes. All provisions for federal income taxes in the accompanying condensed consolidated financial statements are attributable to the Company’s TRS.

~~As of December 31, 2018, the Company had accrued a deferred income tax liability in the amount of $475,000. This deferred income tax balance represented the~~We regularly analyze our various federal and state filing positions and only recognize the income tax effect ~~of deferring~~in our financial statements when certain criteria regarding uncertain income tax positions have been met. We believe that our income tax positions would more likely than not be sustained upon examination by all relevant taxing authorities. Therefore, no provisions for uncertain income tax positions have been recorded in 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 nine months ended September 30, 2019, the Company restructured its ownership of the TRS to which the deferred tax liability was related, resulting in a reversal of the previously accrued amount. The Company recognized total federal and state tax expense of approximately $184,000 and $125,000 for the three months ended September 30, 2019 and 2018, respectively and approximately $210,000 and $391,000 for the nine months ended September 30, 2019 and 2018, respectively.our financial statements.

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.

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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.

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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.

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

When preparing financial statements for each annual and interim reporting period, management has the responsibility to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. In making its evaluation, the Company considers, but is not limited to, any risks and/or uncertainties to its results of operations, contractual obligations in the form of near-term debt maturities, dividend requirements, or other factors impacting the Company’s liquidity and capital resources. No ~~such~~ conditions or events that raised substantial doubt about the ability to continue as a going concern within one year were identified as of the issuance date of the financial statements contained in this Quarterly Report on Form 10-Q.

Segment Reporting

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

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of (1) assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and (2) revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recent Accounting Pronouncements

In April 2020, the FASB staff issued a question-and-answer document (the “Q&A document”) to address questions on the application of lease accounting guidance for lease concessions related to the effects of the COVID-19 pandemic. Prior to the issuance of this document, changes to lease payments not stipulated in an original lease were generally accounted for as lease modifications under ASC 842. The Q&A document now provides for a policy election to be made to account for COVID-19 pandemic-related concessions (1) as lease modifications or (2) as they would otherwise be accounted for under ASC 842 if enforceable rights and obligations for those concessions had already existed in the lease. This election is available for concessions related to the effects of the COVID-19 pandemic that do not result in a substantial increase in the rights of the lessor, including concessions that result in the total payments required by the modified lease being substantially the same as or less than the total payments required by the original lease. Refer to Rent Concessions – COVID 19 above regarding the Company’s election and other accounting related to the topic.

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

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In August 2018, the FASB issued ~~ASU No.~~ ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). These amendments modify the disclosure requirements in ASC Topic 820 Fair Value Measurements and Disclosure (“ASC 820”) on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty. ASU 2018-13 will be effective for all entities for fiscal years beginning after December 15, 2019, 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 of the implementation of ASU 2018-13, but does not believe it will have a material effect on its financial statements.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” (“ASU 2018-07”). These amendments expand the scope of Topic 718, Compensation—Stock Compensation, which currently only includes share-based payments to employees, to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned, and the ASU supersedes Subtopic 505-50, Equity—Equity-Based Payments to Non-Employees. The Company adopted ASU ~~2018-07~~2018-13 on January 1, ~~2019. The adoption~~2020. However, as the Company did not have ~~a material effect on its financial statements.~~

~~In August 2017, the FASB issued~~any Level 3 fair value measurements and/or other circumstances addressed in ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” (“ASU 2017-12”). The objective of ASU 2017-12 is to expand hedge accounting for both financial (interest rate) and commodity risks and create more transparency around how economic results are presented, both on the face of the financial statements and in the footnotes. The Company adopted ASU 2017-12 on January 1, 2019. The2018-13, adoption did not have a material effect on the Company’s financial ~~statements.~~statements or disclosures.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which changes how entities measure credit losses for most financial assets. This guidance requires an entity to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses”, which clarified that receivables arising from operating leases are within the scope of the leasing standard Accounting Standard Update No. 2016-02, Leases (Topic 842), not ~~Topic 326. This~~Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326). The Company adopted this new standard ~~will be effective for the Company~~ on January 1, 2020. ~~The Company is evaluating the impact this new standard would have on its consolidated financial statements, in~~In the event any of ~~its~~the Company’s leases ever were to be classified as sales-type or direct finance leases, ~~and~~it would become subject to the provisions of ASU 2016-13. However, the Company does not currently have any such leases, nor does it have a significant number of other financial instruments subject to the new standard. Therefore, ~~the Company~~adoption of ASU 2016-13 has not had, and is not currently ~~expecting the adoption of ASU 2016-13~~expected to have, a material effect on ~~its~~the Company’s financial statements.

In February 2016, the FASB issued ASU ~~No.~~ 2016-02 “Leases” (“ASU 2016-02”). The new standard creates ASC 842 and supersedes FASB ASC Topic 840, Leases, which the Company adopted on January 1, 2019 along with related interpretations.

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The adoption of ~~the new Leases standard~~ ASU 2016-02 generally had, and will have, the following impacts on the Company:

•

ASC 842 requires a lessee to recognize right of use assets and lease obligation liabilities that arise from leases (operating and finance). On January 1, 2019, the Company recognized $7.5 million of right of use assets and lease liabilities, within Other Assets and Accounts Payable, Accrued Expenses, and Other Liabilities on the Condensed Consolidated Balance Sheet. The Company was not required to reassess the classification of existing land leases and therefore these leases continue to be accounted for as operating leases. In the event the Company modifies existing land leases or enters into new land leases after adoption of the new standard, such leases may be classified as finance leases. Business activity occurring subsequent to January 1, 2019, including the Company entering into additional operating leases as lessee, has increased the balances of the right to use assets and lease liabilities to $15.7 million and $16.0 million as of June 30, 2020.

Topic 842 requires a lessee to recognize right of use the assets and lease obligation liabilities that arise from leases (operating and finance). On January 1, 2019, the Company recognized $7.5 million of right of use assets and lease liabilities, within Other Assets and Accounts Payable, Accrued Expenses, and Other Liabilities on the Condensed Consolidated Balance Sheet. The Company was not required to reassess the classification of existing land leases and therefore these leases continue to be accounted for as operating leases. In the event the Company modifies existing land leases or enters into new land leases after adoption of the new standard, such leases may be classified as finance leases. Business activity occurring subsequent to January 1, 2019, including the Company entering into additional operating leases as lessee, has increased the balances of the right to use assets and lease liabilities to $16.2 million and $16.3 million as of September 30, 2019.

~~Topic~~ASC 842 requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases and operating leases. Based on its election of practical expedients, the Company’s existing retail leases, where it is the lessor, continue to be accounted for as operating leases under the new standard. However, ~~Topic~~ASC 842 changed certain requirements regarding the classification of leases that could result in the Company recognizing certain long-term leases entered into or modified after January 1, 2019 as sales-type leases, as opposed to operating leases.

The Company elected an optional transition method that allows entities to initially apply ~~Topic~~ASC 842 at the adoption date (January 1, 2019) and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. However, the Company ultimately did not have any cumulative-effect adjustment as of the adoption date.

•

The Company elected a practical expedient which allows lessors to not separate non-lease components from the lease component when the timing and pattern of transfer for the lease components and non-lease components are the same and if the lease component is classified as an operating lease. As a result, the Company now presents all rentals and reimbursements from tenants as a single line item Rental Income within the Condensed Consolidated Statement of Income and Comprehensive Income, and made certain reclassifications to prior periods for comparability. See ~~Reclassifications~~ ~~above.~~

•

Under Topic 842, beginning on January 1, 2019, changes in the probability of collecting tenant rental income will result in direct adjustments of rental income and tenant receivables. The Company no longer will recognize any separate specific bad debt provision or allowance for doubtful accounts. See ~~Accounts Receivable – Tenants~~ ~~above.~~

The Company elected ~~an optional transition method allowing entities~~a practical expedient which allows lessors to not ~~evaluate under~~separate non-lease components from the lease component when the timing and pattern of transfer for the lease components and non-lease components are the same and if the lease component is classified as an operating lease. As a result, the Company now presents all rentals and reimbursements from tenants as a single line item Rental Income within the Condensed Consolidated Statement of Income and Comprehensive Income.

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Under ASC 842, ~~land easements that existed~~beginning on January 1, 2019, changes in the probability of collecting tenant rental income results in direct adjustments of rental income and tenant receivables. The Company no longer recognizes any separate specific bad debt provision or ~~expired before the adoption of ASC 842 and that were not previously accounted~~allowance for ~~as leases under ASC 840.~~doubtful accounts.

•

~~In connection with its adoption of Topic 842 the Company also began recognizing amortization of above- and below- market lease intangibles as a net reduction of Rental Income. See~~ ~~Reclassifications~~ ~~above.~~

Note 3 – Leases

Tenant Leases

The Company is primarily focused on the ownership, acquisition, development and management of retail properties leased to industry leading tenants. As of ~~September~~June 30, ~~2019,~~2020, the Company’s portfolio was approximately ~~99.7%~~99.8% leased and had a weighted average remaining lease term (excluding extension options) of approximately ~~10.2~~9.7 years. A significant majority of its properties are leased to national tenants and approximately ~~56.9%~~61.0% of its annualized base rent was derived from tenants, or parent entities thereof, with an investment grade credit rating from S&P Global Ratings, Moody’s Investors Service, Fitch Ratings or the National Association of Insurance Commissioners.

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Substantially all of the Company’s tenants are subject to net lease agreements. A net lease typically requires the tenant to be responsible for minimum monthly rent and actual property operating expenses incurred, including property taxes, insurance and maintenance. In addition, the Company’s tenants are typically subject to future rent increases based on fixed amounts or increases in the consumer price index and certain leases provide for additional rent calculated as a percentage of the tenants’ gross sales above a specified level. Certain of the Company’s properties are subject to leases under which it retains responsibility for specific costs and expenses of the property.

The Company’s leases typically provide the tenant one or more multi-year renewal options to extend their leases, subject to generally the same terms and conditions, including rent increases, consistent with the initial lease term. ~~Additionally, some of its tenant leases provide the tenant options to terminate, usually upon certain conditions or events occurring, such as a sales threshold not being met.~~

The Company attempts to maximize the amount it expects to derive from the underlying real estate property following the end of the lease, to the extent it is not extended. The Company maintains a proactive leasing ~~and capital improvement~~ program that, combined with the quality and locations of its properties, has made its properties attractive to tenants. The Company intends to continue to hold its properties for long-term investment and, accordingly, place a strong emphasis on the quality of construction and an on-going program of regular and preventative maintenance. However, the residual value of a real estate property is still subject to various market-specific, asset-specific, and tenant-specific risks and characteristics. As the classification of a lease is dependent on the fair value of its cash flows at lease commencement, the residual value of a property represents a significant assumption in its accounting for tenant leases. ~~Similarly, the exercise of options is also subject to these same risks, making a tenant’s lease term another significant variable in a lease’s cash flows.~~

The Company has elected the practical expedient in ASC ~~Topic~~ 842 on not separating non-lease components from associated lease components. The lease and non-lease components combined as a result of this election largely include tenant rentals and maintenance charges, respectively. The Company applies the accounting requirements of ASC ~~Topic~~ 842 to the combined component.

The following table includes information regarding the Company’s operating leases for which it is the lessor, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~as of period end.~~June 30, 2019. (presented in thousands)


	Three Months Ended		Nine Months Ended		Three Months Ended				Six Months Ended
	September 30, 2019		September 30, 2019		June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
Total Lease Payments	$	49,463	$	140,071	$	60,288	$	46,434	$	118,384	$	90,608
Less: Variable Lease Payments		4,868		15,167		6,192		4,899		13,085		10,299
Total Non-Variable Lease Payments	$	44,595	$	124,904	$	54,096	$	41,535	$	105,299	$	80,309


	2019														2020
Year Ending December 31,	(remaining)		2020		2021		2022		2023		Thereafter		Total		(remaining)		2021		2022		2023		2024		Thereafter		Total
Future Lease Payments	$	47,544	$	189,758	$	186,964	$	183,583	$	179,542	$	1,228,924	$	2,016,315	$	112,335	$	223,365	$	220,479	$	216,160	$	206,916	$	1,271,883	$	2,251,138

~~Land Lease Obligations~~

The Company is the lessee under land lease agreements for certain of its properties, all of which qualified as operating leases as of September 30, 2019. The Company’s land leases are net lease agreements and do not include variable lease payments. These leases typically provide multi-year renewal options to extend their term as lessee at the Company’s option. Option periods are included in the calculation of the lease obligation liability only when options are reasonably certain to be exercised.

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Deferred Revenue

As of June 30, 2020, and December 31, 2019, there was $1.6 million and $4.1 million, respectively, in deferred revenues resulting from rents paid in advance.

Land Lease Obligations

The Company is the lessee under land lease agreements for certain of its properties, all of which qualified as operating leases as of June 30, 2020. The Company’s land leases are net lease agreements and do not include variable lease payments. These leases typically provide multi-year renewal options to extend their term as lessee at the Company’s option. Option periods are included in the calculation of the lease obligation liability only when options are reasonably certain to be exercised. Land lease expense was $0.3 million and $0.4 million for the three months ended June 30, 2020 and 2019, respectively and $0.7 million and $0.6 million of the six months ended June 30, 2020 and 2019, respectively.

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

The following tables include information on the Company’s land leases for which it is the lessee, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~as of period end.~~June 30, 2019. (presented in thousands)


	Three Months Ended			Nine Months Ended			Three Months Ended						Six Months Ended
	September 30, 2019			September 30, 2019			2020			2019			2020			2019
Operating Lease Costs	$	354		$	925		$	324		$	368		$	649		$	571
Variable Lease Costs		—			—			—			—			—			—
Total Non-Variable Lease Costs	$	354		$	925		$	324		$	368		$	649		$	571

Supplemental Disclosure
Right-of-use assets obtained in exchange for new operating lease liabilities	$	—		$	19,672		$	—		$	—		$	—		$	19,672
Right-of-use assets removed in exchange for real property		(3,025)			(3,025)
Right-of-use assets net change	$	(3,025)		$	16,647

Operating cash outflows on operating leases	$	297		$	805		$	267		$	311		$	534		$	509

Weighted-average remaining lease term - operating leases (years)		38.3			38.3			38.2			37.0			38.2			37.0

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

Maturity Analysis of Lease Liabilities (presented in thousands)


	2019														2020
Year Ending December 31,	(remaining)		2020		2021		2022		2023		Thereafter		Total		(remaining)		2021		2022		2023		2024		Thereafter		Total
Lease Payments	$	267	$	1,069	$	1,015	$	789	$	789	$	31,373	$	35,302	$	535	$	1,015	$	789	$	789	$	789	$	30,583	$	34,500
Imputed Interest		(168)		(662)		(645)		(634)		(628)		(16,255)		(18,992)		(329)		(645)		(634)		(628)		(621)		(15,634)		(18,491)
Total Lease Liabilities	$	99	$	407	$	370	$	155	$	161	$	15,118	$	16,310	$	206	$	370	$	155	$	161	$	168	$	14,949	$	16,009

Note 4 – Real Estate Investments

Real Estate Portfolio

As of ~~September~~June 30, ~~2019,~~2020, the Company owned ~~789~~936 operating properties located in 46 states, with a total gross leasable area (“GLA”) of approximately ~~14.0~~18.4 million square feet. Net Real Estate Investments totaled ~~$2.1~~$2.6 billion as of ~~September~~June 30, ~~2019.~~ 2020.

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As of December 31, ~~2018,~~2019, the Company owned ~~645~~821 operating properties located in 46 states, with a total ~~gross leasable area~~GLA of approximately ~~11.2~~14.6 million square feet. Net Real Estate Investments totaled ~~$1.7~~$2.2 billion as of December 31, ~~2018.~~2019.

Acquisitions

During the three months ended ~~September~~June 30, ~~2019,~~2020, the Company purchased 6875 retail net lease assets for approximately ~~$246.4~~$272.5 million, which includes acquisition and closing costs. These properties are located in 2726 states and are leased for a weighted average lease term of approximately ~~12.3~~10.9 years.

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During the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, the Company purchased ~~147~~126 retail net lease assets for approximately ~~$565.0~~$499.5 million, which includes acquisition and closing costs. These properties are located in 3733 states and are leased for a weighted average lease term of approximately ~~11.9~~11.0 years.

The aggregate acquisitions for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 were allocated ~~$165.2~~$123.5 million to land, ~~$323.1~~$338.8 million to buildings and improvements, and ~~$76.7~~$37.2 million to lease intangibles. The acquisitions were all cash purchases and there was no material contingent consideration associated with these acquisitions. NaN of the Company’s acquisitions during the first ~~nine~~six months of ~~2019~~2020 caused any new or existing tenant to comprise 10% or more of its total assets or generate 10% or more of its total annualized contractual base rent at ~~September~~June 30, ~~2019.~~2020.

Developments

During the three ~~and nine~~ months ended ~~September~~June 30, ~~2019,~~2020, the Company completed 1 development or Partner Capital Solutions project.

During the six months ended June 30, 2020, the Company completed 4 ~~and 8~~ developments or Partner Capital Solutions ~~projects, respectively.~~projects. At ~~September~~June 30, ~~2019~~2020, the Company had 2 ~~such~~development or Partner Capital Solutions projects under construction.

Dispositions

During the three months ended ~~September~~June 30, ~~2019,~~2020, the Company sold 38 properties for net proceeds of ~~$7.7~~$18.2 million and the Company recorded a net gain of ~~$2.6~~$5.0 million.

During the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, the Company sold 914 properties for net proceeds of ~~$34.5~~$42.6 million and the Company recorded a net gain of ~~$9.0~~$6.6 million.

Provision for Impairment

~~The Company reviews long-lived assets, including intangible assets, for possible impairment when certain events or changes in circumstances indicate that~~As a result of our review of Real Estate Investments, the carrying amount of the asset may not be recoverable through operations. Events or changes in circumstances may include significant changes in real estate market conditions, estimated residual values, and an expectation to sell assets before the end of the previously estimated life. An asset is considered impaired if its carrying value exceeds its estimated undiscounted cash flows. Impairments are measured to the extent the current book value exceeds the estimated fair value of the asset less disposition costs for any assets classified as held for sale. The Company recognized 0 provisions for ~~impairment for the three months ended September 30, 2019~~impairments of $1.1 million and ~~$0.5~~$1.2 million for the three months ended ~~September~~June 30, ~~2018,~~2020 and 2019, respectively and $1.1 million and $1.6 million ~~and $1.7 million~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The estimated fair value of the impaired real estate assets at their time of impairment during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was ~~$3.0~~$7.4 million.

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

Note 5 – Debt

As of ~~September~~June 30, ~~2019,~~2020, the Company had total gross indebtedness of ~~$931.9~~$783.9 million, including (i) ~~$58.9~~$33.9 million of mortgage notes payable; (ii) $240.0 million of unsecured term loans; (iii) ~~$385.0~~$510.0 million of senior unsecured notes; and (iv) ~~$248.0 million of~~0 borrowings under the Revolving Credit Facility (defined below).

Mortgage Notes Payable

As of June 30, 2020, the Company had total gross mortgage indebtedness of $33.9 million, which was collateralized by related real estate and tenants’ leases with an aggregate net book value of $43.2 million. Including mortgages that have been swapped to a fixed interest rate, the weighted average interest rate on the Company’s ~~Credit Facility.~~mortgage notes payable was 4.23% as of June 30, 2020 and 4.40% as of December 31, 2019.

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~~Mortgage Notes Payable~~

As of September 30, 2019, the Company had total gross mortgage indebtedness of $58.9 million which was collateralized by related real estate and tenants’ leases with an aggregate net book value of $89.7 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 4.02% as of September 30, 2019 and 4.13% as of December 31, 2018.


	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019

(not presented in thousands)	(in thousands)				(in thousands)
Note payable in monthly installments of interest only at 3.32% per annum, with a balloon payment due October 2019	$	21,500	$	21,500

Note payable in monthly installments of $153,838, including interest at 6.90% per annum, with final monthly payment due January 2020 but early extinguished in September 2019		—		1,922

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		2,800		2,872
Note payable in monthly installments of $23,004, including interest at 6.24% per annum, extinguished in January 2020					$	—	$	2,775

Note payable in monthly installments of interest only at 3.60% per annum, with a balloon payment due January 2023		23,640		23,640		23,640		23,640

Note payable in monthly installments of $35,673, including interest at 5.01% per annum, with a balloon payment of $4,034,627 due September 2023		4,825		4,959		4,686		4,779

Note payable in monthly installments of $91,675 including interest at 6.27% per annum, with a final monthly payment due July 2026		6,102		6,626		5,552		5,921

Total principal		58,867		61,519		33,878		37,115
Unamortized debt issuance costs		(444)		(593)		(365)		(417)
Total	$	58,423	$	60,926	$	33,513	$	36,698

~~��~~

The mortgage loans encumbering the Company’s properties are generally non-recourse, subject to certain exceptions for which it would be liable for any resulting losses incurred by the lender. These exceptions vary from loan to loan, but generally include fraud or material misrepresentations, misstatements or omissions by the borrower, intentional or grossly negligent conduct by the borrower that harms the property or results in a loss to the lender, filing of a bankruptcy petition by the borrower, either directly or indirectly, and certain environmental liabilities. At ~~September~~June 30, ~~2019,~~2020, there were no mortgage loans with partial recourse to us.

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

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~~Senior Unsecured Notes~~

~~The following table presents the Senior Unsecured Notes balance net of unamortized debt issuance costs as of September 30, 2019, and December 31, 2018 (in thousands):~~

September 30, 2019

December 31, 2018
2025 Senior Unsecured Notes

$
50,000

$
50,000
2027 Senior Unsecured Notes

50,000

50,000
2028 Senior Unsecured Notes

60,000

60,000
2029 Senior Unsecured Notes

100,000

100,000
2030 Senior Unsecured Notes

125,000

125,000
Total Principal

385,000

385,000
Unamortized debt issuance costs

(829)

(936)
Total

$
384,171

$
384,064

In May 2015, the Company and the Operating Partnership completed a private placement of $100.0 million principal amount of senior unsecured notes. The senior unsecured notes were sold in two series; $50.0 million of 4.16% notes due May 2025 (the “2025 Senior Unsecured Notes”) and $50.0 million of 4.26% notes due May 2027 (the “2027 Senior Unsecured Notes”). The senior unsecured notes were sold only to institutional investors and did not involve a public offering in reliance on the exemption from registration in Section 4(a)(2) of the Securities Act.

In July 2016, the Company and the Operating Partnership 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 4.42% senior unsecured notes due July 2028 (the “2028 Senior Unsecured Notes”). The senior unsecured notes were sold only to institutional investors and did not involve a public offering in reliance on the exemption from registration in Section 4(a)(2) of the Securities Act.

In August 2017, the Company and the Operating Partnership entered into a note purchase agreement with institutional purchasers. Pursuant to the note purchase agreement, the Operating Partnership completed a private placement of $100.0 million aggregate principal amount of its 4.19% senior unsecured notes due September 2029 (the “2029 Senior Unsecured Notes”). Closing of the private placement was consummated in September 2017; and, on that date, the Operating Partnership issued the senior unsecured notes. The senior unsecured notes were sold only to institutional investors and did not involve a public offering in reliance on the exemption from registration in Section 4(a)(2) of the Securities Act.

In September 2018, the Company and the Operating Partnership entered into two supplements to uncommitted master note facilities with institutional purchasers. Pursuant to the supplements, the Operating Partnership completed a private placement of $125.0 million aggregate principal amount of 4.32% senior unsecured notes due September 2030 (the “2030 Senior Unsecured Notes”). The senior unsecured notes were sold only to institutional investors and did not involve a public offering in reliance on the exemption from registration in Section 4(a)(2) of the Securities Act.

In June 2019, the Operating Partnership entered into a note purchase agreement with institutional investors in connection with the private placement of $125.0 million aggregate principal amount of its 4.47% senior unsecured notes due October 2031 (the “2031 Senior Unsecured Notes”). The closing of the private placement and the issuance of the 2031 Senior Unsecured Notes took place in October 2019. The 2031 Senior Unsecured Notes were sold only to institutional investors and did not involve a public offering in reliance on the exemption from registration in Section 4(a)(2) of the Securities Act. See Note 12 ~~Subsequent Events~~ in regards to sale of the notes. In March 2019, the Company entered into forward-starting interest rate swap agreements to fix the interest for $100.0 million of long-term debt until maturity. The Company terminated the swap agreements at the time of pricing the 2031 Notes, which resulted in an effective annual fixed rate of 4.41% for $100.0 million aggregate principal amount of the 2031 Notes. Considering the effect of the terminated swap agreements, the blended all-in rate to the Company for the $125.0 million aggregate principal amount of 2031 Senior Unsecured Notes is 4.42%.

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Unsecured Term Loan Facilities

The following table presents the ~~Unsecured Term Loans~~unsecured term loans balance net of unamortized debt issuance costs as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
2019 Term Loan	$	—	$	18,543
2023 Term Loan		40,000		40,000	$	40,000	$	40,000
2024 Term Loan Facilities		100,000		100,000		100,000		100,000
2026 Term Loan		100,000		100,000		100,000		100,000
Total Principal		240,000		258,543		240,000		240,000
Unamortized debt issuance costs		(2,016)		(2,124)		(2,726)		(2,597)
Total	$	237,984	$	256,419	$	237,274	$	237,403

In August 2016, the Company entered into a $20.3 million unsecured amortizing term loan that matured May 2019 and that was swapped to an all-in rate of 3.62% (the “2019 Term Loan”). Borrowings under the 2019 Term Loan were 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. Including the swap, the 2019 Term Loan bore an all-in interest rate of 3.62%. The 2019 Term Loan was repaid upon maturity in May 2019.

In July 2016, the Company completed a $40.0 million unsecured term loan facility that matures July 2023 (the “2023 Term Loan”). Borrowings under the 2023 Term Loan are priced at LIBOR plus 85 to 165 basis points, depending on ~~its~~the Company’s credit rating. The Company entered into an interest rate swap agreement to fix LIBOR at 140 basis points until maturity. As of ~~September~~June 30, ~~2019,~~2020, $40.0 million was outstanding under the 2023 Term Loan, which was subject to an all-in interest rate of 2.40%, including the swap.

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The ~~amended and restated credit agreement,~~Credit Agreement, described below, extended the maturity dates of the $65.0 million unsecured term loan facility (the “$65 Million Term Loan”) and $35.0 million unsecured term loan facility ~~(together,~~(the “$35 Million Term Loan,” and together with the $65 Million Term Loan, the “2024 Term Loan Facilities”) to January 2024. In connection with entering into the ~~amended and restated credit agreement,~~Credit Agreement, the prior notes evidencing the existing ~~$65.0 million unsecured term loan facility~~$65 Million Term Loan and ~~$35.0 million unsecured term loan facility~~$35 Million Term Loan were canceled and new notes evidencing the 2024 Term Loan Facilities were executed. Borrowings under the unsecured 2024 Term Loan Facilities bear interest at a variable LIBOR plus 85 to 165 basis points, depending on ~~its~~the Company’s credit rating. The Company utilized existing interest rate ~~swaps~~swap agreements to effectively fix ~~the~~ LIBOR at 213 basis points until September 2020 ~~($35 million facility)~~for the $35 Million Term Loan and July 2021 ~~($65 million facility)~~for the $65 Million Term Loan (refer to Note 79 – Derivative Instruments and Hedging ~~Activity)~~Activity). As of ~~September~~June 30, ~~2019,~~2020, $100.0 million was outstanding under the 2024 Term Loan Facilities, bearing an all-in interest rate of 3.13%, including the swaps.

In December 2018, the Company entered into a $100.0 million unsecured term loan facility that matures January 2026 (the “2026 Term Loan”). Borrowings under the 2026 Term Loan are priced at LIBOR plus 145 to 240 basis points, depending on ~~its~~the Company’s credit rating. The Company entered into an interest rate swap agreements to fix LIBOR at 266 basis points until maturity. As of ~~September~~June 30, ~~2019,~~2020, $100.0 million was outstanding under the 2026 Term Loan, which was subject to an all-in interest rate of 4.26%, including the swap.

Senior Unsecured Notes

The following table presents the senior unsecured notes balance net of unamortized debt issuance costs as of June 30, 2020, and December 31, 2019 (in thousands):


	June 30, 2020		December 31, 2019
2025 Senior Unsecured Notes	$	50,000	$	50,000
2027 Senior Unsecured Notes		50,000		50,000
2028 Senior Unsecured Notes		60,000		60,000
2029 Senior Unsecured Notes		100,000		100,000
2030 Senior Unsecured Notes		125,000		125,000
2031 Senior Unsecured Notes		125,000		125,000
Total Principal		510,000		510,000
Unamortized debt issuance costs		(747)		(802)
Total	$	509,253	$	509,198

All of the Senior Unsecured Notes were sold only to institutional investors and did not involve a public offering in reliance on the exemption from registration in Section 4(a)(2) of the Securities Act of 1933, as amended.

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

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

Senior Unsecured Revolving Credit Facility

In December ~~2016,~~2019, the Company ~~amended~~entered into a Second Amended and ~~restated the credit agreement~~Restated Revolving Credit and Term Loan Agreement (the “Credit Agreement”) ~~that governs its senior~~. The Credit Agreement provides for a $500.0 million unsecured revolving credit facility (the “Revolving Credit Facility”), the $65 Million Term Loan and ~~its unsecured term loan facility to increase~~ the ~~aggregate borrowing capacity to $350.0 million. In July 2018, the Company elected to pursue commitments under the accordion option outlined~~$35 Million Term Loan. The Credit Agreement amended and restated in its ~~senior unsecured revolving credit facility to increase~~entirety the ~~revolving commitments by $75.0 million, raising the total revolving commitments under the~~Company’s previous amended and restated credit agreement ~~from $250.0 million to $325.0 million. Including the increased commitments, the amended and restated credit agreement~~dated December 15, 2016.

The Credit Agreement provides ~~for a $325.0~~$600.0 million unsecured ~~revolving credit facility, a $65.0 million unsecured term loan facility and a $35.0 million unsecured term loan facility (referenced above~~borrowing capacity, composed of the Revolving Credit Facility, which matures on January 15, 2024, as well as the 2024 Term Loan ~~Facilities). The unsecured revolving credit facility matures~~Facilities, which mature on January ~~2021 with options~~15, 2024. Subject to certain terms and conditions set forth in the Credit Agreement, the Company (i) may request additional lender commitments under any or all facilities of up to an additional aggregate of $500.0 million and (ii) may elect, for an additional fee, to extend the maturity date of the Revolving Credit Facility by six months up to 2 times, for a maximum maturity date of January 15, 2025. No amortization payments are required under the Credit Agreement, and interest is payable in arrears no less frequently than quarterly.

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

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

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

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the maturity date to January 2022. The 2024 Term Loan Facilities mature 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 85 to 155 basis points, depending on its credit rating. Additionally, the Company is required to pay a facility fee at an annual rate of 0 to 55 basis points of the total amount of the revolving credit facility, depending on its credit rating. 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 September 30, 2019, and December 31, 2018, the Company had $248.0 million and $19.0 million of outstanding borrowings under the revolving credit facility, respectively, bearing weighted average interest rates of approximately 3.30% and 3.38%, respectively. As of September 30, 2019, $77.0 million was available for borrowing under the revolving credit facility and the Company was in compliance with the credit agreement covenants.

~~Concurrent with the amendment and restatement of the Company’s senior unsecured revolving credit facility, conforming changes were made to the 2023 Term Loan and 2019 Term Loan.~~

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

Debt Maturities

The following table presents scheduled principal payments related to the Company’s debt as of ~~September~~June 30, ~~2019~~2020 (in thousands):


	Scheduled		Balloon				Scheduled		Balloon
	Principal		Payment		Total		Principal		Payment		Total
Remainder of 2019	$	253	$	21,500	$	21,753
2020		947		2,767		3,714
2021 ⁽¹⁾		998		248,000		248,998
Remainder of 2020							$	478	$	—	$	478
2021								998		—		998
2022		1,060		—		1,060		1,060		—		1,060
2023		1,069		67,656		68,725		1,069		67,656		68,725
2024 ⁽¹⁾								963		100,000		100,963
Thereafter		2,617		585,000		587,617		1,654		610,000		611,654
Total	$	6,944	$	924,923	$	931,867	$	6,222	$	777,656	$	783,878

(1)

The ~~balloon payment balance includes the balance outstanding under the Credit Facility as of September 30, 2019. The~~Revolving Credit Facility matures in January ~~2021,~~2024, with options to extend the maturity ~~for one year at the Company’s election, subject to certain conditions~~as described under .Senior Unsecured Revolving Credit Facility above. The Revolving Credit Facility had 0 balance as of June 30, 2020.

Loan Covenants

Certain loan agreements contain various restrictive covenants, including the following financial covenants: maximum total leverage ratio, maximum secured ~~and secured recourse~~ leverage ratios, ~~minimum tangible net worth and~~ consolidated net worth requirements, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio, a minimum unsecured interest expense ratio, a minimum interest coverage ratio, a minimum unsecured debt yield and a minimum unencumbered interest expense ~~ratio, and a maximum payout~~ ratio. As of ~~September~~June 30, ~~2019,~~2020, the most restrictive covenant was the minimum unencumbered interest expense ratio. The Company was in compliance with all of its loan covenants and obligations as of ~~September~~June 30, ~~2019.~~2020.

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Note 6 – Common ~~and Preferred~~ Stock

~~Common Stock Authorization~~

In April 2019, the Company’s shareholders approved an amendment to its charter to increase the total number of shares of common stock that the Company has the authority to issue from 45,000,000 shares to 90,000,000 shares.

~~Shelf Registration~~

In June 2017, the Company filed an automatic shelf registration statement on Form S-3, registering an unspecified amount at an indeterminant aggregate initial offering price of 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.

~~ATM Program~~

In July 2019, the Company entered into a $400.0 million at-the-market equity program (“ATM”) program through which the Company may, from time to time, sell shares of common stock. In addition to selling shares of common stock, the Company may enter into forward sale agreements through its ATM program. During the three months ended September 30, 2019, the Company issued 444,228 shares under this program, at an average price of $74.30, realizing gross proceeds of $33.0 million. The Company had approximately $367.0 million remaining under the ATM program as of September 30, 2019.

During the year ended December 31, 2018, and the six months ended June 30, 2019, the Company issued 3,057,263 shares and 886,768 of common stock, respectively, under a previously authorized $250 million ATM program, at average prices of $59.28 and $66.83, respectively, realizing gross proceeds of approximately $181.2 million and $59.3 million, respectively. No future issuances will occur under this predecessor ATM program authorization.

~~Forward Sale Agreement~~Follow-on Public Offerings

In September 2018, the Company ~~closed~~entered into a follow-on public offering of 3,500,000 shares of common stock in connection with a forward sale agreement (the “September 2018 Forward”) ~~and~~. The September 2018 Forward was settled in its entirety in April 2019. Upon settlement, the Company issued 3,500,000 shares of common stock and received net proceeds of $186.0 million, after deducting fees and expenses.

In April 2019, ~~closed~~the Company entered into a ~~subsequent~~ follow-on public offering (the “April 2019 Forward”) to sell an aggregate of 3,162,500 shares of common stock, which included the full exercise of the underwriters’ option to purchase an additional 412,500 shares of common stock. The April 2019 Forward was settled in its entirety in December 2019. Upon settlement, the Company issued 3,162,500 shares of common stock and received net proceeds of approximately $195.8 million, after deducting fees and expenses.

In April 2020, the Company completed a follow-on public offering of ~~3,162,500~~2,875,000 shares of common stock, which included the full exercise of the underwriters’ option to purchase an additional 375,000 shares of common stock. Upon closing the Company issued 2,875,000 shares of common stock and received net proceeds of $170.4 million, after deducting fees and expenses.

Also in April 2020, the Company entered into a follow-on public offering (the “April 2020 Forward”) to sell an aggregate of 6,166,666 shares of common stock in connection with a forward sale ~~agreement (the “April 2019 Forward”). Concurrently with entering into the April 2019 Forward,~~agreement. As of June 30, 2020, the Company ~~settled the entirety of the September 2018 Forward and received net proceeds of approximately $186.0 million.~~

~~As of September 30, 2019, the Company had~~has not received proceeds from the sale of shares of its common stock by the forward purchasers in the April 2019 Forward. Selling common stock through forward sale agreements enables the Company to set the price of shares upon pricing the offering (subject to certain adjustments) while delaying the issuance of such shares and the receipt of the net proceeds by the Company.purchaser. The April ~~2019~~2020 Forward is required to be settled no later than ~~May 1, 2020.~~April 20, 2021.

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ATM Programs

~~Preferred Stock~~2019 ATM Program

In July 2019, the Company entered into a $400.0 million ATM program (the “2019 ATM Program”) through which the Company, from time to time, sold shares of common stock. During the third quarter of 2019, the Company issued 444,228 shares of common stock under the 2019 ATM Program, at an average price of $74.30, realizing gross proceeds of $33.0 million. In addition to selling shares of common stock, the Company also entered into forward sale agreements through the 2019 ATM Program, as described below.

During the ~~nine~~fourth quarter of 2019, the Company entered into forward sale agreements in connection with the 2019 ATM Program to sell an aggregate of 2,003,118 shares of common stock. Additionally, during the first quarter of 2020, the Company entered into forward sale agreements in connection with the 2019 ATM Program to sell an aggregate of 3,169,754 shares of common stock. During the six months ended ~~September~~June 30, 2020, the Company settled all forward sale agreements under the 2019 ATM Program, realizing gross proceeds of $254.3 million.

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

2020 ATM Program

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

During the first quarter of 2020, the Company entered into a forward sale agreement to sell an aggregate of 204,074 shares of common stock. During the six months ended June 30, 2020, the Company settled this forward sale agreement realizing gross proceeds of $12.7 million.

During the second quarter of 2020, the Company entered into forward sale agreements to sell an aggregate of 742,860 shares of common stock. As of June 30, 2020, 0 shares have been settled under the 2020 ATM Program. The Company is required to settle outstanding shares under the 2020 ATM Program by various dates between April and June 2021.

After considering the 742,860 shares of common stock subject to forward sale agreements and including prior shares issued under the 2020 ATM Program, the Company had approximately $337.8 million of availability remaining under the 2020 ATM Program as of June 30, 2020.

2018 ATM Program

In May 2018, the Company entered into a $250.0 million ATM program (“2018 ATM Program”) through which the Company, from time to time, sold shares of common stock and entered into forward sale agreements. During the six months ended June 30, 2019, the Company ~~redesignated and reclassified all 200,000 authorized but unissued~~issued 886,768 shares of ~~its Series A Junior Participating Preferred Stock as authorized but unissued~~common stock under the 2018 ATM Program, realizing gross proceeds of approximately $59.3 million. The 2018 ATM Program was subsequently terminated, and ~~unclassified shares of preferred stock, par value $.0001 per share, of~~0 future issuances will occur under the ~~Company without further designation. The number of preferred shares the Company has the authority to issue remains at 4,000,000, all of which are unclassified and undesignated.~~2018 ATM Program.

Note 7 – Dividends and Distribution Payable

On ~~September 4, 2019,~~May 5, 2020, the Company declared a dividend of ~~$0.57~~$0.60 per share (and distributions per ~~unit)~~Operating Partnership Unit) for the quarter ended ~~September~~June 30, ~~2019.~~2020. The holders of ~~limited partnership interests in~~ the Operating Partnership ~~(“OP Units”)~~Units were

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entitled to an equal distribution per OPOperating Partnership Unit held as of ~~September 30, 2019.~~June 26, 2020. The dividends and distributions payable were recorded as liabilities on the Company’s condensed consolidated balance sheet at ~~September~~June 30, ~~2019.~~2020. 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 ~~October 11, 2019. Dividends per share (and distributions per unit) declared~~July 10, 2020.

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Note 8 – Income Taxes (not presented in thousands)

Uncertain Tax Positions

The Company is subject to the provisions of FASB ASC Topic 740-10 (“ASC 740-10”) and has analyzed its various federal and state filing positions. The Company believes that its income tax filing positions and deductions are documented and supported. Additionally, the Company believes that its accruals for tax liabilities are adequate. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740-10. The Company’s federal income tax returns are open for examination by taxing authorities for all tax years after December 31, 2015. The Company has elected to record related interest and penalties, if any, as income tax expense on the Consolidated Statements of Operations and Comprehensive Income. We have no material interest or penalties relating to income taxes recognized for the ~~quarter~~three and six months ended ~~September~~June 30, 2020 and 2019.

Deferred Taxes

As of December 31, 2018, ~~were $0.54.~~the Company had accrued a deferred income tax liability in the amount of $475,000. This deferred income tax balance represented 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 Company’s TRS entities. During the three months ended March 31, 2019, the Company restructured its ownership of the TRS to which the deferred tax liability was related, resulting in a reversal of the previously accrued amount.

Income Tax Expense

The Company recognized total federal and state tax expense of approximately $260,000 and $195,000 for the three months ended June 30, 2020 and 2019, respectively and approximately $520,000 and $26,000 for the six months ended June 30, 2020 and 2019, respectively.

Note 89 – Derivative Instruments and Hedging Activity

Background

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

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

Recent Activity

In March 2019, the Company entered into forward-starting interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates from the trade date through the forecasted issuance date of $100.0 million of long-term debt. The Company hedged its exposure to the variability in future cash flows for a forecasted issuance of long-term debt over a maximum period of one year. In May, the Company terminated the swap agreements at the time of pricing the future debt issuance, receiving $0.8 million upon termination. See discussion of the 2031 Senior Unsecured Notes in Note 5 – Debt above.

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In June 2019, the Company entered into forward-starting interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates from the trade date through the forecasted issuance date of $100.0 million of long-term debt. The Company is hedging its exposure to the variability in future cash flows for a forecasted issuance of long-term debt over a maximum period ending March 2021. As of ~~September~~June 30, ~~2019,~~2020, these interest rate swaps were valued as a liability of ~~$5.5~~approximately $16.0 million.

In October 2019, the Company entered into interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates on $65.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreements, the Company receives from the counterparty interest on the notional amount based on 1 month LIBOR and pays to the counterparty a fixed rate of 1.4275%. This swap effectively converts $65.0 million of variable-rate borrowings to fixed-rate borrowings from July 12, 2021 to January 12, 2024. As of June 30, 2020, this interest rate swap was valued as a liability of approximately $2.0 million.

Also in October 2019, the Company entered into an interest rate swap agreement to hedge against changes in future cash flows resulting from changes in interest rates on $35.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreement, the Company receives from the counterparty interest on the notional amount based on 1 month LIBOR and pays to the counterparty a fixed rate of 1.4265%. This swap effectively converts $35.0 million of variable-rate borrowings to fixed-rate borrowings from September 29, 2020 to January 12, 2024. As of June 30, 2020, this interest rate swap was valued as a liability of approximately $1.5 million.

In February 2020, the Company entered into forward-starting interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates from the trade date through the forecasted issuance date of $100.0 million of long-term debt. The Company is hedging its exposure to the variability in future cash flows for a forecasted issuance of long-term debt over a maximum period ending March 2021. As of June 30, 2020, these interest rate swaps were valued as a liability of approximately $7.2 million.

Prior Derivative Transactions

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 one 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 ~~September~~June 30, ~~2019,~~2020, this interest rate swap was valued as a liability of approximately $0.2 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 agreements, the Company receives from the counterparty interest on the notional amount based on one month LIBOR and pays to the counterparty a fixed rate of 2.09%. These swaps effectively converted $65.0 million of variable-rate borrowings to fixed-rate borrowings from July 21, 2014 to July 21, 2021. As of ~~September~~June 30, ~~2019,~~2020, these interest rate swaps were valued as a liability of approximately ~~$0.7~~$1.3 million.

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In September 2017, the Company entered into an interest rate swap agreement to hedge against changes in future cash flows resulting from changes in interest rates on $40.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreement, the Company receives from the counterparty interest on the notional amount based on one month LIBOR and pays to the counterparty a fixed rate of 1.40%. This swap effectively converted $40.0 million of variable-rate borrowings to fixed-rate borrowings from August 1, 2016 to July 1, 2023. As of ~~September~~June 30, ~~2019,~~2020, this interest rate swap was valued as a liability of approximately ~~$0.0~~$1.5 million.

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borrowings to fixed-rate borrowings from December 27, 2018 to January 15, 2026. As of ~~September~~June 30, ~~2019,~~2020, these interest rate swaps were valued as a liability of approximately ~~$7.6~~$12.9 million.

Recognition

On January 1, 2019, the Company adopted ASU No. 2017-12, ~~"Targeted~~“Targeted Improvements to Accounting for Hedging ~~Activities",~~Activities,” which provided changes in hedge accounting recognition and presentation requirements. The Company now recognizes all changes in fair value for hedging instruments designated and qualifying for cash flow hedge accounting treatment as a component of Other Comprehensive Income (OCI), as opposed to previously recognizing the ineffective portion, if any, directly in earnings. Upon adoption, there were no adjustments to recognize relating to previously recorded derivatives transactions or amounts. Net realized gains or losses resulting from derivatives that were settled in conjunction with planned fixed rate financings or refinancings continue to be included in accumulated OCI during the term of the hedged debt transaction.

Amounts reported in accumulated OCI related to currently outstanding interest rate derivatives are recognized as an adjustment to income as interest payments are made on the Company’s variable-rate debt. Realized gains or losses on settled derivative instruments included in accumulated OCI are recognized as an adjustment over the term of the hedged debt transaction. During the next twelve months, the Company estimates that an additional ~~$1.3~~$6.3 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):

Number of Instruments

Notional

Number of Instruments

Notional

September 30,

December 31,

September 30,

December 31,

June 30,

December 31,

June 30,

December 31,

Interest Rate Derivatives

2019

2018

2019

2018

2020

2019

2020

2019

Interest Rate Swap

240,000

258,543

240,000

The table below presents the estimated fair value of the Company’s derivative financial instruments, as well as their classification in the condensed consolidated balance sheets (in thousands).


	Asset Derivatives				Asset Derivatives
	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
	Fair Value		Fair Value		Fair Value		Fair Value
Derivatives designated as cash flow hedges:
Interest Rate Swaps	$	—	$	2,539	$	—	$	572


	Liability Derivatives				Liability Derivatives
	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
	Fair Value		Fair Value		Fair Value		Fair Value
Derivatives designated as cash flow hedges:
Interest Rate Swaps	$	14,016	$	1,135	$	42,641	$	7,943

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The table below displays the effect of the Company’s derivative financial instruments in the condensed consolidated statements of income and comprehensive income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands).

Location of

Income/(Loss)

Derivatives in

Income/(Loss)

Derivatives in

Reclassified from

Amount of Income/(Loss)

Cash Flow

Reclassified from

Amount of Income/(Loss)

Cash Flow

Accumulated OCI

Reclassified from

Hedging

Amount of Income/(Loss) Recognized

Accumulated OCI

Reclassified from

Hedging

Amount of Income/(Loss) Recognized

into Income

Accumulated OCI into Expense

Relationships

in OCI on Derivative

into Income

Accumulated OCI into Expense

Relationships

in OCI on Derivative (Effective Portion)

(Effective Portion)

Three Months Ended September 30,

2019

2018

2019

2018

Three Months Ended June 30,

2020

2019

2020

2019

Interest rate swaps

(7,418)

454

Interest Expense

Interest rate swaps

(3,289)

(3,640)

Interest Expense

1,028

157


Nine Months Ended September 30,		2019		2018			2019		2018
Six Months Ended June 30,												2020		2019			2020		2019

	Interest rate swaps	$	(14,617)	$	3,166	Interest Expense	$	366	$	(24)	Interest rate swaps	$	(36,667)	$	(7,199)	Interest Expense	$	1,365	$	344

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 June 30, 2020.

Credit-risk-related Contingent Features

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

As of ~~September~~June 30, ~~2019,~~2020, 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 ~~$14.3~~$43.7 million.

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

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The table below presents a gross presentation of the effects of offsetting and a net presentation of the Company’s derivatives as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018.~~2019. The gross amounts of derivative assets or liabilities can be reconciled to the Tabular Disclosure of Fair Values of Derivative Instruments above, which also provides the location that derivative assets and liabilities are presented on the condensed consolidated balance sheets (in thousands):

Offsetting of Derivative Assets as of ~~September~~June 30, ~~2019~~2020

Gross Amounts

Net Amounts of

Offset in the

Assets presented

Gross Amounts Not Offset in the

Gross Amounts

Statement of

in the Statement

Statement of Financial Position

of Recognized

Financial

of Financial

Financial

Cash Collateral

Assets

Position

Instruments

Received

Net Amount

Derivatives

—

Offsetting of Derivative Liabilities as of ~~September~~June 30, ~~2019~~2020

Net Amounts of

Gross Amounts

Liabilities

Gross Amounts

Liabilities

Offset in the

presented in the

Gross Amounts Not Offset in the

Offset in the

presented in the

Gross Amounts Not Offset in the

Gross Amounts

Statement of

Statement of Financial Position

Gross Amounts

Statement of

Statement of Financial Position

of Recognized

Financial

Cash Collateral

of Recognized

Financial

Cash Collateral

Liabilities

Position

Instruments

Posted

Net Amount

Liabilities

Position

Instruments

Posted

Net Amount

Derivatives

14,016

—

14,016

—

14,016

42,641

—

42,641

—

42,641

Offsetting of Derivative Assets as of December 31, ~~2018~~2019

Gross Amounts

Net Amounts of

Gross Amounts

Net Amounts of

Offset in the

Assets presented

Gross Amounts Not Offset in the

Offset in the

Assets presented

Gross Amounts Not Offset in the

Gross Amounts

Statement of

in the Statement

Statement of Financial Position

Gross Amounts

Statement of

in the Statement

Statement of Financial Position

of Recognized

Financial

of Financial

Financial

Cash Collateral

of Recognized

Financial

of Financial

Financial

Cash Collateral

Assets

Position

Instruments

Received

Net Amount

Assets

Position

Instruments

Received

Net Amount

Derivatives

2,539

—

2,539

(575)

—

1,964

572

—

572

(572)

—

Offsetting of Derivative Liabilities as of December 31, ~~2018~~2019

Net Amounts of

Gross Amounts

Liabilities

Gross Amounts

Liabilities

Offset in the

presented in the

Gross Amounts Not Offset in the

Offset in the

presented in the

Gross Amounts Not Offset in the

Gross Amounts

Statement of

Statement of Financial Position

Gross Amounts

Statement of

Statement of Financial Position

of Recognized

Financial

Cash Collateral

of Recognized

Financial

Cash Collateral

Liabilities

Position

Instruments

Posted

Net Amount

Liabilities

Position

Instruments

Posted

Net Amount

Derivatives

1,135

—

1,135

(575)

—

560

7,943

—

7,943

(572)

—

7,372

~~Note 9 – Discontinued Operations~~

~~There were 0 properties classified as discontinued operations for the three and nine months ended September 30, 2019.~~

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).~~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.

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ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the

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reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

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

Derivative Financial Instruments

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

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

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of ~~September~~June 30, ~~2019,~~2020, 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 ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):

Total Fair Value

Level 2
September 30, 2019

Derivative liabilities - interest rate swaps

$
14,016

$
14,016

December 31, 2018

Derivative assets - interest rate swaps

$
2,539

$
2,539
Derivative liabilities - interest rate swaps

$
1,135

$
1,135


	Total Fair Value		Level 2
June 30, 2020
Derivative assets - interest rate swaps	$	—	$	—
Derivative liabilities - interest rate swaps	$	42,641	$	42,641

December 31, 2019
Derivative assets - interest rate swaps	$	572	$	572
Derivative liabilities - interest rate swaps	$	7,943	$	7,943

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Other Financial Instruments

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

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

Fixed rate debt (including variable rate debt swapped to fixed, excluding the value of the derivatives) with carrying values of ~~$680.6~~$780.0 million and ~~$701.4~~$783.3 million as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, had fair values of ~~$713.5~~$815.3 million and ~~$702.0~~$817.7 million, respectively. Variable rate debt’s fair value is estimated to be equal to the carrying values of ~~$248.0~~$0.0 million and ~~$19.0~~$89.0 million, as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

Note 11 – Equity Incentive Plan

In May 2020, the Company’s stockholders approved the 2020 Omnibus Incentive Plan (the “2020 Plan”), which replaced the 2014 Omnibus Equity Incentive Plan (the “2014 Plan”). The 2020 Plan provides for the award to employees, directors and consultants of the Company ~~estimates the fair value~~ of options, restricted stock, ~~grants at~~restricted stock units, stock appreciation rights, performance awards (which may take the ~~date~~form of ~~grant~~performance units or performance shares) and ~~amortizes those amounts into expense on a straight line basis~~other awards to acquire up to an aggregate of 700,000 shares of the Company’s common stock. Upon approval of the 2020 Plan, all subsequent awards of equity or ~~amount vested, if greater, over~~equity rights will be granted under the ~~appropriate vesting period.~~

2020 Plan, and no further awards will be made under the 2014 Plan. As of ~~September~~June 30, ~~2019, there was $8.1 million~~2020, 0 grants of ~~total unrecognized compensation costs related~~awards have been made under the 2020 Plan, with all outstanding grants having been made under the 2014 Plan.

Restricted Stock

Restricted common stock has been granted to the outstanding restricted stock, which is expected to be recognized over a weighted average period of 3.3 years. The Company used 0% for the forfeiture rate for determining the fair value of restricted stock.certain employees and directors.

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

The Company estimates the fair value of restricted stock grants at the date of grant and amortizes those amounts into expense on a straightline basis or amount vested, if greater, over the appropriate vesting period. The Company recognized expense relating to restricted stock grants of $0.8 million and $0.8 million for the three months ended June 30, 2020 and 2019, respectively, and $1.5 million and $1.4 million for the six months ended June 30, 2020 and 2019, respectively.

As of June 30, 2020, there was $9.3 million of total unrecognized compensation costs related to the outstanding restricted stock, which is expected to be recognized over a weighted average period of 3.5 years. The Company used 0% for the forfeiture rate for determining the fair value of restricted stock. The intrinsic value of restricted shares redeemed was $1.6 million and $1.4 million for the six months ended June 30, 2020 and 2019, respectively.

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Restricted stock activity is summarized as follows:


	Shares	Weighted Average		Shares	Weighted Average
	Outstanding	Grant Date		Outstanding	Grant Date
	(in thousands)	Fair Value		(in thousands)	Fair Value
Unvested restricted stock at December 31, 2018	212	$	42.74
Unvested restricted stock at December 31, 2019				194	$	50.71

Restricted stock granted	54	$	65.83	47	$	79.62
Restricted stock vested	(64)	$	38.99	(62)	$	45.39
Unvested restricted stock at September 30, 2019	202	$	50.47
Restricted stock forfeited				(3)	$	62.73

Unvested restricted stock at June 30, 2020				176	$	60.10

Performance Units

On February 23, ~~2019~~2020 certain executive officers received performance units. Performance units are subject to a three-year performance period, at the conclusion of which, shares awarded are to be determined by the Company’s total shareholder return compared to the constituents of the MSCI US REIT Index and a defined peer group. 50% of the award is based upon the total shareholder return percentile rank versus the MSCI US REIT index for the three-year performance period; and 50% of the award is based upon TSR percentile rank versus a specified net lease peer group for the three-year performance period. Vesting of the performance units following their issuance will occur ratably over a three-year period, with the initial vesting occurring immediately following the conclusion of the performance period such that all shares vest within five years of the original award date of February 23, ~~2019.~~ 2020.

The grant date fair value of these awards is determined using a Monte Carlo simulation pricing model and compensation expense is amortized on an attribution method over a five-year period. The Monte Carlo simulation pricing model for the ~~2019~~2020 grants utilized the following assumptions: (i) expected term of 2.9 years (equal to the remaining performance measurement period at the grant date), (ii) volatility of ~~19.7%~~18.4% (based on historical volatility), (iii) dividend yield of ~~3.4%~~2.9% (based on the most recently paid dividend at grant date), (iv) risk-free rate of ~~2.5%~~1.3% (interpolated based on 2- and 3-year rates). Compensation expense related to performance units is determined at the grant date and is not adjusted throughout the measurement or vesting periods.

~~Table~~The Company recognized expense related to performance units of ~~Contents~~

~~In 2018,~~$0.4 million and $0.2 million, for the ~~Company granted performance share awards. These shares have substantially identical terms to~~three months ended June 30, 2020 and 2019, respectively, and $0.7 million and $0.4 million, for the ~~performance unit awards granted in 2019.~~

six months ended June 30, 2020 and 2019, respectively. As of ~~September~~June 30, ~~2019,~~2020, there was ~~$2.7~~$4.1 million of total unrecognized compensation costs related to the outstanding performance ~~shares and~~ units, which is expected to be recognized over a weighted average period of 3.7 years. The Company used 0% for the forfeiture rate for determining the fair value of performance units.

Prior to 2019, the Company’s equity incentive plan utilized performance shares ~~and~~instead of units. These performance shares had substantially identical terms to the performance units described above.

Performance share and unit activity is summarized as follows:


	Target Number	Weighted Average		Target Number
	of Awards	Grant Date		of Awards	Weighted Average
	(in thousands)	Fair Value		(in thousands)	Grant Date
Performance shares at December 31, 2018	31	$	47.73
Performance units and shares at December 31, 2019				61	$	56.57

Performance units granted	30	$	65.66	26	$	79.62
Performance shares and units at September 30, 2019	61	$	56.57

Performance units and shares at June 30, 2020				87	$	63.35

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Note 12 – Commitments and Contingencies

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

Note 1213 – Subsequent Events

In connection with the preparation of its financial statements, the Company has evaluated events that occurred subsequent to ~~September~~June 30, ~~2019~~2020 through the date on which these financial statements were ~~available to be~~ issued to determine whether any of these events required disclosure in the financial statements.

In October 2019, the Operating Partnership closed on the $125.0 million private placement and issued the 2031 Senior Unsecured Notes. The 2031 Senior Unsecured Notes were sold only to institutional investors and did not involve a public offering in reliance on the exemption from registration in Section 4(a)(2) of the Securities Act. See ~~Note 5 Debt – Senior Unsecured Notes~~ ~~for more information regarding these notes.~~

There were no ~~other~~ reportable subsequent events or transactions.

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

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

Cautionary Note Regarding Forward-Looking Statements

This report contains ~~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”). The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and includes this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe the Company’s future plans, strategies and expectations, are generally identifiable by use of the words “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” “may,” “will,” “seek,” “could,” ~~“project,”~~“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 the Company’s future financial condition, results of operations, its strategic plans and objectives, occupancy and leasing rates and trends, liquidity and ability to refinance its 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 the Company’s control and which could materially affect ~~actual~~the Company’s results ~~performances~~of operations, financial condition, cash flows, performance or ~~achievements. Factors~~future achievements or events. Currently, one of the most significant factors, however, is the adverse effect of the current pandemic of the novel coronavirus, or COVID-19, on the financial condition, results of operations, cash flows and performance of the Company and its tenants, the real estate market and the global economy and financial markets. The extent to which COVID-19 impacts the Company and its tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Moreover, you should interpret many of the risks identified in this report, as well as the risks set forth below, as being heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic. Additional factors which may cause actual results to differ materially from current expectations include, but are not limited to: the factors included in our Annual Report on Form 10-K for the year ended December 31, 2019, including those set forth under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; global and national economic conditions and changes in general economic, financial and real estate market conditions; the financial failure of, or other default in payment by, tenants under their leases and the potential resulting vacancies; our concentration with certain tenants and in certain markets, which may make us more susceptible to adverse events; changes in ~~the Company’s~~our business strategy; risks that our acquisition and development projects will fail to perform as expected; adverse changes and disruption in the retail sector and the financing stability of our tenants, which could impact our tenants’ ability to pay rent and expense reimbursement; our ability to pay dividends; risks relating to information technology and cybersecurity attacks, loss of confidential information and other related business disruptions; loss of key management personnel; the potential need to fund improvements or other capital expenditures out of operating cash flow; financing risks, such as the inability to obtain debt or equity financing on favorable terms or at all; the level and volatility of interest rates; ~~its~~our ability to renew or re-lease space as leases expire; limitations in our tenants’ leases on real estate tax, insurance and operating cost reimbursement obligations; loss or bankruptcy of one or more of our major tenants, and bankruptcy laws that may limit our remedies if a tenant becomes bankrupt and rejects its ~~major tenants; its~~leases; potential liability for environmental contamination, which could result in substantial costs; our level of indebtedness, which could reduce funds available for other business purposes and reduce our operational flexibility; covenants in our credit agreements, which could limit our flexibility and adversely affect our financial condition; credit market developments that may reduce availability under our revolving credit facility; an increase in market interest rates which could raise our interest costs on existing and future debt; a decrease in interest rates, which may lead to additional competition for the acquisition of real estate or adversely affect our results of operations; our hedging strategies, which may not be successful in mitigating our risks associated with interest rates; legislative or regulatory changes, including changes to laws governing real estate investment trusts (“REITs”); our ability to maintain ~~its~~our qualification as a ~~real estate investment trust (“REIT”)~~REIT for federal income tax purposes and the limitations imposed on ~~its~~our business by ~~its~~our status as a REIT; and ~~legislative or regulatory changes, including changes~~our failure to ~~laws governing REITs. The factors included in this report, including the documents incorporated by reference,~~qualify as a REIT for federal income tax purposes, which could adversely affect our operations and ~~documents the Company subsequently files or furnishes with the Securities and Exchange Commission are not exhaustive and additional factors could cause actual results~~ability to ~~differ materially from that described in the forward-looking statements. For a discussion~~make distributions.

Table of additional risk factors, see the factors included under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. All forward-looking statements are based on information that was available, and speak only, as of the date on which they were made. Except as required by law, the Company disclaims any obligation to review or update these forward–looking statements to reflect events or circumstances as they occur.Contents

Overview

The Company is a fully integrated REIT primarily focused on the ownership, acquisition, development and management of retail properties net leased to industry leading tenants. The Company was founded in 1971 by its current Executive Chairman, Richard Agree, and its common stock was listed on the New York Stock Exchange (“NYSE”) in 1994. The Company’s assets are held by, and all of its operations are conducted through, directly or indirectly, ~~the~~(the Operating ~~Partnership,~~Partnership), of which the Company is the sole general partner and in which the Company held a ~~99.2%~~99.4% interest as of ~~September~~June 30, ~~2019.~~

2020. 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 ~~September~~June 30, ~~2019,~~2020, the Company’s portfolio consisted of ~~789~~936 properties located in 46 states and totaling approximately ~~14.0~~18.4 million square feet of gross leasable area (“GLA”).

As of ~~September~~June 30, ~~2019,~~2020, the Company’s portfolio was approximately ~~99.7%~~99.8% leased and had a weighted average remaining lease term of approximately ~~10.2~~9.7 years.A significant majority of our properties are leased to national tenants and approximately 61.0% of our annualized base rent was derived from tenants, or parent entities thereof, with an investment grade credit rating from S&P Global Ratings, Moody’s Investors Service, Fitch Ratings or the National Association of Insurance Commissioners. Substantially all of ~~its~~our tenants are subject to net lease agreements. A net lease typically requires the tenant to be responsible for minimum monthly rent and property operating expenses including property taxes, insurance and maintenance.

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

COVID-19

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

In addition, we cannot predict the impact that COVID-19 will have on our tenants and other business partners; however, any material effect on these parties could adversely impact us. The Company received second quarter rent payments from approximately 90% of its portfolio. In addition, as is believed to be the case with all retail landlords, the Company received numerous short-term rent relief requests, most often in the form of rent deferral requests. To date, the Company has entered in to lease modifications that deferred 3% of rent originally contracted for the second quarter of 2020. Not all tenant requests have resulted or will ultimately result in modification agreements, nor is the Company forgoing its contractual rights under its lease agreements. Second quarter collections, rent relief requests, and rent concessions to date may not be indicative of collections, requests, or concessions in any future period.

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Refer to Note 2 – Summary of Significant Accounting Policies - Rent Concessions – COVID-19 to the Company’s condensed consolidated financial statements within this Form 10-Q regarding the Company’s accounting policies for rent concessions. Pursuant to the Company’s accounting elections, rental revenue continued to be recognized for tenants subject to deferral agreements, as long as such agreements did not result in a substantial increase in our rights as the lessor. As a result, rent deferrals did not have a material impact on revenues for the three months ended June 30, 2020.

The impact of the COVID-19 pandemic on our rental revenue for the remainder of 2020 and thereafter cannot, however, be determined at present. The situation surrounding the COVID-19 pandemic remains fluid, and we continue to actively manage our response in collaboration with tenants, government officials and business partners and assess potential impacts to our financial position and operating results, as well as potential adverse developments in our business. For further information regarding the impact of COVID-19 on the Company, see Part II, Item 1A titled “Risk Factors.”

Results of Operations

Overall

The Company’s real estate investment portfolio grew from approximately ~~$1.7~~$1.9 billion in gross investment amount representing ~~520~~722 properties with ~~10.0~~13.1 million square feet of ~~gross leasable space~~GLA as of ~~September~~June 30, ~~2018~~2019 to approximately ~~$2.1~~$2.6 billion in gross investment amount representing ~~789~~936 properties with ~~14.0~~18.4 million square feet of ~~gross leasable space~~GLA at ~~September~~June 30, ~~2019.~~2020. The Company’s real estate investments were made throughout and between the periods presented and were not all outstanding for the entire period; accordingly, a portion of the increase in rental income between periods is related to recognizing revenue in ~~2019~~2020 on acquisitions that were made during ~~2018.~~2019. Similarly, the full rental income impact of acquisitions made during ~~2019~~first half 2020 will not be seen until the remainder of 2020.

Acquisitions

During the three months ended ~~September~~June 30, ~~2019,~~2020, the Company acquired 6875 retail net lease assets for approximately ~~$246.4~~$272.5 million, which includes acquisition and closing costs. These properties are located in 2726 states and are leased to 2516 different tenants operating in 1611 diverse retail sectors for a weighted average lease term of approximately ~~12.3~~10.9 years. The underwritten ~~weighted average~~weighted-average capitalization rate on the Company’s second quarter ~~2019~~2020 acquisitions was approximately ~~7.0%~~6.5%.¹

During the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, the Company acquired ~~147~~126 retail net lease assets for approximately ~~$565.0~~$499.5 million, which includes acquisition and closing costs. These properties are located in 3733 states and are leased to 4524 different tenants operating in 2217 diverse retail sectors for a weighted average lease term of approximately ~~11.9~~11.0 years. The underwritten ~~weighted average~~weighted-average capitalization rate on the Company’s year-to-date ~~2019~~2020 acquisitions was approximately ~~6.9%~~6.5%.¹

Dispositions

During the three months ended ~~September~~June 30, ~~2019,~~2020, the Company sold ~~three~~eight properties for net proceeds of ~~$7.7~~$18.2 million and recorded a net gain of ~~$2.6~~$5.0 million. During the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, the Company sold ~~nine~~14 properties for net proceeds of ~~$34.5~~$42.6 million and recorded a net gain of ~~$9.0~~$6.6 million.

Development and Partner Capital Solutions

During the three ~~and nine~~ months ended ~~September~~June 30, ~~2019,~~2020, the Company completed one development or Partner Capital Solutions project.

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

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During the six months ended June 30, 2020, the Company completed four ~~and eight developments~~development or Partner Capital Solutions ~~projects, respectively.~~projects. At ~~September~~June 30, ~~2019~~2020, the Company had two ~~such~~development or Partner Capital Solutions projects under construction.

Comparison of Three Months Ended ~~September~~June 30, ~~2019~~2020 to Three Months Ended ~~September~~June 30, ~~2018~~2019



	Three months ended				Variance
	September 30, 2019		September 30, 2018		(in dollars)		(percentage)		Three Months Ended				Variance
									June 30, 2020		June 30, 2019		(in dollars)		(percentage)
Rental Income	$	48,020	$	33,971	$	14,049	41.0	%	$	57,476	$	44,875	$	12,601	28	%
Real Estate Tax Expense	$	3,674	$	2,824	$	850	30.0	%	$	4,840	$	3,720	$	1,120	30	%
Property Operating Expense	$	1,598	$	978	$	620	63.0	%	$	1,860	$	1,496	$	364	24	%
Land Lease Expense	$	354	$	172	$	182	106.0	%	$	325	$	372	$	(47)	(13)	%
Depreciation and Amortization Expense	$	11,897	$	8,142	$	3,755	46.0	%	$	15,607	$	10,836	$	4,771	44	%

The variances in rental income, real estate tax expense, property operating expense, land lease expense and depreciation and amortization expense shown above were due to the acquisitions and ownership of additional properties during the

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three months ended ~~September~~June 30, ~~2019~~2020 compared to the three months ended ~~September~~June 30, ~~2018,~~2019, as further described under Results of Operations - Overall above.

General and administrative expenses increased ~~$0.9~~$0.7 million, or ~~30%~~18%, to ~~$3.8~~$4.6 million for the three months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~$2.9~~$3.9 million for the three months ended ~~September~~June 30, ~~2018.~~2019. The increase was primarily the result of increased employee headcount ~~increased compensation costs,~~ and increased ~~professional~~compensation costs. General and administrative expenses as a percentage of total revenue decreased to 8.0% in the ~~third~~second quarter of ~~2019~~2020 from ~~8.7%~~8.6% in the ~~third~~second quarter of ~~2018.~~2019.

~~No provision~~Provision for impairment decreased $0.1 million, or 5% to $1.1 million for the three months ended ~~September~~June 30, ~~2019 was recorded, and $0.5~~2020, compared to $1.2 million ~~was recorded~~ for the three months ended ~~September~~June 30, ~~2018.~~2019. Provisions for impairment reflect the amount by which current book value exceeds estimated fair value and are not necessarily comparable period-to-period.

Interest expense increased ~~$1.9~~$1.0 million, or ~~28%~~14%, to ~~$8.4~~$8.5 million for the three months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~$6.5~~$7.5 million for the three months ended ~~September~~June 30, ~~2018.~~2019. The increase in interest expense was primarily a result of higher levels of borrowings in the ~~third~~second quarter of ~~2019~~2020 in comparison to the ~~third~~second quarter of ~~2018.~~2019. Borrowings ~~were higher~~increased in ~~the third quarter of 2019~~order to finance the ~~increased~~ acquisition and development of additional properties. Acquisition and development activity increased in the ~~third~~second quarter of ~~2019 in comparison~~2020 compared to the prior period.

Gain on sale of assets ~~decreased $1.3~~increased $2.1 million, or ~~34%~~68%, to ~~$2.6~~$5.0 million for the three months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~$3.9~~$2.9 million for the three months ended ~~September~~June 30, ~~2018.~~2019. Gains on sales of assets are dependent on levels of disposition activity and the assets’ bases relative to their sales prices. As a result, such gains are not necessarily comparable period-to-period.

~~Net income~~Income tax expense increased ~~$5.0~~$0.1 million, or ~~32%~~33%, to ~~$20.8~~$0.3 million for the three months ended ~~September~~June 30, ~~2019,~~2020 compared to ~~$15.8~~$0.2 million for the three months ended ~~September~~June 30, ~~2018.~~2019. The increase in income tax expense was primarily due to the acquisition and the ownership of additional properties during the three months ended June 30, 2020 compared to the three months ended June 30, 2019.

Net income increased $6.7 million, or 36%, to $25.4 million for the three months ended June 30, 2020, compared to $18.7 million for the three months ended June 30, 2019. The change was the result of the items discussed above.

Comparison of ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019



	Nine months ended				Variance
	September 30, 2019		September 30, 2018		(in dollars)		(percentage)		Six Months Ended				Variance
									June 30, 2020		June 30, 2019		(in dollars)		(percentage)
Rental Income	$	135,240	$	99,279	$	35,961	36.0	%	$	113,259	$	87,219	$	26,040	30	%
Real Estate Tax Expense	$	11,016	$	7,825	$	3,191	41.0	%	$	9,542	$	7,342	$	2,200	30	%
Property Operating Expense	$	4,832	$	3,655	$	1,177	32.0	%	$	4,195	$	3,235	$	960	30	%
Land Lease Expense	$	922	$	511	$	411	80.0	%	$	652	$	568	$	84	15	%
Depreciation and Amortization Expense	$	32,597	$	23,949	$	8,648	36.0	%

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Depreciation and Amortization Expense

29,740

20,700

9,040

The variances in rental income, real estate tax expense, property operating expense, land lease expense and depreciation and amortization expense shown above were due to the ~~acquisition~~acquisitions and ~~the~~ ownership of additional properties during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019, as further described under Results of Operations - Overall above.

General and administrative expenses increased ~~$2.7~~$1.3 million, or ~~31%~~17%, to ~~$11.7~~$9.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~$9.0~~$7.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The increase was primarily the result of increased employee headcount ~~increased compensation costs,~~ and increased ~~professional~~compensation costs. General and administrative expenses as a percentage of total revenue decreased to ~~8.7%~~8.2% in the first ~~nine months~~half of ~~2019~~2020 from ~~9.0%~~9.1% in the first ~~nine months~~half of ~~2018.~~2019.

Provision for impairment decreased $0.5 million, or 30%, to $1.1 million for the six months ended June 30, 2020, compared to $1.6 million for the ~~nine~~three months ended ~~September~~June 30, ~~2019, compared to $1.7 million for the nine months ended September 30, 2018.~~2019. Provisions for impairment reflect the amount by which current book value exceeds estimated fair value and are not necessarily comparable period-to-period.

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Interest expense increased ~~$5.4~~$3.1 million, or ~~30%~~21%, to ~~$23.4~~$18.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~$18.0~~$15.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The increase in interest expense was primarily a result of higher levels of borrowings in the first ~~three quarters~~half of ~~2019~~2020 in comparison to the first ~~three quarters~~half of ~~2018~~2019. Borrowings increased in order to finance the acquisition and development of additional ~~properties, which acquisition~~properties. Acquisition and development activity increased in the first ~~three quarters~~half of ~~2019 in comparison~~2020 compared to the prior period.

Gain on sale of assets ~~decreased $1.9~~increased $0.2 million, or ~~18%~~3%, to ~~$9.0~~$6.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~$10.9~~$6.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. Gains on sales of assets are dependent on ~~the~~ levels of disposition activity and the assets’ bases relative to their sales prices. As a result, such gains are not necessarily comparable period-to-period.

Income tax expense ~~decreased $0.2 million~~increased to ~~$0.2~~$0.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020 compared to ~~$0.4~~$0.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The ~~decrease was a result of~~Company recorded a one-time credit of $0.5 million during the six months ended June 30, 2019 to reflect a reduction in the Company’s deferred tax liability of one of its taxable REIT subsidiaries.

Net income increased ~~$12.5~~$9.6 million, or ~~28%~~26%, to ~~$58.0~~$46.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~$45.5~~$37.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The change was the result of the items discussed above.

Liquidity and Capital Resources

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

The Company expects to meet its short-term liquidity requirements through cash provided from operations and borrowings under its ~~revolving credit facility.~~Revolving Credit Facility (as defined in Debt – Senior Unsecured Revolving Credit Facility below). As of ~~September~~June 30, ~~2019,~~2020, available cash and cash equivalents was ~~$10.8~~$36.4 million. As of ~~September~~June 30, ~~2019,~~2020, the Company had ~~$248.0 million~~zero outstanding on its revolving credit facility and ~~$77.0~~$500.0 million was available for future borrowings, subject to its compliance with covenants. The Company anticipates funding its long-term capital needs through cash provided from operations, borrowings under its revolving credit facility, the issuance of debt and common or preferred equity or other instruments convertible into or exchangeable for common or preferred equity.

The Company continually evaluates alternative financing, and believes that the Company can obtain financing on reasonable terms. However, there can be no assurance that additional financing or capital will be available, or that the terms will be acceptable or advantageous to us. Our ability to access capital on favorable terms as well as to use cash from operations to continue to meet our liquidity needs, all of which are highly uncertain and cannot be predicted, could be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic and other

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risks detailed in Part II, Item 1A titled “Risk Factors” and in the other reports the Company has filed with the Securities and Exchange Commission (“SEC’). Additionally, refer to COVID-19 earlier in this Management’s Discussion and Analysis.

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

Capitalization

As of ~~September~~June 30, ~~2019,~~2020, the Company’s total market capitalization was approximately ~~$4.0~~$4.3 billion. Total market capitalization consisted of ~~$3.1~~$3.6 billion of common equity (based on the ~~September~~June 30, ~~2019~~2020 closing price on the NYSE of ~~$73.15~~$65.71 per common share and assuming the conversion of ~~operating partnership units in the~~ Operating Partnership ~~(“OP units”))~~Units and ~~$921.1~~$747.5 million of total debt, including (i) ~~$58.9 million of mortgage notes payable;~~zero borrowings under its revolving credit facility; (ii) $240.0 million of unsecured term loans; (iii) ~~$385.0~~$510.0 million of senior unsecured notes; (iv) ~~$248.0~~$33.9 million of ~~borrowings under its revolving credit facility,~~mortgage notes payable, less (v) cash, cash equivalents and cash held in escrow of ~~$10.8~~$36.4 million. The Company’s ratio of total debt to total market capitalization was ~~23.0%~~18.2% at ~~September~~June 30, ~~2019.~~2020.

At ~~September~~June 30, ~~2019,~~2020, the non-controlling interest in the Operating Partnership represented ownership of ~~0.8%~~0.6% of the Operating Partnership. The OPOperating Partnership Units may, under certain circumstances, be exchanged for shares of common stock on a one-for-one basis. The Company, as sole general partner of the Operating Partnership, has the option to settle exchanged OPOperating Partnership Units held by others for cash based on the current trading price of its shares. Assuming the exchange of all OPOperating Partnership Units, there would have been ~~42,760,446~~54,198,711 shares of common stock outstanding at ~~September~~June 30, ~~2019.~~2020.

Equity

Follow-on Public Offerings

In September 2018, the Company ~~closed~~entered into a follow-on public offering of 3,500,000 shares of common stock in connection with a forward sale agreement (the “September 2018 Forward”). The September 2018 Forward was settled in its entirety in April 2019. Upon settlement, the Company issued 3,500,000 shares of common stock and received net proceeds of $186.0 million, after deducting fees and expenses.

In ~~May~~April 2019, the Company ~~closed~~ entered into a ~~subsequent follow-~~

~~Table~~follow-on public offering (the “April 2019 Forward) to sell an aggregate of ~~Contents~~3,162,500 shares of common stock, which included the full exercise of the underwriters’ option to purchase an additional 412,500 shares of common stock. The April 2019 Forward was settled in its entirety in December 2019. Upon settlement, the Company issued 3,162,500 shares of common stock and received net proceeds of approximately $195.8 million, after deducting fees and expenses.

onIn April 2020, the Company completed a follow-on public offering of ~~3,162,500~~2,875,000 shares of common stock, which included the full exercise of the underwriters’ option to purchase an additional 375,000 shares of common stock. Upon closing the Company issued 2,875,000 shares and received net proceeds of $170.4 million, after deducting fees and expenses.

Also in April 2020, the Company entered into a follow-on public offering (the “April 2020 Forward”) to sell an aggregate of 6,166,666 shares of common stock in connection with a forward sale ~~agreement (the “April 2019 Forward”). Concurrently with entering into~~agreement. As of June 30, 2020, the ~~April 2019 Forward, the Company settled the entirety of the September 2018 Forward and received net proceeds of approximately $186.0 million.~~

Upon the eventual settlement of the April 2019 Forward and the full exercise of the underwriters’ option to purchase additional shares, the offering is anticipated to raise net proceeds of approximately $199.9 million net of underwriting discounts, fees and commissions and will be subject to certain adjustments as provided in the forward sale agreement. The Company has not received proceeds from the sale of shares of its common stock by the forward purchasers. Selling common stock through a forward sale agreement enables the Company to set the price of such shares upon pricing the offering (subject to certain adjustments) while delaying the issuance of such shares and the receipt of the net proceeds by the Company.purchaser. The April ~~2019~~2020 Forward is required to be settled no later than ~~May 1, 2020.~~April 20, 2021.

2019 ATM Program

In July 2019, the Company entered into a $400.0 million at-the-market equity ~~program~~ (“ATM”) program (the “2019 ATM Program”) through which the Company, ~~may,~~ from time to time, sold shares of common stock. During the third quarter of 2019, the Company issued 444,228 shares of common stock under the 2019 ATM Program, at an average price of $74.30, realizing gross proceeds of $33.0 million. In addition to selling shares of common stock, the Company also entered into forward sale agreements through the 2019 ATM Program, as described below.

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During the fourth quarter of 2019, the Company entered into forward sale agreements in connection with the 2019 ATM Program to sell an aggregate of 2,003,118 shares of common stock. Additionally, during the first quarter of 2020, the Company entered into forward sale agreements in connection with the 2019 ATM Program to sell an aggregate of 3,169,754 shares of common stock. During the six months ended June 30, 2020, the Company settled all forward sale agreements under the 2019 ATM Program realizing gross proceeds of $254.3 million.

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

2020 ATM Program

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

During the ~~three~~first quarter of 2020, the Company entered into a forward sale agreement to sell an aggregate of 204,074 shares of common stock. During the six months ended ~~September~~June 30, ~~2019,~~2020, the Company ~~issued 444,228 shares under~~settled this ~~program, at an average price of $74.30,~~forward sale agreement realizing gross proceeds of ~~$33.0~~$12.7 million.

During the second quarter of 2020, the Company entered into forward sale agreements to sell an aggregate of 742,860 shares of common stock. As of June 30, 2020, no shares have been settled under the 2020 ATM Program. The Company is required to settle the outstanding shares under the 2020 ATM Program by various dates between April and June 2021.

After considering the 742,860 shares of common stock subject to forward sale agreements and including prior shares issued under the 2020 ATM Program, the Company had approximately ~~$367.0~~$337.8 million of availability remaining under the 2020 ATM Program as of June 30, 2020.

2018 ATM Program

In May 2018, the Company entered into a $250.0 million ATM program as(“2018 ATM Program”) through which the Company, from time to time, sold shares of September 30, 2019. The Company intends to use the proceeds generated from its ATM Program for general coporate purposes, including funding its investment activity, the repayment or refinancing of outstanding indebtedness, working capitalcommon stock and ~~other general purposes.~~

entered into forward sale agreements. During ~~the year ended December 31, 2018, and~~ the six months ended June 30, 2019, the Company issued ~~3,057,263~~886,768 shares ~~and 886,768~~ of common stock ~~respectively,~~ under ~~a previously authorized $250 million~~the 2018 ATM ~~program, at average prices of $59.28 and $66.83, respectively,~~Program, realizing gross proceeds of approximately ~~$181.2 million~~$59.3 million. The 2018 ATM Program was subsequently terminated, and ~~$59.3 million, respectively. No~~no future issuances will occur under ~~this predecessor~~the 2018 ATM ~~program authorization.~~Program.

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Debt

The below table summarizes the Company’s outstanding debt ~~for the periods ended September~~as of June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	Interest			Principal Amount Outstanding				Interest			Principal Amount Outstanding
Senior Unsecured Revolving Credit Facility	Rate		Maturity	September 30, 2019		December 31, 2018		Rate		Maturity	June 30, 2020		December 31, 2019
Credit Facility ⁽¹⁾	3.02	%	January 2021	$	248,000	$	19,000	0.99	%	January 2024	$	—	$	89,000
Total Credit Facility				$	248,000	$	19,000				$	—	$	89,000

Unsecured Term Loans ⁽²⁾
2019 Term Loan	3.62	%	May 2019	$	—	$	18,543
2023 Term Loan	2.40	%	July 2023		40,000		40,000	2.40	%	July 2023		40,000		40,000
2024 Term Loan Facility	3.09	%	January 2024		65,000		65,000	3.09	%	January 2024		65,000		65,000
2024 Term Loan Facility	3.20	%	January 2024		35,000		35,000	3.20	%	January 2024		35,000		35,000
2026 Term Loan	4.26	%	January 2026		100,000		100,000	4.26	%	January 2026		100,000		100,000
Total Unsecured Term Loans				$	240,000	$	258,543				$	240,000	$	240,000

Senior Unsecured Notes ⁽²⁾
2025 Senior Unsecured Notes	4.16	%	May 2025	$	50,000	$	50,000	4.16	%	May 2025	$	50,000	$	50,000
2027 Senior Unsecured Notes	4.26	%	May 2027		50,000		50,000	4.26	%	May 2027		50,000		50,000
2028 Senior Unsecured Notes	4.42	%	July 2028		60,000		60,000	4.42	%	July 2028		60,000		60,000
2029 Senior Unsecured Notes	4.19	%	September 2029		100,000		100,000	4.19	%	September 2029		100,000		100,000
2030 Senior Unsecured Notes	4.32	%	September 2030		125,000		125,000	4.32	%	September 2030		125,000		125,000
2031 Senior Unsecured Notes								4.42	%	October 2031		125,000		125,000
Total Senior Unsecured Notes				$	385,000	$	385,000				$	510,000	$	510,000

Mortgage Notes Payable ⁽²⁾
Single Asset Mortgage Loan	3.32	%	October 2019		21,500		21,500
Portfolio Mortgage Loan ⁽³⁾	6.90	%	January 2020		—		1,922
Single Asset Mortgage Loan	6.24	%	February 2020		2,800		2,872	6.24	%	February 2020		—		2,775
CMBS Portfolio Loan	3.60	%	January 2023		23,640		23,640	3.60	%	January 2023		23,640		23,640
Single Asset Mortgage Loan	5.01	%	September 2023		4,825		4,959	5.01	%	September 2023		4,686		4,779
Portfolio Credit Tenant Lease	6.27	%	July 2026		6,101		6,626	6.27	%	July 2026		5,552		5,921
Total Mortgage Notes Payable				$	58,867	$	61,519				$	33,878	$	37,115

Total Principal Amount Outstanding				$	931,867	$	724,062				$	783,878	$	876,115

(1)	The annual interest rate of the Revolving Credit Facility (defined below) assumes one-month LIBOR as of ~~September~~June 30, ~~2019~~2020 of ~~2.02%~~0.16%.

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

~~(3)~~

~~Mortgage paid off early in September 2019. Original maturity date of January 2020.~~

~~Upcoming Maturities~~

The $21.5 million Single Asset Mortgage Loan associated with a 2017 asset acquisition matured in October 2019 and was repaid using proceeds from the Company’s revolving credit facility. The remaining $0.6 million Portfolio Mortgage Loan associated with a portfolio of six assets acquired in 2001 was set to mature in January 2020 but was prepaid in September 2019 without penalty. The $2.8 million Single Asset Mortgage Loan associated with a 2009 asset acquisition matures in February 2020. The Company expects to use proceeds from its revolving credit facility to finance this debt maturity.

Senior Unsecured Revolving Credit Facility

In December ~~2016,~~2019, the Company ~~amended~~entered into a Second Amended and ~~restated the credit agreement~~Restated Revolving Credit and Term Loan Agreement (the “Credit Agreement”) ~~that governs its senior~~. The Credit Agreement provides for a $500.0 million unsecured revolving credit facility ~~and its~~(the “Revolving Credit Facility”), a $65.0 million unsecured term loan facility ~~to increase~~(the “$65 Million Term Loan”) and a $35.0 million unsecured term loan facility (the “$35 Million Term Loan,” and together with the ~~aggregate~~$65 Million Term Loan, the “2024 Term Loan Facilities”). The Credit Agreement amended and restated in its entirety the Company’s previous credit agreement dated December 15, 2016.

The Credit Agreement provides $600.0 million unsecured borrowing capacity, composed of the Revolving Credit Facility, which matures on January 15, 2024, as well as the 2024 Term Loan Facilities, which mature on January 15, 2024. Subject to certain terms and conditions set forth in the Credit Agreement, the Company (i) may request additional lender commitments under any or all facilities of up to an additional aggregate of $500.0 million and (ii) may elect, for an additional fee, to extend the maturity date of the Revolving Credit Facility by six months up to two times, for a maximum

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~~to $350.0 million. In July 2018, the Company elected to pursue commitments~~maturity date of January 15, 2025. No amortization payments are required under the ~~accordion option outlined~~Credit Agreement, and interest is payable in ~~its senior unsecured revolving credit facility to increase the revolving commitments by $75.0 million, raising the total revolving commitments~~arrears no less frequently than quarterly.

All borrowings under the amended and restated credit agreement from $250.0 million to $325.0 million. Including the increased commitments, the amended and restated credit agreement provides for a $325.0 million unsecured revolving credit facility, a $65.0 million unsecured term loan facility and a $35.0 million unsecured term loan facility (referenced below as 2024 Term Loan Facilities). The unsecured revolving credit facility matures January 2021 with options to extend the maturity date to January 2022. The 2024 Term Loan Facilities mature 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~~Revolving Credit Facility (except swing line loans) bear interest at a rate per annum equal to, at the option of the Company, (i) LIBOR plus 85a margin that is based upon the Company’s credit rating, or (ii) the Base Rate (which is defined as the greater of the rate of interest as publicly announced from time to ~~155 basis points,~~time by PNC Bank, National Association, as its prime rate, the Federal Funds Open Rate plus 0.50%, or the Daily Eurodollar Rate plus 1.0%) plus a margin that is based upon the Company’s credit rating. The margins for the Revolving Credit Facility range in amount from 0.775% to 1.450% for LIBOR-based loans and 0.00% to 0.45% for Base Rate loans, depending on the Company’s credit rating. ~~Additionally,~~The margins for the Revolving Credit Facility are subject to improvement based on the Company’s leverage ratio, provided its credit rating meets a certain threshold.

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

The Company and Richard Agree, the Executive Chairman of the Company, ~~is required~~are parties to ~~pay~~ a ~~facility fee at~~Reimbursement Agreement dated November 18, 2014 (the “Reimbursement Agreement”). Pursuant to the Reimbursement Agreement, Mr. Agree has agreed to reimburse the Company for any loss incurred under the Revolving Credit Facility in an ~~annual rate of 0~~amount not to ~~55 basis points~~exceed $14.0 million to the extent that the value of the ~~total amount of~~Operating Partnership’s assets available to satisfy the revolving credit facility, depending on its credit rating. 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 September 30, 2019, and December 31, 2018, the Company had $248.0 million and $19.0 million of outstanding borrowingsOperating Partnership’s obligations under the revolving credit facility, respectively, bearing weighted average interest rates of approximately 3.30% and 3.38%, respectively. As of September 30, 2019, $77.0 million was available for borrowing under the revolving credit facility and the Company was in compliance with the credit agreement covenants.Revolving Credit Facility is less than $14.0 million.

Unsecured Term Loan Facilities

The ~~amended and restated credit agreement, described above,~~Credit Agreement extended the maturity dates of the ~~$65.0 million unsecured term loan facility and $35.0 million unsecured term loan facility (together, the “2024~~$65 Million Term Loan ~~Facilities”)~~and the $35 Million Term Loan to January 2024. In connection with entering into the ~~amended and restated credit agreement,~~Credit Agreement, the prior notes evidencing the existing ~~$65.0 million unsecured term loan facility~~$65 Million Term Loan and ~~$35.0 million unsecured term loan facility~~$35 Million Term Loan were canceled and new notes evidencing the 2024 Term Loan Facilities were executed. Borrowings under the unsecured 2024 Term Loan Facilities bear interest at a variable LIBOR plus 85 to 165 basis points, depending on ~~its~~the Company’s credit rating. The Company utilized existing interest rate ~~swaps~~swap agreements to effectively fix the LIBOR at 213 basis points until September 2020 ~~($35 million facility)~~for the $35 Million Term Loan and July 2021 ~~($65 million facility)~~for the $65 Million Term Loan (refer to Note 79 – Derivative Instruments and Hedging ~~Activity)~~Activity). As of ~~September~~June 30, ~~2019,~~2020, $100.0 million was outstanding under the 2024 Term Loan Facilities, bearing an all-in interest rate of 3.13%, including the swaps.

Senior Unsecured Notes

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

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(the “2025 Senior Unsecured Notes”) and $50.0 million of 4.26% notes due May 2027 (the “2027 Senior Unsecured Notes”). ~~The weighted average term of the senior unsecured notes is 11 years and the weighted average interest rate is~~

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4.21%. The senior unsecured notes were sold only to institutional investors and did not involve a public offering in reliance on the exemption from registration in Section 4(a)(2) of the Securities Act.

In July 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 its 4.42% senior unsecured notes due July 2028 (the “2028 Senior Unsecured Notes”). ~~The senior unsecured notes were sold only to institutional investors and did not involve a public offering in reliance on the exemption from registration in Section 4(a)(2) of the Securities Act.~~

In ~~August~~September 2017, the Company and ~~the Operating Partnership entered into a note purchase agreement with institutional purchasers. Pursuant to the note purchase agreement,~~ the Operating Partnership completed a private placement of $100.0 million aggregate principal amount of ~~its~~ 4.19% senior unsecured notes due September 2029 (the “2029 Senior Unsecured Notes”). The closing of the private placement was consummated in September 2017; and, on that date, the Operating Partnership issued the senior unsecured notes. The senior unsecured notes were sold only to institutional investors and did not involve a public offering in reliance on the exemption from registration in Section 4(a)(2) of the Securities Act.

In September 2018, the Company and the Operating Partnership entered into two supplements to uncommitted master note facilities previously entered into with institutional ~~purchasers in August 2017.~~purchasers. Pursuant to the supplements, the Operating Partnership completed a private placement of $125.0 million aggregate principal amount of its 4.32% senior unsecured notes due September 2030 (the “2030 Senior Unsecured Notes”). ~~The senior unsecured notes were sold only to institutional investors and did not involve a public offering in reliance on the exemption from registration in Section 4(a)(2) of the Securities Act.~~

In ~~June~~October 2019, the Company and the Operating Partnership ~~entered into~~closed on a ~~note purchase agreement with institutional investors in connection with the~~ private placement of $125.0 million ~~aggregate principal amount~~ of ~~its~~ 4.47% senior unsecured notes due October 2031 (the “2031 Senior Unsecured Notes”). In October 2019, the Operating Partnership closed on the $125.0 million private placement and issued the 2031 Senior Unsecured Notes. The 2031 Senior Unsecured Notes were sold only to institutional investors and will not involve a public offering in reliance on the exemption from registration in Section 4(a)(2) of the Securities Act.2031. In March 2019, the Company entered into forward-starting interest rate swap agreements to fix the interest for $100.0 million of long-term debt until maturity. The Company terminated the swap agreements at the time of pricing the 2031 Senior Unsecured Notes, which resulted in an effective annual fixed rate of 4.41% for $100.0 million aggregate principal amount of the 2031 Senior Unsecured Notes. Considering the effect of the terminated swap agreements, the blended all-in rate to the Company for the $125.0 million aggregate principal amount of 2031 Senior Unsecured Notes is 4.42%.

Mortgage Notes Payable

As of ~~September~~June 30, ~~2019,~~2020, the Company had total gross mortgage indebtedness of ~~$58.9~~$33.9 million which was collateralized by related real estate and tenants’ leases with ~~a weighted average term to maturity~~an aggregate net book value of ~~2.4 years.~~$43.2 million. Including ~~the Company’s~~ mortgages that have been swapped to a fixed interest rate, ~~its~~the weighted average interest rate on the Company’s mortgage ~~debt~~notes payable was ~~4.02%.~~4.23% as of June 30, 2020 and 4.24% as of December 31, 2019.

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

Loan Covenants

Certain loan agreements contain various restrictive covenants, including the following financial covenants: maximum leverage ratio, maximum secured ~~and secured recourse~~ leverage ratios, ~~minimum tangible net worth and~~ consolidated net worth requirements, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio, a minimum unsecured interest expense ratio, a minimum interest coverage ratio, a minimum unsecured debt yield and a minimum unencumbered interest expense ~~ratio, and a maximum payout~~ ratio. As of ~~September~~June 30, ~~2019,~~2020, the most restrictive covenant was the minimum unencumbered interest expense ratio. The Company was in compliance with all of its loan covenants and obligations as of ~~September~~June 30, ~~2019.~~2020.

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Cash Flows

Operating - Substantially all of the Company’s cash from operations is generated by rental income from its investment portfolio. Net cash provided by operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 increased by ~~$24.3~~$10.2 million over the same period in ~~2018,~~2019, primarily due to the increase in the size of the Company’s real estate investment portfolio as a result of ~~operations.~~operations, partially offset by uncollected or deferred contractual rents as a result of COVID-19.

Investing - Net cash used in investing activities was ~~$237.6~~$164.4 million higher during the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, compared to the same period in ~~2018.~~2019. Acquisitions of properties during the first ~~nine months~~half of ~~2019~~2020 were ~~$216.4~~$183.5 million higher than the same period in ~~2018,~~2019, due to overall increases in the level of acquisition activity. Development costs during the ~~nine~~

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six months ended ~~September~~June 30, ~~2019~~2020 were ~~$3.5~~$3.4 million lower than the same period in ~~2018,~~2019, due to the timing of costs incurred related to the Company’s development activity. Proceeds from asset sales ~~decreased~~increased by ~~$25.5~~$15.8 million during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to the same period in ~~2018.~~2019. Proceeds from asset sales are dependent on levels of disposition activity and the specific assets sold. Proceeds from sales are not necessarily comparable period-to-period.

Financing - Net cash provided by financing activities was ~~$210.6~~$180.0 million higher during the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, compared to the same period in ~~2018.~~2019. Net proceeds from the issuance of common stock and borrowings increased by ~~$117.4~~$297.2 million during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to the same period in ~~2018,~~2019, primarily to fund the increased level of acquisitions occurring in ~~2019.~~2020. In addition, borrowings on the ~~revolving credit facility increased~~Revolving Credit Facility decreased by ~~$229.0~~$124.0 million during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to the same period in ~~2018, to fund increased acquisition investment activity. Finally, net cash provided by the financing of unsecured term loans decreased by $125.0 million~~2019, due to ~~alternate financing sources chosen to fund investment activity, such as the revolving credit facility.~~increased level of equity proceeds in 2020. The Company increased its total dividends and distributions paid to its stockholders and non-controlling owners by ~~$17.1~~$9.3 million during the first ~~nine months~~half of ~~2019~~2020 compared to the same period in ~~2018.~~2019. The Company increased its quarterly dividend in the ~~third~~second quarter of ~~2019~~2020 to an annualized ~~$2.28~~$2.40 per common share, a ~~5.6%~~5.3% increase over the annualized ~~$2.16~~$2.28 per common share declared in the ~~third~~second quarter of ~~2018.~~2019.

Contractual Obligations

The following table summarizes the Company’s contractual obligations as of ~~September~~June 30, ~~2019~~2020 (in thousands):


	Remainder of														Remainder of
	2019		2020		2021		2022		2023		Thereafter		Total		2020		2021		2022		2023		2024		Thereafter		Total
Mortgage Notes Payable	$	21,751	$	3,714	$	998	$	1,060	$	28,726	$	2,618	$	58,867	$	476	$	998	$	1,060	$	28,726	$	963	$	1,655	$	33,878
Revolving Credit Facility		—		—		248,000		—		—		—		248,000		—		—		—		—		—		—		—
Unsecured Term Loans		—		—		—		—		40,000		200,000		240,000		—		—		—		40,000		100,000		100,000		240,000
Senior Unsecured Notes		—		—		—		—		—		385,000		385,000		—		—		—		—		—		510,000		510,000
Land Lease Obligations		267		1,069		1,015		789		789		31,373		35,302		535		1,015		789		789		789		30,583		34,500
Estimated Interest Payments on Outstanding Debt ⁽¹⁾		7,595		34,464		26,530		26,132		24,746		91,934		211,400		15,884		31,720		31,658		30,272		26,374		132,878		268,786
Total	$	29,613	$	39,247	$	276,543	$	27,981	$	94,261	$	710,925	$	1,178,569	$	16,895	$	33,733	$	33,507	$	99,787	$	128,126	$	775,116	$	1,087,164

(1)

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

Dividends

During the quarter ended ~~September~~June 30, ~~2019,~~2020, the Company declared a quarterly dividend of ~~$0.570~~$0.60 per share. The cash dividend was paid on ~~October 11, 2019~~July 10, 2020 to holders of record on ~~September 27, 2019.~~June 26, 2020.

Recent Accounting Pronouncements

Refer to Note 2 ~~to the September 30, 2019 Interim Condensed Consolidated Financial Statements.~~

~~Table~~– Summary of ~~Contents~~Significant Accounting Policies.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States ~~of America~~ (“GAAP”) requires the Company’s management to use judgment in the application of accounting policies, including making estimates and assumptions. Management bases estimates on the best information available at the time, its experience, and on various other assumptions believed to be reasonable under the circumstances. These estimates affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. If management’s judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, it is possible that different accounting principles would have been applied, resulting in a different presentation of the interim

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condensed consolidated financial statements. From time to time, the Company may re-evaluate its estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. A summary of the Company’s critical accounting policies is included in its Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018.~~2019. The Company has not made any material changes to these policies during the periods covered by this ~~quarterly report.~~Quarterly Report on Form 10-Q.

Non-GAAP Financial Measures

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

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

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

Core Funds from Operations (“Core FFO”)

The Company defines Core FFO as Nareit FFO with the addback of noncash amortization of above- and below- market lease intangibles. Under Nareit’s definition of FFO, lease intangibles created upon acquisition of a net lease must be amortized over the remaining term of the lease. The Company believes that by recognizing amortization charges for above- and below-market lease intangibles, the utility of FFO as a financial performance measure can be diminished. Management believes that its measure of Core FFO facilitates useful comparison of performance to its peers who predominantly transact in sale-leaseback transactions and are thereby not required by GAAP to allocate purchase price to lease intangibles. Unlike many of its peers, the Company has acquired the substantial majority of its net leased properties through acquisitions of properties from third parties or in connection with the acquisitions of ground leases from third parties.

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

Adjusted Funds from Operations (“AFFO”)

AFFO is a non-GAAP financial measure of operating performance used by many companies in the REIT industry. AFFO further adjusts FFO and Core FFO for certain non-cash and/or infrequently recurring items that reduce or increase net

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income computed in accordance with GAAP. Management considers AFFO a useful supplemental measure of the Company’s performance, however, AFFO should not be considered an alternative to net income as an indication of its performance, or to cash flow as a measure of liquidity or ability to make distributions. The Company’s computation of AFFO may differ from the methodology for calculating AFFO used by other equity REITs, and therefore may not be comparable to such other REITs.

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Reconciliations

The following table provides a reconciliation from net income to FFO, Core FFO and AFFO for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018		June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
Reconciliation from Net Income to Funds from Operations
Net income	$	20,781	$	15,756	$	58,020	$	45,460	$	25,424	$	18,722	$	46,794	$	37,238
Depreciation of rental real estate assets		8,866		6,156		24,785		17,745		11,316		8,276		21,719		15,920
Amortization of lease intangibles - in-place leases and leasing costs		2,965		1,966		7,618		6,141		4,170		2,496		7,791		4,653
Provision for impairment		—		488		1,609		1,651		1,128		1,193		1,128		1,609
Gain on sale of assets		(2,597)		(3,917)		(8,973)		(10,949)
(Gain) loss on sale of assets										(4,952)		(2,949)		(6,597)		(6,376)
Funds from Operations	$	30,015	$	20,449	$	83,059	$	60,048	$	37,086	$	27,738	$	70,835	$	53,044

Amortization of above (below) market lease intangibles, net		3,381		3,038		9,882		7,794		3,779		3,225		7,588		6,501
Core Funds from Operations	$	33,396	$	23,487	$	92,941	$	67,842	$	40,865	$	30,963	$	78,423	$	59,545

Straight-line accrued rent		(1,975)		(1,138)		(5,165)		(3,344)		(1,681)		(1,692)		(3,319)		(3,190)
Deferred tax expense (benefit)		—		—		(475)		—		—		—		—		(475)
Stock based compensation expense		1,033		850		2,972		2,375		1,224		1,026		2,238		1,939
Amortization of financing costs		176		135		541		433		168		209		336		365
Non-real estate depreciation		66		20		194		63		121		64		230		127
Adjusted Funds from Operations	$	32,696	$	23,354	$	91,008	$	67,369	$	40,697	$	30,570	$	77,908	$	58,311

Funds from Operations Per Share - Diluted	$	0.70	$	0.63	$	2.03	$	1.89	$	0.69	$	0.67	$	1.42	$	1.32
Core Funds from Operations Per Share - Diluted	$	0.78	$	0.72	$	2.27	$	2.13	$	0.76	$	0.75	$	1.58	$	1.49
Adjusted Funds from Operations Per Share - Diluted	$	0.77	$	0.72	$	2.22	$	2.12	$	0.76	$	0.74	$	1.57	$	1.45

Weighted average shares and OP units outstanding
Weighted average shares and Operating Partnership Units outstanding
Basic		42,180,076		32,106,544		40,340,322		31,479,149		53,073,849		40,959,991		49,430,235		39,406,362
Diluted		42,665,661		32,634,971		40,973,060		31,818,870		53,614,359		41,489,278		49,771,165		40,092,956

Additional supplemental disclosure
Scheduled principal repayments	$	543	$	838	$	2,150	$	2,486	$	233	$	745	$	463	$	1,607
Capitalized interest	$	118	$	88	$	321	$	381	$	30	$	113	$	55	$	203
Capitalized building improvements	$	240	$	966	$	1,200	$	1,042	$	1,361	$	926	$	2,276	$	960
Contractual rents subject to deferral ¹									$	1,941			$	1,941
Uncollected contractual rents not subject to deferral ¹									$	3,527			$	3,527

¹Beginning in the second quarter of 2020, the Company began providing supplemental disclosures due to the COVID-19 pandemic. “Contractual rent” for any period means the recurring cash amount charged to tenants, inclusive of monthly base rent and recurring operating cost reimbursements due pursuant to lease agreements, for such period. The Company is accounting for lease concessions related to COVID-19 as increases in its lease receivables as tenant payments accrue and is continuing to recognize rental income.

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ITEM 3.Quantitative and Qualitative Disclosures about Market Risk

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

The Company’s interest rate risk is monitored using a variety of techniques. The table below presents the principal payments and the weighted average interest rates on outstanding debt, by year of expected maturity, to evaluate the expected cash flows and sensitivity to interest rate changes. Average interest rates shown reflect the impact of the swap agreements described later in this section.

($ in thousands)


	2019			2020			2021			2022			2023			Thereafter			Total		2020			2021			2022			2023			2024			Thereafter			Total
Mortgage Notes Payable	$	21,751		$	3,714		$	998		$	1,060		$	28,726		$	2,618		$	58,867	$	476		$	998		$	1,060		$	28,726		$	963		$	1,655		$	33,878
Average Interest Rate		3.35	%		6.18	%		6.02	%		6.02	%		3.89	%		6.27	%				6.02	%		6.02	%		6.02	%		3.89	%		6.27	%		6.27	%

Unsecured Revolving Credit Facility ⁽¹⁾	$	—		$	—		$	248,000		$	—		$	—		$	—		$	248,000	$	—		$	—		$	—		$	—		$	—		$	—		$	—
Average Interest Rate								3.02	%

Unsecured Term Loans	$	—		$	—		$	—		$	—		$	40,000		$	200,000		$	240,000	$	—		$	—		$	—		$	40,000		$	100,000		$	100,000		$	240,000
Average Interest Rate														2.40	%		3.48	%													2.40	%		3.13	%		4.21	%

Senior Unsecured Notes	$	—		$	—		$	—		$	—		$	—		$	385,000		$	385,000	$	—		$	—		$	—		$	—		$	—		$	510,000		$	510,000
Average Interest Rate																	4.27	%																			4.31	%

(1)

The balloon payment balance includes the balance outstanding under the Revolving Credit Facility as of ~~September~~June 30, ~~2019.~~2020. The Revolving Credit Facility matures in January ~~2021,~~2024, with options to extend the maturity date by six months up to two times, for ~~one year at the Company’s election, subject to certain conditions.~~a maximum maturity of January 2025.

The fair value is estimated to be ~~$59.8~~$34.5 million, ~~$242.4~~$240.8 million and ~~$411.3~~$540.0 million for mortgage notes payable, unsecured term loans and senior unsecured notes, respectively, as of ~~September~~June 30, ~~2019.~~2020.

The table above incorporates those exposures that exist as of ~~September~~June 30, ~~2019;~~2020; it does not consider those exposures or positions which could arise after that date. As a result, the Company’s ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period and interest rates.

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

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borrowings to fixed-rate borrowings from October 3, 2013 to September 29, 2020. As of ~~September~~June 30, ~~2019,~~2020, this interest rate swap was valued as a liability of approximately $0.2 million.

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swap ~~agreement,~~agreements, the Company receives from the counterparty interest on the notional amount based on 1 month LIBOR and pays to the counterparty a fixed rate of 2.09%. These swaps effectively converted $65.0 million of variable-rate borrowings to fixed-rate borrowings from July 21, 2014 to July 21, 2021. As of ~~September~~June 30, ~~2019,~~2020, these interest rate swaps were valued as a liability of approximately ~~$0.7~~$1.3 million.

In September 2017, 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 ~~September~~June 30, ~~2019,~~2020, this interest rate swap was valued as a liability of approximately ~~$0.0~~$1.5 million.

In December 2018, the Company entered into interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates on $100.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreements, the Company receives from the counterparty interest on the notional amount based on 1 month LIBOR and pays to the counterparty a fixed rate of 2.66%. These swaps effectively converts $100.0 million of variable-rate borrowings to fixed-rate borrowings from December 27, 2018 to January 15, 2026. As of ~~September~~June 30, ~~2019,~~2020, these interest rate swaps were valued as a liability of approximately ~~$7.6~~$12.9 million.

In March 2019, the Company entered into forward-starting interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates on $100.0 million of forecasted issuances of long-term debt. Under the terms of the interest rate swap agreements, the Company would receive from the counterparties interest on the notional amount based on three month LIBOR and will pay to the counterparties a fixed rate of 2.51%, effective beginning October 1, 2019. In May, the Company terminated the swap agreements at the time of pricing the future debt issuance, receiving $0.8 million upon termination.

In June 2019, the Company entered into forward-starting interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates from the trade date through the forecasted issuance date of $100 million of long-term debt. The Company is hedging its exposure to the variability in future cash flows for a forecasted issuance of long-term debt over a maximum period ending March 2021. As of ~~September~~June 30, ~~2019,~~2020, these interest rate swaps were valued as a liability of approximately ~~$5.5~~$16.0 million.

The Company does not use derivative instruments for trading or other speculative purposes and the Company did not have any other derivative instruments or hedging activities as of ~~September~~June 30, ~~2019.~~2020.

~~In July 2017,~~Refer to the ~~Financial Conduct Authority (the authority that regulates LIBOR) announced it intends~~section “Risks Related to ~~stop compelling banks to submit rates~~Our Debt Financings” under Item 1A “Risk Factors” in our Annual Report on Form 10-K for the ~~calculation~~year ended December 31, 2019 for discussion of ~~LIBOR after 2021. The Alternative Reference Rates Committee, or ARRC, has proposed that~~ the Secured Overnight Financing Rate, or SOFR, is the rate that represents best practice as the alternative to LIBOR for use in derivatives and other financial contracts that are currently indexed to LIBOR. The ARRC has proposed a paced marketfuture transition ~~plan to SOFR~~ from LIBOR and ~~organizations are currently working~~the possible impact it may have on ~~industry wide~~the Company’s debt, swap agreements, and company specific transition plans as it relates to derivatives and cash markets exposed to LIBOR. At September 30, 2019, the Company does have contracts that are indexed to LIBOR, including its unsecured revolving credit facility, and continues to monitor this activity and evaluate the related risks.interest payments.

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ITEM 4. Controls and Procedures

Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

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

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PART II OTHER INFORMATION

ITEM 1. Legal Proceedings

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

ITEM 1A. Risk Factors

For a discussion of our potential risks and uncertainties, see the information below and under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

WeThe current pandemic of the novel coronavirus, or COVID-19, and the future outbreak of other highly infectious or contagious diseases, could materially and adversely impact or disrupt our financial condition, results of operations, cash flows and performance.

The COVID-19 pandemic has had, and another pandemic in the future could have, repercussions across regional and global economies and financial markets. The outbreak of COVID-19 in many countries, including the United States, has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak continues to rapidly evolve and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel.

Many states and cities, including where we own properties, have development sites and where our principal place of business is located, have also reacted by instituting quarantines, social distancing requirements, restrictions on travel, “shelter in place” rules, restrictions on types of business that may continue to operate, and/or restrictions on the types of construction projects that may continue. Although many of these jurisdictions have lifted some of these restrictions, the Company cannot predict whether and to what extent the restrictions will be ~~adversely affected by changes~~reinstated, whether additional states and cities will implement similar restrictions or when restrictions currently in ~~LIBOR reporting practices~~place will expire. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or ~~the method~~indirectly, including industries in which ~~LIBOR is determined.~~the Company and our tenants operate. A number of our tenants have announced temporary closures of their stores and requested rent deferral or rent abatement during this pandemic.

In ~~July 2017,~~addition, in response to an executive order issued by the ~~Financial Conduct Authority,~~Governor of Michigan, our employees based at our headquarters have been working remotely to varying extents. The effects of restrictions on our operations, including future restrictions and extended periods of remote work arrangements, could strain our business continuity plans, introduce operational risk, including but not limited to cybersecurity risks, and impair our ability to manage our business. The COVID-19 pandemic, or a future pandemic, could also have material and adverse effects on our ability to successfully operate and on our financial condition, results of operations and cash flows due to, among other factors:

●

a complete or partial closure of, or other operational issues at, one or more of our properties resulting from government or tenant action;

●

the reduced economic activity severely impacts our tenants' businesses, financial condition and liquidity and may cause one or more of our tenants to be unable to meet their obligations to us in full, or at all, or to otherwise seek modifications of such obligations;

●

the reduced economic activity could result in a prolonged recession, which could negatively impact consumer discretionary spending;

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●

difficulty accessing debt and equity capital on attractive terms, or at all, impacts to our credit ratings, and a prolonged severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our access to capital necessary to fund business operations or address maturing liabilities on a timely basis and our tenants' ability to fund their business operations and meet their obligations to us;

●

the financial impact of the COVID-19 pandemic could negatively impact our future compliance with financial covenants of our Revolving Credit Facility and other debt agreements and result in a default and potentially an acceleration of indebtedness, which non-compliance could negatively impact our ability to make additional borrowings under our Revolving Credit Facility and pay dividends;

●

any impairment in value of our tangible or intangible assets which could be recorded as a result of a weaker economic conditions;

●

a continued decline in business activity and demand for real estate transactions could adversely affect our ability or desire to grow our portfolio of properties;

●

a deterioration in our or our tenants' ability to operate in affected areas or delays in the supply of products or services to us or our tenants from vendors that are needed for our or our tenants' efficient operations could adversely affect our operations and those of our tenants; and

●

the potential negative impact on the health of our personnel, particularly if a significant number of them are impacted, could result in a deterioration in our ability to ensure business continuity during this disruption.

The extent to which the ~~authority that regulates LIBOR, announced it intends~~COVID-19 pandemic impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to ~~stop compelling banks~~contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Additional closures by our tenants of their stores, tenant bankruptcies, tenant lease defaults, and early terminations by our tenants of their leases could reduce our cash flows, which could impact our ability to ~~submit rates~~continue paying dividends to our stockholders at expected levels or at all.

The rapid development and fluidity of this situation precludes any prediction as to the full adverse impact of the COVID-19 pandemic. Nevertheless, the COVID-19 pandemic presents material uncertainty and risk with respect to our financial condition, results of operations, cash flows and performance. Moreover, many risk factors set forth in the 2019 Annual Report on Form 10-K for the ~~calculation~~year ended December 31, 2019 should be interpreted as heightened risks as a result of ~~LIBOR after 2021. The ARRC has proposed that~~ the ~~SOFR is~~impact of the rate that represents best practice as the alternative to LIBOR for use in derivatives and other financial contracts that are currently indexed to LIBOR. The ARRC has proposed a paced market transition plan to SOFR from LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to LIBOR. There is no guarantee that a transition from LIBOR to an alternative will not result in financial market disruptions, significant increases in benchmark rates, or financing costs to borrowers. We have material contracts that are indexed to LIBOR, and we are monitoring this activity and evaluating the related risks.COVID-19 pandemic.

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

None.

ITEM 3. Defaults upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

Not applicable.

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ITEM 6. EXHIBITS



10.1+	Agree Realty Corporation 2020 Omnibus Incentive Plan, incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on March 23, 2020

10.2*+	Form of Restricted Stock Agreement under the Agree Realty Corporation 2020 Omnibus Incentive Plan

10.3*+	Form of Performance Unit Agreement under the Agree Realty Corporation 2020 Omnibus Incentive Plan

*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, Clayton R. Thelen, 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, Clayton R. Thelen, Chief Financial Officer

*101	The following materials from Agree Realty Corporation’s Quarterly Report on Form 10-Q for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 formatted in Inline iXBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income and Comprehensive Income, (iii) the Consolidated Statement of Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and (v) related notes to these consolidated financial statements.

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

* Filed herewith.

+ Management contract or compensatory plan or arrangement.

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SIGNATURES

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

Agree Realty Corporation

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

/s/ CLAYTON R. THELEN
Clayton R. Thelen
Chief Financial Officer and Secretary
(Principal Financial Officer)

Date: ~~October 21, 2019~~July 20, 2020

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