UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Mark One
| x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2012, 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 of Incorporation or | (I.R.S. Employer Identification No.) | |
| Organization |
31850 Northwestern Highway, Farmington Hills, Michigan 48334
(Address of Principal Executive Offices)
Registrant’s telephone number, including area code: (248) 737-4190
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 S | No ¨ |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
| Yes S | No ¨ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
Large Accelerated Filer |
Accelerated Filer |
Non-accelerated Filer o |
Smaller reporting |
| (Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| Yes o | No S |
As of October 31, 2012, the Registrant had 11,436,044 shares of common stock, $0.0001 par value, outstanding.
AGREE REALTY CORPORATION
Index to Form 10-Q
| Page | ||
| PART I | Financial Information | |
| Item 1: | Interim Consolidated Financial Statements | |
| Consolidated Balance Sheets as of September 30, 2012 (Unaudited) and December 31, 2011 | 1-2 | |
| Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, 2012 and 2011 | 3 | |
| Consolidated Statement of Stockholders’ Equity (Unaudited) for the nine months ended September 30, 2012 | 4 | |
| Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2012 and 2011 | 5 | |
| Notes to Consolidated Financial Statements (Unaudited) | 6-13 | |
| Item 2: | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14-22 |
| Item 3: | Quantitative and Qualitative Disclosures About Market Risk | 22-23 |
| Item 4: | Controls and Procedures | 23 |
| PART II | ||
| Item 1: | Legal Proceedings | 23 |
| Item 1A: | Risk Factors | 24 |
| Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | 24 |
| Item 3: | Defaults Upon Senior Securities | 24 |
| Item 4: | Mine Safety Disclosures | 24 |
| Item 5: | Other Information | 24 |
| Item 6: | Exhibits | 24 |
| SIGNATURES | 25 |
AGREE REALTY CORPORATION
CONSOLIDATED BALANCE SHEETS
| September 30, 2012 (Unaudited) | December 31, 2011 | |||||||
| ASSETS | ||||||||
| Real Estate Investments | ||||||||
| Land | $ | 124,703,711 | $ | 108,672,713 | ||||
| Buildings | 220,083,063 | 229,821,183 | ||||||
| Less accumulated depreciation | (57,404,370 | ) | (68,589,778 | ) | ||||
| 287,382,404 | 269,904,118 | |||||||
| Property under development | 13,595,621 | 1,580,015 | ||||||
| Net Real Estate Investments | 300,978,025 | 271,484,133 | ||||||
| Cash and Cash Equivalents | 542,986 | 2,002,663 | ||||||
| Restricted Cash | 3,280,616 | - | ||||||
| Accounts Receivable - Tenants, net of allowance of $35,000 for possible losses at September 30, 2012 and December 31, 2011 | 1,393,745 | 801,681 | ||||||
| Unamortized Deferred Expenses | ||||||||
| Financing costs, net of accumulated amortization of $6,107,125 and $5,707,043 at September 30, 2012 and December 31, 2011, respectively | 1,553,735 | 1,804,249 | ||||||
| Leasing costs, net of accumulated amortization of $1,283,987 and $1,205,985 at September 30, 2012 and December 31, 2011, respectively | 674,207 | 737,968 | ||||||
| Lease intangibles, net of accumulated amortization of $1,390,275 and $569,737 at September 30, 2012 and December 31, 2011, respectively | 21,825,887 | 16,150,299 | ||||||
| Other Assets | 2,428,969 | 962,965 | ||||||
| Total Assets | $ | 332,678,170 | $ | 293,943,958 | ||||
See accompanying notes to consolidated financial statements.
| 1 |
AGREE REALTY CORPORATION
CONSOLIDATED BALANCE SHEETS
| September 30, 2012 (Unaudited) | December 31, 2011 | |||||||
| LIABILITIES | ||||||||
| Mortgages Payable | $ | 69,572,236 | $ | 62,854,057 | ||||
| Notes Payable | 54,840,000 | 56,443,898 | ||||||
| Dividends and Distributions Payable | 4,711,946 | 4,070,690 | ||||||
| Deferred Revenue | 2,046,628 | 2,394,163 | ||||||
| Accrued Interest Payable | 491,926 | 734,195 | ||||||
| Accounts Payable and Accrued Expense | ||||||||
| Capital expenditures | 3,955 | 424,321 | ||||||
| Operating | 1,393,365 | 3,379,618 | ||||||
| Interest Rate Swap | 1,333,615 | 629,460 | ||||||
| Deferred Income Taxes | 705,000 | 705,000 | ||||||
| Tenant Deposits | 64,461 | 84,275 | ||||||
| Total Liabilities | 135,163,132 | 131,719,677 | ||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Common stock, $.0001 par value, 15,850,000 and 13,350,000 shares authorized, 11,436,044 and 9,851,914 shares issued and outstanding, respectively | 1,144 | 985 | ||||||
| Excess stock, $.0001 par value, 4,000,000 and 6,500,000 shares authorized, 0 shares issued and outstanding, respectively | - | - | ||||||
| Series A junior participating preferred stock, $.0001 par value, 150,000 shares authorized, 0 shares issued and outstanding | - | - | ||||||
| Additional paid-in-capital | 217,347,709 | 181,069,633 | ||||||
| Deficit | (21,198,792 | ) | (20,918,494 | ) | ||||
| Accumulated other comprehensive income (loss) | (1,290,014 | ) | (606,568 | ) | ||||
| Total Stockholders' Equity - Agree Realty Corporation | 194,860,047 | 159,545,556 | ||||||
| Non-controlling interest | 2,654,991 | 2,678,725 | ||||||
| Total Stockholders' Equity | $ | 197,515,038 | $ | 162,224,281 | ||||
| $ | 332,678,170 | $ | 293,943,958 | |||||
See accompanying notes to consolidated financial statements.
| 2 |
AGREE REALTY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2012 | September 30, 2011 | September 30, 2012 | September 30, 2011 | |||||||||||||
| REVENUES | ||||||||||||||||
| Minimum rents | $ | 8,722,275 | $ | 7,128,637 | $ | 24,697,681 | $ | 21,204,854 | ||||||||
| Percentage rents | - | 564 | 22,725 | 21,972 | ||||||||||||
| Operating cost reimbursement | 542,271 | 569,547 | 1,691,199 | 1,690,686 | ||||||||||||
| Development fee income | - | - | - | 894,693 | ||||||||||||
| Other income | 14,889 | 28,132 | 59,991 | 111,682 | ||||||||||||
| Total Revenues | 9,279,435 | 7,726,880 | 26,471,596 | 23,923,887 | ||||||||||||
| Operating Expenses | ||||||||||||||||
| Real estate taxes | 395,033 | 478,464 | 1,363,513 | 1,429,658 | ||||||||||||
| Property operating expenses | 253,879 | 305,094 | 810,584 | 909,685 | ||||||||||||
| Land lease payments | 106,075 | 181,075 | 468,225 | 540,225 | ||||||||||||
| General and administrative | 1,317,094 | 1,089,596 | 4,153,269 | 4,052,516 | ||||||||||||
| Depreciation and amortization | 1,659,450 | 1,552,625 | 4,844,729 | 4,098,692 | ||||||||||||
| Impairment charge | - | 600,000 | - | 600,000 | ||||||||||||
| Total Operating Expenses | 3,731,531 | 4,206,854 | 11,640,320 | 11,630,776 | ||||||||||||
| Income from Operations | 5,547,904 | 3,520,026 | 14,831,276 | 12,293,111 | ||||||||||||
| Other Income (Expense) | ||||||||||||||||
| Interest expense, net | (1,344,245 | ) | (970,046 | ) | (3,625,943 | ) | (2,884,960 | ) | ||||||||
| Gain on extinguishment of debt | - | 2,360,231 | - | 2,360,231 | ||||||||||||
| Income Before Discontinued Operations | 4,203,659 | 4,910,211 | 11,205,333 | 11,768,382 | ||||||||||||
| Gain (Loss) on sale of assets from discontinued operations | (320,718 | ) | - | 1,746,750 | - | |||||||||||
| Income (Loss) from discontinued operations | 142,091 | (6,765,556 | ) | 904,776 | (5,100,333 | ) | ||||||||||
| Net Income (Loss) | 4,025,032 | (1,855,345 | ) | 13,856,859 | 6,668,049 | |||||||||||
| Less Net Income (Loss) Attributable to Non-Controlling Interest | 118,321 | (61,823 | ) | 414,116 | 228,630 | |||||||||||
| Net Income (Loss) Attributable to Agree Realty Corporation | $ | 3,906,711 | $ | (1,793,522 | ) | $ | 13,442,743 | $ | 6,439,419 | |||||||
| Other comprehensive (income) loss, net of ($5,222), $739, ($20,709) and $1,160 attributable to non-controlling interest, respectively | (171,788 | ) | 20,932 | (683,446 | ) | 32,851 | ||||||||||
| Total Comprehensive Income (Loss) Attributable to Agree Realty Corporation | $ | 3,734,923 | $ | (1,772,590 | ) | $ | 12,759,297 | $ | 6,472,270 | |||||||
| Basic Earnings (Loss) Per Share | ||||||||||||||||
| Continuing operations | $ | 0.37 | $ | 0.49 | $ | 0.99 | $ | 1.18 | ||||||||
| Discontinued operations | (0.02 | ) | (0.68 | ) | 0.23 | (0.51 | ) | |||||||||
| $ | 0.35 | $ | (0.19 | ) | $ | 1.22 | $ | 0.67 | ||||||||
| Diluted Earnings (Loss) Per Share | ||||||||||||||||
| Continuing operations | $ | 0.37 | $ | 0.49 | $ | 0.98 | $ | 1.18 | ||||||||
| Discontinued operations | (0.02 | ) | (0.68 | ) | 0.23 | (0.51 | ) | |||||||||
| $ | 0.35 | $ | (0.19 | ) | $ | 1.21 | $ | 0.67 | ||||||||
| Dividends Declared Per Share | $ | 0.40 | $ | 0.40 | $ | 1.20 | $ | 1.20 | ||||||||
| Weighted Average Number of Common Shares: Outstanding - Basic | 11,185,864 | 9,635,835 | 11,032,857 | 9,632,744 | ||||||||||||
| Weighted Average Number of Common Shares: Outstanding - Dilutive | 11,238,930 | 9,666,791 | 11,082,730 | 9,669,349 | ||||||||||||
See accompanying notes to consolidated financial statements.
| 3 |
AGREE REALTY CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited)
| Accumulated | ||||||||||||||||||||||||
| Non- | Other | |||||||||||||||||||||||
| Common Stock | Additional | Controlling | Comprehensive | |||||||||||||||||||||
| Shares | Amount | Paid-In Capital | Interest | Deficit | Income (Loss) | |||||||||||||||||||
| Balance, December 31, 2011 | 9,851,914 | $ | 985 | $ | 181,069,633 | $ | 2,678,725 | $ | (20,918,494 | ) | $ | (606,568 | ) | |||||||||||
| Issuance of common stock, net of issuance costs | 1,495,000 | 150 | 35,042,076 | - | - | - | ||||||||||||||||||
| Issuance of restricted stock under the Equity Incentive Plan | 94,850 | 9 | - | - | - | - | ||||||||||||||||||
| Forfeiture of restricted stock | (5,720 | ) | ||||||||||||||||||||||
| Vesting of restricted stock | - | - | 1,236,000 | - | - | - | ||||||||||||||||||
| Dividends and distributions declared for the period January 1, 2012 to September 30, 2012 | - | - | - | (417,141 | ) | (13,723,041 | ) | - | ||||||||||||||||
| Other comprehensive income (loss) - change in fair value of interest rate swap | - | - | - | (20,709 | ) | - | (683,446 | ) | ||||||||||||||||
| Net income for the period January 1, 2012 to September 30, 2012 | - | - | - | 414,116 | 13,442,743 | - | ||||||||||||||||||
| Balance, September 30, 2012 | 11,436,044 | $ | 1,144 | $ | 217,347,709 | $ | 2,654,991 | $ | (21,198,792 | ) | $ | (1,290,014 | ) | |||||||||||
See accompanying notes to consolidated financial statements.
| 4 |
AGREE REALTY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended September 30, 2012 | Nine Months Ended September 30, 2011 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net income | $ | 13,856,859 | $ | 6,668,049 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities | ||||||||
| Depreciation | 4,323,297 | 4,538,498 | ||||||
| Amortization | 1,313,904 | 811,292 | ||||||
| Stock-based compensation | 1,236,000 | 1,041,762 | ||||||
| Impairment charge | - | 13,500,000 | ||||||
| Gain on extinguishment of debt | - | (2,360,231 | ) | |||||
| Gain on sale of assets | (1,746,750 | ) | - | |||||
| (Increase) decrease in accounts receivable | (592,064 | ) | (1,339,377 | ) | ||||
| (Increase) decrease in other assets | (1,463,254 | ) | 81,064 | |||||
| (Decrease) increase in accounts payable | (1,978,649 | ) | 205,451 | |||||
| Decrease in deferred revenue | (347,535 | ) | (6,835,746 | ) | ||||
| Increase (decrease) in accrued interest | (242,269 | ) | 253,275 | |||||
| Increase (decrease) in tenant deposits | (19,814 | ) | 12,832 | |||||
| Net Cash Provided by Operating Activities | 14,339,725 | 16,576,869 | ||||||
| Cash Flows from Investing Activities | ||||||||
| Acquisition of real estate investments | (44,849,100 | ) | (20,525,240 | ) | ||||
| Payment of leasing costs | (14,241 | ) | (150,597 | ) | ||||
| Net proceeds from sale of assets | 15,330,481 | 6,522,821 | ||||||
| Increase in restricted cash | (3,280,616 | ) | - | |||||
| Net Cash Used In Investing Activities | (32,813,476 | ) | (14,153,016 | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from common stock offering | 35,042,235 | - | ||||||
| Line-of-credit borrowings | 59,062,100 | 45,107,904 | ||||||
| Line-of-credit repayments | (60,665,998 | ) | (30,103,254 | ) | ||||
| Payments of mortgages payable | (2,328,560 | ) | (3,459,816 | ) | ||||
| Dividends and limited partners' distributions paid | (13,506,531 | ) | (13,318,319 | ) | ||||
| Repayments of payables for capital expenditures | (424,321 | ) | (286,078 | ) | ||||
| Payments for financing costs | (164,851 | ) | (70,784 | ) | ||||
| Net Cash Provided by (Used In) Financing Activities | 17,014,074 | (2,130,347 | ) | |||||
| Net Increase (Decrease) in Cash and Cash Equivalents | (1,459,677 | ) | 293,506 | |||||
| Cash and Cash Equivalents, beginning of period | 2,002,663 | 593,281 | ||||||
| Cash and Cash Equivalents, end of period | $ | 542,986 | $ | 886,787 | ||||
| Supplemental Disclosure of Cash Flow Information | ||||||||
| Cash paid for interest (net of amounts capitalized) | $ | 3,412,222 | $ | 3,447,396 | ||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities | ||||||||
| Shares issued under Stock Incentive Plan | $ | 2,175,831 | $ | 2,312,056 | ||||
| Dividends and limited partners' distributions declared and unpaid | $ | 4,711,946 | $ | 4,068,677 | ||||
| Real estate investments financed with accounts payable | $ | 35,045 | $ | 54,321 | ||||
| Forgiveness of mortgage debt | $ | 9,173,789 | $ | - | ||||
| Real estate acquisitions financed with debt assumption | $ | 18,220,528 | $ | - | ||||
See accompanying notes to consolidated financial statements.
| 5 |
AGREE REALTY CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
| 1. | Basis of Presentation |
The accompanying unaudited consolidated financial statements of Agree Realty Corporation (the “Company”) for the nine months ended September 30, 2012 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for audited financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The consolidated balance sheet at December 31, 2011 has been derived from the audited consolidated financial statements at that date. Operating results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012 or for any other interim period. The results of operations of properties that have either been disposed of or are classified as held for sale are reported as discontinued operations. As a result of these discontinued operations, certain of the 2011 balances have been reclassified to conform to the 2012 presentation. For further information, refer to the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
| 2. | Restricted Cash |
Pursuant to an agreement with an unrelated third party, cash held in escrow is for the acquisition of real estate.
| 3. | Stock Based Compensation |
The Company estimates the fair value of restricted stock and stock option grants at the date of grant and amortizes those amounts into expense on a straight line basis or amount vested, if greater, over the appropriate vesting period.
As of September 30, 2012, there was $4,473,000 of unrecognized compensation costs related to the outstanding shares of restricted stock, which is expected to be recognized over a weighted average period of 3.36 years. The Company used a 0% discount factor and forfeiture rate for determining the fair value of restricted stock. The forfeiture rate was based on historical results and trends.
The holder of a restricted stock award is generally entitled at all times on and after the date of issuance of the restricted stock 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.
| Shares Outstanding | Weighted Average Grant Date Fair Value | |||||||
| Unvested restricted stock at January 1, 2012 | 216,920 | $ | 21.74 | |||||
| Restricted stock granted | 94,850 | 24.40 | ||||||
| Restricted stock vested | (55,870 | ) | 21.87 | |||||
| Restricted stock forfeited | (5,720 | ) | 24.32 | |||||
| Unvested restricted stock at September 30, 2012 | 250,180 | $ | 22.66 | |||||
| 6 |
AGREE REALTY CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
| 4. | Earnings Per Share |
Earnings per share has been computed by dividing the net income attributable to Agree Realty Corporation by the weighted average number of common shares outstanding.
The following is a reconciliation of the denominator of the basic net earnings per common share computation to the denominator of the diluted net earnings per common share computation for each of the periods presented:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Weighted average number of common shares outstanding | 11,436,044 | 9,858,175 | 11,283,037 | 9,855,084 | ||||||||||||
| Unvested restricted stock | (250,180 | ) | (222,340 | ) | (250,180 | ) | (222,340 | ) | ||||||||
| Weighted average number of common shares outstanding used in basic earnings per share | 11,185,864 | 9,635,835 | 11,032,857 | 9,632,744 | ||||||||||||
| Weighted average number of common shares outstanding used in basic earnings per share | 11,185,864 | 9,635,835 | 11,032,857 | 9,632,744 | ||||||||||||
| Effect of dilutive securities: | ||||||||||||||||
| Restricted stock | 53,066 | 30,956 | 49,873 | 36,605 | ||||||||||||
| Weighted average number of common shares outstanding used in diluted earnings per share | 11,238,930 | 9,666,791 | 11,082,730 | 9,669,349 | ||||||||||||
| 5. | Recent Accounting Pronouncements |
As of September 30, 2012, the impact of recent accounting pronouncements is not considered to be material.
| 6. | Derivative Instruments and Hedging Activity |
On January 2, 2009, the Company entered into an interest rate swap agreement for a notional amount of $24,501,280, effective on January 2, 2009 and ending on July 1, 2013. The notional amount decreases over the term to match the outstanding balance of the hedged borrowing. The Company entered into this derivative instrument to hedge against the risk of changes in future cash flows related to changes in interest rates on $24,501,280 of the total variable-rate borrowings outstanding. Under the terms of the interest rate swap agreement, the Company will receive from the counterparty interest on the notional amount based on 1.5% plus one-month LIBOR and will pay to the counterparty a fixed rate of 3.744%. This swap effectively converted $24,501,280 of variable-rate borrowings to fixed-rate borrowings beginning on January 2, 2009 and through July 1, 2013.
On April 24, 2012, the Company entered into a forward starting interest rate swap agreement, for the same variable rate loan, as extended, for a notional amount of $22,268,358, effective on July 1, 2013 and ending on May 1, 2019. The notional amount decreases over the term to match the outstanding balance of the hedged borrowing. The Company entered into this derivative instrument to hedge against the risk of changes in future cash flows related to changes in interest rates on $22,268,358 of the total variable rate borrowings outstanding. Under the terms of the interest rate swap agreement, the Company will receive from the counterparty interest on the notional amount based on one-month LIBOR and will pay to the counterparty a fixed rate of 1.92%. This swap effectively converted $22,268,358 of variable-rate borrowings to fixed-rate borrowings beginning on July 1, 2013 and through May 1, 2019.
| 7 |
AGREE REALTY CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
Companies are required to recognize all derivative instruments as either assets or liabilities at fair value on the balance sheet. The Company has designated these derivative instruments as cash flow hedges. As such, changes in the fair value of the derivative instrument are recorded as a component of other comprehensive income (loss) (“OCI”) for the nine months ended September 30, 2012 to the extent of effectiveness. The ineffective portion of the change in fair value of the derivative instrument is recognized in interest expense. For the nine months ended September 30, 2012, the Company has determined these derivative instruments to be effective hedges.
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 September 30, 2012.
| 7. | Fair Value Measurements |
Certain of the Company’s assets and liabilities are disclosed at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation methods including market, income and cost approaches. The assumptions used in the application of these valuation methods are developed from the perspective of market participants pricing the asset or liability. Inputs used in the valuation methods can be either readily observable, market corroborated, or generally unobservable inputs. Whenever possible the Company attempts to utilize valuation methods that maximize the use of observable inputs and minimizes the use of unobservable inputs. Based on the operability of the inputs used in the valuation methods, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Assets and liabilities measured, reported and/or disclosed at fair value will be classified and disclosed in one of the following three categories:
Level 1 – Quoted market prices in active markets for identical assets or liabilities.
Level 2 – Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3 – Unobservable inputs that are not corroborated by market data.
The table below sets forth the Company’s fair value hierarchy for liabilities measured or disclosed at fair value as of September 30, 2012.
| Liability: | Level 1 | Level 2 | Level 3 | Carrying Value | ||||||||||||
| Interest rate swaps | $ | - | $ | 1,333,615 | $ | - | $ | 1,333,615 | ||||||||
| Fixed rate mortgage | $ | - | $ | - | $ | 46,762,702 | $ | 46,828,508 | ||||||||
| Variable rate mortgage | $ | - | $ | - | $ | 21,778,101 | $ | 22,743,728 | ||||||||
| Variable rate debt | $ | - | $ | 54,840,000 | $ | - | $ | 54,840,000 | ||||||||
The carrying amounts of the Company’s short-term financial instruments, which consist of cash, cash equivalents, receivables, and accounts payable, approximate their fair values. The fair value of the interest rate swaps were derived using estimates to settle the interest rate swap agreements, which is based on the net present value of expected future cash flows on each leg of the swaps utilizing market-based inputs and discount rates reflecting the risks involved. The fair value of fixed and variable rate mortgages was derived using the present value of future mortgage payments based on estimated current market interest rates. The fair value of variable rate debt is estimated to be equal to the face value of the debt because the interest rates are floating and is considered to approximate fair value.
| 8 |
AGREE REALTY CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
| 8. | Total Comprehensive Income (Loss) |
The following is a reconciliation of net income to comprehensive income attributable to Agree Realty Corporation for the three and nine months ended September 30, 2012 and 2011.
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2012 | September 30, 2011 | September 30, 2012 | September 30, 2011 | |||||||||||||
| Net income | $ | 4,025,032 | $ | (1,855,345 | ) | $ | 13,856,859 | $ | 6,668,049 | |||||||
| Other comprehensive income (loss) | (177,010 | ) | 21,671 | (704,155 | ) | 34,011 | ||||||||||
| Total comprehensive income before non-controlling interest | 3,848,022 | (1,833,674 | ) | 13,152,704 | 6,702,060 | |||||||||||
| Less: non-controlling interest | 118,321 | (61,823 | ) | 414,116 | 228,630 | |||||||||||
| Total comprehensive income after non-controlling interest | 3,729,701 | (1,771,851 | ) | 12,738,588 | 6,473,430 | |||||||||||
| Non-controlling interest of comprehensive income (loss) | 5,222 | (739 | ) | 20,709 | (1,160 | ) | ||||||||||
| Comprehensive income attributable to Agree Realty Corporation | $ | 3,734,923 | $ | (1,772,590 | ) | $ | 12,759,297 | $ | 6,472,270 | |||||||
| 9. | Notes Payable |
Agree Limited Partnership (the “Operating Partnership”) has in place an $85,000,000 unsecured revolving credit facility (“Credit Facility”), which is guaranteed by the Company. Subject to customary conditions, at the Company’s option, total commitments under the Credit Facility may be increased up to an aggregate of $135,000,000. The Company intends to use borrowings under the Credit Facility for general corporate purposes, including working capital, development and acquisition activities, capital expenditures, repayment of indebtedness or other corporate activities. The Credit Facility matures on October 26, 2014, and may be extended, at the Company’s election, for two-one year terms to October 2016, subject to certain conditions. Borrowings under the Credit Facility bear interest at LIBOR plus a spread of 175 to 260 basis points depending on the Company’s leverage ratio. As of September 30, 2012, $54,840,000 was outstanding under the Credit Facility bearing a weighted average interest rate of 2.18%, and $30,160,000 was available for borrowing (subject to customary conditions to borrowing).
The Credit Facility contains customary covenants, including, among others, financial covenants regarding debt levels, total liabilities, tangible net worth, fixed charge coverage, unencumbered borrowing base properties, and permitted investments. The Company was in compliance with the covenant terms at September 30, 2012.
| 9 |
AGREE REALTY CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
| 10. | Mortgages Payable |
Mortgages payable consisted of the following:
| September 30, 2012 | December 31, 2011 | |||||||
| Note payable in monthly installments of $44,550 plus interest at 170 and 150 basis points over LIBOR at September 30, 2012 and December 31, 2011, respectively, (1.91% and 1.78% at September 30, 2012 and December 31, 2011, respectively). A final balloon payment in the amount of $19,744,758 is due on May 14, 2017 unless extended for a two year period at the option of the Company, collateralized by related real estate and tenants’ leases | $ | 22,743,728 | $ | 23,150,078 | ||||
| Note payable in monthly installments of $153,838 including interest at 6.90% per annum, with the final monthly payment due January 2020; collateralized by related real estate and tenants’ leases | 10,600,697 | 11,413,113 | ||||||
| Note payable in monthly installments of $91,675 including interest at 6.27% per annum, with a final monthly payment due July 2026; collateralized by related real estate and tenants’ leases | 10,158,547 | 10,497,009 | ||||||
| Note payable in monthly installments of $60,097 including interest at 5.08% per annum, with a final balloon payment in the amount of $9,167,573 due June 2014; collateralized by related real estate and tenants’ leases | 9,566,821 | - | ||||||
| Note payable in monthly installments of $128,205 including interest at 11.20% per annum; collateralized by related real estate and tenants’ leases. Consensual deed-in-lieu of foreclosure satisfied the loan in March 2012 | - | 9,173,789 | ||||||
| Note payable in monthly installments of $99,598 including interest at 6.63% per annum, with the final monthly payment due February 2017; collateralized by related real estate and tenants’ leases | 4,565,211 | 5,216,465 | ||||||
| Note payable in monthy interest-only installments of $48,467 at 6.56% annum, with a balloon payment in the amount of $8,580,000 due June 11, 2016; collateralized by related real estate and tenants’ leases | 8,580,000 | - | ||||||
| Note payable in monthly installments of $23,004 including interest at 6.24% per annum, with the final balloon payment of $2,766,628 due February 2020; collateralized by related real estate and tenant lease | 3,357,233 | 3,403,603 | ||||||
| Total | $ | 69,572,236 | $ | 62,854,057 | ||||
| 10 |
AGREE REALTY CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
As of December 31, 2011, the Company had four mortgaged properties that were formerly leased to Borders, Inc. (“Borders”) that served as collateral for four non-recourse loans, which were cross-defaulted and cross-collateralized (the “Crossed Loans”). Directly or indirectly because of the Chapter 11 bankruptcy filing of Borders in February 2011, the Company was in default on the Crossed Loans as of December 31, 2011.
The Crossed Loans had an aggregate principal outstanding of approximately $9.2 million as of December 31, 2011 and were secured by the former Borders stores in Oklahoma City, Oklahoma, Columbia, Maryland, Germantown, Maryland, and one of the former Borders stores in Omaha, Nebraska. As of December 31, 2011, the net book value of the four mortgaged properties was approximately $9.1 million, and annualized base rent for the four mortgaged properties, one of which was occupied, accounted for approximately $.5 million, or 1.4% of the Company’s annualized base rent as of December 31, 2011. The lender declared all four Crossed Loans in default and accelerated the Company’s obligations thereunder. As a result of the Borders liquidation program, the Company did not have sufficient cash flow from the properties to continue to pay the debt service on the Crossed Loans and elected not to pay the debt service.
On March 6, 2012, the Company conveyed the four mortgaged properties, which were subject to the Crossed Loans, to the lender pursuant to a consensual deed-in-lieu-of-foreclosure process that satisfied the loans, which had an aggregate principal outstanding of approximately $9.2 million as of December 2011.
In May 2012, the Company assumed a loan in the amount of $9,640,000 in conjunction with the acquisition of a property. The loan matures June 2014 and carries a 5.08% interest rate.
In June 2012, the Company entered into an amendment and restatement of the mortgage loan in the amount of $22,882,778 to provide for an extension of the maturity date to May 14, 2017, with an option to extend for two years to May 14, 2019, subject to certain conditions. Borrowings under the loan bear interest at LIBOR plus a spread of 170 basis points and require monthly principal repayments.
In July 2012, the Company assumed a loan in the amount of $8,580,000 in conjunction with the acquisition of a property. The loan matures June 2016 and carries a 6.56% interest rate.
Future scheduled annual maturities of mortgages payable for years ending September 30 are as follows: 2013 - $3,422,581; 2014 - $12,735,342; 2015 - $3,632,216; 2016 - $12,456,396; 2017 - $22,924,073 and $14,401,628 thereafter. The weighted average interest rate at September 30, 2012 was 5.41%.
| 11. | Dividends and Distributions Payable |
On September 11, 2012, the Company declared a dividend of $.40 per common share for the quarter ended September 30, 2012. The holders of limited partnership interest in the Operating Partnership (“OP Units”) were entitled to an equal distribution per OP Unit held as of September 30, 2012. The dividend and distributions payable are recorded as liabilities in the Company’s consolidated balance sheet as of September 30, 2012. 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. The amounts were paid October 9, 2012.
| 12. | Deferred Revenue |
In July 2004, the Company’s tenant in a joint venture property located in Boynton Beach, FL repaid $4.0 million that had been contributed by the Company’s joint venture partner. As a result of this repayment the Company became the sole member of the limited liability company holding the property. Total assets of the property were approximately $4.0 million. The Company has treated the $4.0 million repayment of the capital contribution as deferred revenue and accordingly, will recognize rental income over the term of the related leases.
The remaining deferred revenue of approximately $2.0 million will be recognized as minimum rents over approximately 4.4 years.
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AGREE REALTY CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
| 13. | Discontinued Operations |
During 2012, the Company has sold six non-core properties, a vacant office property for approximately $650,000; two vacant single tenant properties for $4,460,000; a Kmart anchored shopping center in Charlevoix, Michigan for $3,500,000, and two Kmart anchored shopping centers, one in Plymouth, Wisconsin and one in Shawano, Wisconsin for $7,475,000. In addition, the Company conveyed the four mortgaged properties, which were subject to the Crossed Loans, to the lender pursuant to a consensual deed-in-lieu-of-foreclosure process that satisfied the loans, which had an aggregate principal amount outstanding of approximately $9.2 million as of December 31, 2011. See Note 9 for more information on the Crossed Loans.
During 2011, the Company sold two non-core single tenant properties in January 2011 for approximately $6.5 million, and a single tenant property in December 2011 for approximately $1.5 million. In addition, the Company conveyed the former Borders corporate headquarters property in Ann Arbor, Michigan, which was subject to a non-recourse mortgage loan in default, to the lender pursuant to a consensual deed-in-lieu-of-foreclosure process during December 2011 that satisfied the loan of approximately $5.5 million. The Company also entered into a settlement agreement that provided for the termination of the ground lease on a former Borders property in Ann Arbor, Michigan, and conveyed the retail portion of the property owned by the Company to the ground lessor.
The results of operations for these properties are presented as discontinued operations in the Company’s Consolidated Statements of Income. The revenues for the properties were $304,043 and $1,857,163 for the three and nine months ended September 30, 2012, respectively, and $7,420,501 and $11,166,619 for the three and nine months ended September 30, 2011, respectively. The expenses for the properties were $161,952 and $952,387 for the three and nine months ended September 30, 2012, respectively, and $14,186,057 and $16,266,952 for the three and nine months ended September 30, 2011, respectively.
The Company elected to not allocate consolidated interest expense to the discontinued operations where the debt is not directly attributed to or related to the discontinued operations. Interest expense that was directly attributable to the discontinued operations was $0 for both the three and nine months ended September 30, 2012, and $387,615 and $983,878 for the three and nine months ended September 30, 2011, respectively, and is included in the above expense amounts.
The results of income (loss) from discontinued operations allocable to non-controlling interest was ($5,251) and $79,242 for the three and nine months ended September 30, 2012, respectively, and ($225,439) and ($174,877) for the three and nine months ended September 30, 2011, respectively.
| 14. | Purchase Accounting for Acquisitions of Real Estate |
Acquired real estate assets have been accounted for using the purchase method of accounting and accordingly, the results of operations are included in the consolidated statements of income from the respective dates of acquisition. The Company allocates the purchase price to (i) land and buildings based on management’s internally prepared estimates and (ii) identifiable intangible assets or liabilities generally consisting of above-market and below-market in-place leases and in-place leases. The Company uses estimates of fair value based on estimated cash flows, using appropriate discount rates, and other valuation techniques, including management’s analysis of comparable properties in the existing portfolio, to allocate the purchase price to acquired tangible and intangible assets.
The estimated fair value of above-market and below-market in-place leases for acquired properties is recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease.
The aggregate fair value of other intangible assets consisting of in-place, at market leases, is estimated based on internally developed methods to determine the respective property values and are included in lease intangible costs in the consolidated balance sheets. Factors considered by management in their analysis include an estimate of costs to execute similar leases and operating costs saved.
| 12 |
AGREE REALTY CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
During 2012, the Company has purchased 14 retail assets for approximately $50 million with a weighted average capitalization rate of 8.43% to obtain 100% control of the assets. The weighted average capitalization rate for these single tenant net leased properties was calculated by dividing the property net operating income by the purchase price. Property net operating income is defined as the straight-line rent for the base term of the lease less property level expense (if any) that is not recoverable from the tenant. The cost of the aggregate acquisitions was allocated as follows: $22 million to land, $21 million to buildings and improvements and $7 million to lease intangible costs. The acquisitions were cash purchases and there were no contingent considerations associated with these acquisitions. In one acquisition, the Company assumed debt of approximately $9.6 million and in another acquisition the Company assumed debt of approximately $8.6 million.
Total revenues of $1,140,000 and income before discontinued operations of $236,000 are included in the consolidated income statement, for the nine months ended September 30, 2012, for the aggregate 2012 acquisitions.
The following pro forma total revenue and income before discontinued operations for the 2012 acquisitions in aggregate, assumes the acquisitions had taken place on January 1, 2012 for the 2012 pro forma information, and on January 1, 2011 for the 2011 pro forma information (in thousands):
Supplemental pro forma for the nine months ended September 30, 2012 (1)
| Total revenue | $ | 27,985 | ||
| Income before discontinued operations | $ | 11,612 |
Supplemental pro forma for the nine months ended September 30, 2011 (1)
| Total revenue | $ | 25,985 | ||
| Income before discontinued operations | $ | 12,283 |
| (1) | This unaudited pro forma supplemental information does not purport to be indicative of what the Company operating results would have been had the acquisitions occurred on January 1, 2012 or January 1, 2011 and may not be indicative of future operating results. |
The fair values of intangible assets acquired are amortized to depreciation and amortization on the consolidated statements of income over the remaining term of the respective leases. The weighted average amortization period for the lease intangible costs is 19.1 years.
| 15. | Common Stock |
On January 27, 2012, the Company completed an underwritten public offering of 1,300,000 shares of common stock at a public offering price of $24.75 per share. On February 1, 2012, the Company sold 195,000 additional shares of common stock pursuant to the full exercise of the underwriters’ overallotment option. The offering raised approximately $35 million in net proceeds, after deducting the underwriting discount and other expenses. The Company used the net proceeds of the offering to pay down amounts outstanding under the Credit Facility and for general corporate purposes.
On September 21, 2012, the Company filed articles supplementary to its charter reclassifying and designating 2,500,000 authorized but unissued shares of excess stock, par value $0.0001 per share, of the Company (“Excess Stock”), as shares of common stock, par value $0.0001 per share, of the Company with the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distribution, qualifications and terms and conditions of redemption as set forth in the Company’s charter.
The Company has the authority to issue 20,000,000 shares of capital stock, par value $0.0001 per share, of which 15,850,000 shares are classified as shares of common stock, 4,000,000 shares are classified as shares of Excess Stock and 150,000 shares are classified as shares of the Company’s Series A Junior Participating Preferred Stock.
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| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and described our future plans, strategies and expectations, are generally identifiable by use of the words “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” “may,” “will,” “seek,” “could,” “project,” or similar expressions. Forward-looking statements in this report include information about possible or assumed future events, including, among other things, discussion and analysis of our future financial condition, results of operations, our strategic plans and objectives, occupancy and leasing rates and trends, liquidity and ability to refinance our indebtedness as it matures, anticipated expenditures of capital, and other matters. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect actual results, performances or achievements. Factors which may cause actual results to differ materially from current expectations, include but are not limited to: the global and national economic conditions and changes in general economic, financial and real estate market conditions; changes in our business strategy; risks that our acquisition and development projects will fail to perform as expected; the potential need to fund improvements or other capital expenditures out of operating cash flow; financing risks, such as the inability to obtain debt or equity financing on favorable terms or at all; the level and volatility of interest rates; our ability to re-lease space as leases expire; loss or bankruptcy of one or more of our major retail tenants; a failure of our properties to generate additional income to offset increases in operating expenses; our ability to maintain our qualification as a real estate investment trust (“REIT”) for federal income tax purposes and the limitations imposed on our business by our status as a REIT; and other factors discussed in Item 1A. “Risk Factors” and elsewhere in this report and in subsequent filings with the Securities and Exchange Commission (“SEC”) including our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. We caution you that any such statements are based on currently available operational, financial and competitive information, and that you should not place undue reliance on these forward-looking statements, which reflect our management’s opinion only as of the date on which they were made. Except as required by law, we disclaim any obligation to review or update these forward–looking statements to reflect events or circumstances as they occur.
Overview
Agree Realty Corporation is a fully-integrated, self-administered and self-managed REIT. In this report, the terms “Company,” “we,” “our” and “us” and similar terms refer to Agree Realty Corporation and/or its majority owned operating partnership, Agree Limited Partnership (“Operating Partnership”) and/or its majority owned and controlled subsidiaries, including its qualified taxable REIT subsidiaries (“TRS”), as the context may require. Our assets are held by and all of our operations are conducted through, directly or indirectly, the Operating Partnership, of which we are the sole general partner and in which we held a 97.05% and 96.59% interest as of September 30, 2012 and December 31, 2011, respectively. 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. We are operating so as to qualify as a REIT for federal income tax purposes.
We are primarily engaged in the acquisition and development of single tenant properties net leased to industry leading retail tenants. We were incorporated in December 1993 to continue and expand the business founded in 1971 by our current Chief Executive Officer and Chairman, Richard Agree. We specialize in acquiring and developing single tenant net leased retail properties for industry leading retail tenants. As of September 30, 2012, approximately 96% of our annualized base rent was derived from national and regional tenants and approximately 47% of our annualized base rent was derived from our top three tenants: Walgreens Co. (“Walgreens”) – 32%; Kmart Corporation (“Kmart”) – 8% and CVS Caremark Corporation (“CVS”) – 7%.
| 14 |
As of September 30, 2012, our portfolio consisted of 96 properties, located in 25 states containing an aggregate of approximately 3.1 million square feet of gross leasable area (“GLA”). As of September 30, 2012, our portfolio included 87 freestanding single tenant net leased properties and nine community shopping centers that were 98% leased in aggregate with a weighted average lease term of approximately 12 years remaining. All of our freestanding property tenants and the majority of our community shopping center tenants have triple-net leases, which require the tenant to be responsible for property operating expenses, including property taxes, insurance and maintenance. We believe this strategy provides a generally consistent source of income and cash for distributions.
During the period from October 1, 2012 to December 31, 2012, we have one lease that is scheduled to expire assuming that the tenant does not exercise its renewal option or terminate its lease prior to the contractual expiration date. This lease represents 1,836 square feet of GLA and $15,147 of annualized base rent. During the first quarter of 2012, Kmart exercised options to extend the lease expiration date from September 2012 to September 2014 for two leases amounting to 142,700 square feet. In addition, during the second quarter of 2012, Best Buy extended their lease from January 2013 to January 2016 in 52,000 square feet.
We expect to continue to grow our asset base through the development and acquisition of single tenant net leased retail properties that are leased on a long-term basis to industry leading retail tenants. Historically we have focused on development because we believed, based on the historical returns we have been able to achieve, it generally has provided us a higher return on investment than the acquisition of similarly located properties. However, beginning in 2010, we commenced a strategic acquisition program to acquire retail properties net leased to industry leading retail tenants. Since our initial public offering in 1994, we have developed 55 of our 96 properties, including 46 of our 87 freestanding single tenant properties and all nine of our community shopping centers. As of September 30, 2012, the properties that we developed accounted for 65% of our annualized base rent. We expect to continue to expand our existing tenant relationships and diversify our tenant base to include other quality industry leading retail tenants through the development and acquisition of net leased properties.
In 2012, we announced a development project in Rancho Cordova, California for Walgreens, and three development projects for Wawa, one in Osceola County, Florida, one in Pinellas County, Florida, and another in Casselberry, Florida. Additionally, we have entered into a development project in Venice, Florida for JPMorgan Chase. We completed the development project for McDonald’s in Southfield, Michigan during the second quarter of 2012 and the expansion of Miner’s Super One Foods at our Ironwood Commons Center was completed during the third quarter of 2012. Miner’s expects to open in the fourth quarter of 2012.
The following should be read in conjunction with the Interim Consolidated Financial Statements of Agree Realty Corporation, including the respective notes thereto, which are included in this Quarterly Report on Form 10-Q.
Recent Accounting Pronouncements
As of September 30, 2012, the impact of recent accounting pronouncements on our business is not considered to be material.
Critical Accounting Policies
Critical accounting policies are those that are both significant to the overall presentation of our financial condition and results of operations and require management to make difficult, complex or subjective judgments. For example, significant estimates and assumptions have been made with respect to revenue recognition, capitalization of costs related to real estate investments, potential impairment of real estate investments, operating cost reimbursements, and taxable income.
Minimum rental income attributable to leases is recorded on a straight-line basis over the lease term. Certain leases provide for additional percentage rents based on tenants’ sales volumes. These percentage rents are recognized when determinable by us.
Real estate assets are stated at cost less accumulated depreciation. All costs related to planning, development and construction of buildings prior to the date they become operational, including interest and real estate taxes during the construction period, are capitalized for financial reporting purposes and recorded as property under development until construction has been completed. The viability of all projects under construction or development is regularly evaluated under applicable accounting requirements, including requirements relating to abandonment of assets or changes in use. To the extent a project, or individual components of the project, are no longer considered to have value, the related capitalized costs are charged against operations. Subsequent to the completion of construction, expenditures for property maintenance are charged to operations as incurred, while significant renovations are capitalized. Depreciation of the buildings is recorded in accordance with the straight-line method using an estimated useful life of 40 years.
| 15 |
We evaluate real estate for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through estimated undiscounted future cash flows from the use of these assets. When any such impairment exists, the related assets will be written down to fair value and such excess carrying value is charged to income. The expected cash flows of a project are dependent on estimates and other factors subject to change, including (1) changes in the national, regional, and/or local economic climates, (2) competition from other shopping centers, stores, clubs, mailings, and the internet, (3) increases in operating costs, (4) bankruptcy and/or other changes in the condition of third parties, including tenants, (5) expected holding period, and (6) availability of credit. These factors could cause our expected future cash flows from a project to change, and, as a result, an impairment could be considered to have occurred.
Substantially all of our leases contain provisions requiring tenants to pay as additional rent a proportionate share of operating expenses (“operating cost reimbursements”) including real estate taxes, repairs and maintenance and insurance. The related revenue from tenant billings is recognized in the same period the expense is recorded.
We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”) since our 1994 tax year. As a result, we are not subject to federal income taxes to the extent that we distribute annually at least 90% of our REIT taxable income to our stockholders and satisfy certain other requirements defined in the Code.
We have established TRS entities pursuant to the provisions of the REIT Modernization Act. Our TRS entities are 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 of our activities which occur within our TRS entities are subject to federal and state income taxes. As of September 30, 2012 and December 31, 2011, we had accrued a deferred income tax amount of $705,000. In addition, we have recognized income tax expense (benefit) of $0 and ($24,000) for the three months ended September 30, 2012 and 2011, respectively, and $8,000 and $252,000 for the nine months ended September 30, 2012 and 2011, respectively, and $236,000 for the year ended December 31, 2011.
Results of Operations
Comparison of Three Months Ended September 30, 2012 to Three Months Ended September 30, 2011
Minimum rental revenue increased $1,593,000, or 22%, to $8,722,000 in 2012, compared to $7,129,000 in 2011. Rental revenue increased $1,483,000 due to the acquisition of 22 single tenant net leased properties subsequent to June 30, 2011. In addition, rental income increased $110,000 as a result of other rent adjustments.
Operating cost reimbursements decreased $27,000, or 5%, to $542,000 in 2012, compared to $569,000 in 2011.
Other income was $15,000 in 2012, compared to $28,000 in 2011.
Real estate taxes decreased $83,000, or 17%, to $395,000 in 2012, compared to $478,000 in 2011. The change was related to single tenant properties.
Property operating expenses (shopping center maintenance, snow removal, insurance and utilities) decreased $51,000, or 17%, to $254,000 in 2012, compared to $305,000 in 2011. The change was the result of a decrease in shopping center maintenance costs of $67,000, offset by an increase in insurance costs of $12,000, and other costs of $4,000 in 2012.
Land lease payments decreased $75,000, or 41%, to $106,000 in 2012, compared to $181,000 in 2011 due to acquisition of property previously leased.
General and administrative expenses increased by $227,000, or 21%, to $1,317,000 in 2012, compared to $1,090,000 in 2011. The increase in general and administrative expenses was the result of increased employee costs of $87,000, increased professional fees of $64,000, increased travel and convention costs of $14,000, increased insurance of $13,000, and other increased costs of $73,000 offset by decreased income tax expense in our TRS entities of $24,000. General and administrative expenses as a percentage of total rental income (minimum and percentage rents) increased from 12.73% for 2011 to 14.78% for 2012.
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Depreciation and amortization increased $107,000, or 7%, to $1,659,000 in 2012, compared to $1,552,000 in 2011. The increase was the result of the acquisition of 22 properties in 2011 and 2012.
In 2011, we incurred an impairment charge $600,000 as a result of writing down the carrying value of our real estate assets for properties formerly leased to Borders
In 2011, we recognized a gain on extinguishment of debt in the amount of $2,360,000.
We recognized a loss of ($321,000) on the sale of assets in 2012. There was no gain or loss on sales in 2011.
Interest expense increased $374,000, or 39%, to $1,344,000 in 2012, compared to $970,000, in 2011. The increase in interest expense was a result of the higher level of borrowings due to the acquisition of properties.
We recognized a loss of $321,000 on the disposition of properties in 2012. We sold three properties, two in August and another one in September of 2012.
Income (loss) from discontinued operations was $142,000 in 2012 compared to ($6,766,000) in 2011, as a result of the sale of six properties, one in May, one in June, two in August, and another in September of 2012, the conveyance of four former Borders properties to the lender in March 2012, one of which was occupied, and the sale of the Ann Arbor office space which was not occupied. In addition, in December 2011, we sold one property, conveyed the former Borders corporate headquarters to the lender, and terminated the ground lease on a property and conveyed a portion of the property to the ground lessor.
Our net income increased $5,880,000 or 317%, to $4,025,000 in 2012 from ($1,855,000) in 2011 as a result of the foregoing factors.
Comparison of Nine Months Ended September 30, 2012 to Nine Months Ended September 30, 2011
Minimum rental income increased $3,493,000, or 16%, to $24,698,000 in 2012, compared to $21,205,000 in 2011. Rental income increased $3,405,000 due to the acquisition of 24 single tenant net leased properties subsequent to January 1, 2011. In addition, rental income increased $88,000 as a result of other rent adjustments.
Percentage rents were $23,000 in 2012 compared to $22,000 in 2011.
Operating cost reimbursements were $1,691,000 in 2012 and 2011.
We earned development fee income of $895,000 in 2011 related to a project in California. There were no development fee projects in the first nine months of 2012 and no additional development fee projects are currently anticipated.
Other income was $60,000 in 2012, compared to $112,000 in 2011.
Real estate taxes decreased $66,000, or 5%, to $1,364,000 in 2012, compared to $1,430,000 in 2011. The change was related to single tenant properties.
Property operating expenses (shopping center maintenance, snow removal, insurance and utilities) decreased $99,000, or 11%, to $811,000 in 2012, compared to $910,000 in 2011. The change was the result of a decrease in shopping center maintenance costs of $92,000, and a decrease in snow removal costs of $65,000, offset by an increase in utility costs of $22,000, including utilities for vacant spaces, and an increase in insurance costs of $36,000 in 2012.
Land lease payments decreased $72,000, or 13%, to 468,000 in 2012, compared to $540,000 in 2011 due to acquisition of property previously leased.
General and administrative expenses increased by $100,000, or 2%, to $4,153,000 in 2012, compared to $4,053,000 in 2011. The increase in general and administrative expenses was the result of increased employee costs of $306,000, increased travel and convention costs of $61,000, and other increased costs of $31,000 offset by decreased income tax expense in our TRS entities of $244,000 and decreased professional fees of $54,000. General and administrative expenses as a percentage of total rental income (minimum and percentage rents) increased from 12.78% for 2011 to 15.88% for 2012.
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Depreciation and amortization increased $746,000, or 18%, to $4,845,000 in 2012, compared to $4,099,000 in 2011. The increase was the result of the acquisition of 24 properties in 2011 and 2012.
In 2011, we incurred an impairment charge of $600,000 as a result of writing down the carrying value of our real estate assets for properties formerly leased to Borders
In 2011, we recognized a gain on extinguishment of debt in the amount of $2,360,000.
We recognized a gain of $1,747,000 on the sale of assets in 2012. There was no gain or loss on sales in 2011.
Interest expense increased $741,000, or 26%, to $3,626,000 in 2012, compared to $2,885,000 in 2011. The increase in interest expense was a result of the higher level of borrowings due to the acquisition of properties.
We recognized a gain of $1,747,000 on the disposition of properties in 2012. We sold six properties and conveyed four former Borders properties to the lender pursuant to a consensual deed-in-lieu-of-foreclosure process that satisfied the loans, which had an aggregate principal amount outstanding of approximately $9.2 million as of December 31, 2011.
Income (loss) from discontinued operations was $905,000 in 2012 compared to ($5,100,000) in 2011, as a result of the sale of six properties, one in May, one in June, two in August, and another in September of 2012, the conveyance of four former Borders properties to the lender in March 2012, one of which was occupied, and the sale of the Ann Arbor office space which was not occupied. In addition, in January 2011, we sold two properties and in December 2011 we sold one property, conveyed the former Borders corporate headquarters to the lender, and terminated the ground lease on a property and conveyed a portion of the property to the ground lessor.
Our net income increased $7,189,000, or 108%, to $13,857,000 in 2012 from $6,668,000 in 2011 as a result of the foregoing factors.
Liquidity and Capital Resources
Our principal demands for liquidity are operations, distributions to our stockholders, debt repayment, development of new properties, redevelopment of existing properties and future property acquisitions. We intend to meet our short-term liquidity requirements, including capital expenditures related to the leasing and improvement of our properties, through cash flow provided by operations, our $85 million credit facility (the “Credit Facility”) and additional financings. We believe that adequate cash flow will be available to fund our operations and pay dividends in accordance with REIT requirements for at least the next 12 months. We may obtain additional funds for future developments or acquisitions through other borrowings or the issuance of additional shares of common stock. Although market conditions have limited the availability of new sources of financing and capital, which may have an impact on our ability to obtain financing, we believe that these financing sources will enable us to generate funds sufficient to meet both our short-term and long-term capital needs. The Company anticipates securing term loan or ten year financing during the fourth quarter 2012 in order to take advantage of the low interest rate environment and to increase its liquidity position.
We completed an underwritten public offering of 1,495,000 shares of common stock at a public offering price of $24.75 per share in January/February of 2012. The offering, which included the full exercise of the overallotment option by the underwriters, raised net proceeds of approximately $35 million after deducting the underwriting discount and other expenses. We used the net proceeds of the offering to pay down amounts outstanding under the Credit Facility and for general corporate purposes.
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We sold six non-core properties during 2012 for net proceeds of approximately $15,330,000. The six properties included three former Borders locations located in Omaha, Nebraska; Ann Arbor, Michigan and Columbus, Ohio and three shopping centers located in Charlevoix, Michigan, Plymouth, Wisconsin, and Shawano, Wisconsin. We will continue to evaluate our portfolio to identify opportunities to further diversify our holdings and improve asset quality while executing on our operating strategy.
Our cash flows from operations decreased $2,237,000 to $14,340,000 for the nine months ended September 30, 2012, compared to $16,577,000 for the nine months ended September 30, 2011. Cash used in investing activities increased by $18,660,000 to ($32,813,000) in 2012, compared to ($14,153,000) in 2011. Cash provided by (used in) financing activities increased $19,144,000 to $17,014,000 in 2012, compared to ($2,130,000) in 2011.
On September 21, 2012, we filed articles supplementary to our charter reclassifying and designating 2,500,000 authorized but unissued shares of excess stock, par value $0.0001 per share, of the Company (“Excess Stock”), as shares of common stock, par value $0.0001 per share, of the Company with the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distribution, qualifications and terms and conditions of redemption as set forth our charter.
We have the authority to issue 20,000,000 shares of capital stock, par value $0.0001 per share, of which 15,850,000 shares are classified as shares of common stock, 4,000,000 shares are classified as shares of Excess Stock and 150,000 shares are classified as shares of our Series A Junior Participating Preferred Stock.
In September 2012, we filed a new shelf registration statement on Form S-3 (No. 333-184095) with the SEC, which was declared effective on October 15, 2012. The new shelf registration statement may permit us, from time to time, to offer and sell up to $250 million of equity securities, including common stock, preferred stock, depositary shares and warrants, in one or more public offerings. However, there can be no assurance that we will be able to complete any such offerings of securities. Factors influencing the availability of additional financing include investor perception of our prospects and the general condition of the financial markets, among others.
We intend to maintain a ratio of total indebtedness (including construction or acquisition financing) to total enterprise value of 45% or less. Nevertheless, we may operate with debt levels which are in excess of 45% of total enterprise value for extended periods of time. At September 30, 2012, our ratio of indebtedness to total enterprise value was approximately 29%.
Dividends
During the quarter ended September 30, 2012, we declared a quarterly dividend of $0.40 per share. We paid the dividend on October 9, 2012 to holders of record on September 28, 2012.
Debt
As of September 30, 2012, we had total mortgage indebtedness of $69,572,236. Of this total mortgage indebtedness, $46,828,508 is fixed rate, with a weighted average interest rate of 6.21%. The remaining mortgage debt of $22,743,728 bears interest at 170 basis points over LIBOR or 1.91% as of September 30, 2012 and has a maturity date of May 14, 2017, which can be extended at our option for two additional years, subject to certain terms and conditions. In January 2009, we entered into an interest rate swap agreement that fixes the interest rate through June 30, 2013 for the variable-interest mortgage at 3.744%. In April 2012, we entered into an interest rate swap agreement that fixes the interest rate for the variable-interest mortgage at 3.62% from July 1, 2013 to May 1, 2019.
In March 2012, we conveyed four former Borders properties located in Columbia, Maryland, Germantown, Maryland, Oklahoma City, Oklahoma and Omaha, Nebraska, which were subject to non-recourse mortgage loans in default, to the lender pursuant to a consensual deed-in-lieu-of-foreclosure process that satisfied the loans with principal balances amounting to approximately $9.2 million.
In June 2012, we entered into an amendment and restatement of a mortgage loan in the amount of $22,882,778 to provide for an extension of the maturity date to May 14, 2017, with an option to extend for two years to May 14, 2019, subject to certain conditions. Borrowings under the loan bear interest at LIBOR plus a spread of 170 basis points.
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In addition, the Operating Partnership has in place an $85 million unsecured revolving Credit Facility, which is guaranteed by our Company. Subject to customary conditions, at our option, total commitments under the Credit Facility may be increased up to an aggregate of $135 million. We intend to use borrowings under the Credit Facility for general corporate purposes, including working capital, development and acquisition activities, capital expenditures, repayment of indebtedness or other corporate activities. The Credit Facility matures on October 26, 2014, and may be extended, at our election, for two one-year terms to October 2016, subject to certain conditions. Borrowings under the Credit Facility bear interest at LIBOR plus a spread of 175 to 260 basis points depending on our leverage ratio. As of September 30, 2012, we had $54,840,000 in principal amount outstanding under the Credit Facility bearing a weighted average interest rate of 2.18%, and $30,160,000 was available for borrowing (subject to customary conditions to borrowing).
The Credit Facility contains customary covenants, including, among others, financial covenants regarding debt levels, total liabilities, tangible net worth, fixed charge coverage, unencumbered borrowing base properties and permitted investments. We were in compliance with the covenant terms at September 30, 2012.
Capitalization
As of September 30, 2012, our total enterprise value was approximately $425 million. Enterprise value consisted of $124 million of debt (including property related mortgages and the Credit Facility), and $300.3 million of shares of common stock and operating partnership units in the Operating Partnership (“OP units”) (based on the closing price on the New York Stock Exchange of $25.49 per share on September 28, 2012). Our ratio of debt to total enterprise value was 29% at September 30, 2012.
At September 30, 2012, the non-controlling interest in the Operating Partnership represented a 2.95% ownership in the Operating Partnership. The OP units may, under certain circumstances, be exchanged for our shares of common stock on a one-for-one basis. We, as sole general partner of the Operating Partnership, have the option to settle exchanged OP units held by others for cash based on the current trading price of our shares. Assuming the exchange of all OP units, there would have been 11,783,663 shares of common stock outstanding at September 30, 2012, with a market value of approximately $300.3 million.
We completed an underwritten public offering of 1,495,000 shares of common stock in January/February of 2012 at a public offering price of $24.75 per share. The offering, which included the full exercise of the overallotment option by the underwriters, raised net proceeds of approximately $35 million after deducting the underwriting discount and other expenses. We used the net proceeds from the offering to pay down amounts outstanding under the Credit Facility and for general corporate purposes.
Contractual Obligations
The following table outlines our contractual obligations, as of September 30, 2012 for the periods presented below (in thousands).
| Total | October 1, 2012 - September 30, 2013 | October 1, 2013 - September 30, 2015 | October 1, 2015 - September 30, 2017 | Thereafter | ||||||||||||||||
| Mortgages payable | $ | 69,572 | $ | 3,423 | $ | 16,367 | $ | 35,380 | $ | 14,402 | ||||||||||
| Notes payable | 54,840 | - | 54,840 | - | - | |||||||||||||||
| Land lease obligation | 10,833 | 412 | 825 | 825 | 8,771 | |||||||||||||||
| Estimated interest payments on mortgages and notes payable | 23,817 | 4,925 | 7,710 | 3,906 | 7,276 | |||||||||||||||
| Total | $ | 159,062 | $ | 8,760 | $ | 79,742 | $ | 40,111 | $ | 30,449 | ||||||||||
Estimated interest payments for mortgages payable are based on stated rates. Estimated interest payments for Notes Payable are based on the interest rate in effect for the most recent quarter, which is assumed to be in effect through the respective maturity date.
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We are constructing and plan to begin construction of additional pre-leased developments and may acquire additional properties, which will initially be financed by the Credit Facility. Additional funding required to complete current ongoing projects is estimated to be $4,467,000. We will periodically refinance short-term construction and acquisition financing with long-term debt and/or equity to the extent available.
Off-Balance Sheet Arrangements
We do not engage in any off-balance sheet arrangements with unconsolidated entities or financial partnerships, such as structured finance or special purpose entities.
Inflation
Our leases generally contain provisions designed to mitigate the adverse impact of inflation on net income. These provisions include clauses enabling us to pass through to tenants certain operating costs, including real estate taxes, common area maintenance, utilities and insurance, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation. Certain of our leases contain clauses enabling us to receive percentage rents based on tenants' gross sales, which generally increase as prices rise, and, in certain cases, escalation clauses, which generally increase rental rates during the terms of the leases. In addition, expiring tenant leases permit us to seek increased rents upon re-lease at market rates if rents are below the then existing market rates.
Funds from Operations
Funds from Operations (“FFO”) is defined by the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”) to mean net income computed in accordance with U.S. generally accepted accounting principles (“GAAP”), excluding gains (or losses) from sales of property, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. In addition, NAREIT has recently clarified the computation of FFO to exclude impairment charges on depreciable property. Management has restated FFO for prior periods presented accordingly. Management uses FFO as a supplemental measure to conduct and evaluate our business because there are certain limitations associated with using GAAP net income by itself as the primary measure of our operating performance. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, management believes that the presentation of operating results for real estate companies that use historical cost accounting is insufficient by itself.
FFO should not be considered as an alternative to net income as the primary indicator of our operating performance or as an alternative to cash flow as a measure of liquidity. Further, while we adhere to the NAREIT definition of FFO, our presentation of FFO is not necessarily comparable to similarly titled measures of other REITs due to the fact that not all REITs use the same definition.
Adjusted Funds from Operations (“AFFO”) is a non-GAAP financial measure of operating performance used by many companies in the REIT industry. AFFO further adjusts FFO for certain non-cash items that reduce or increase net income in accordance with GAAP. AFFO should not be considered an alternative to net earnings, as an indication of our performance or to cash flow as a measure of liquidity or ability to make distributions. Management considers AFFO a useful supplemental measure of our performance. Our 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.
For 2011, we calculated FFO, as adjusted, and AFFO, as adjusted, which exclude from FFO and AFFO, respectively, certain non-recurring gain items that we do not believe are reasonably likely to occur within two years.
The following tables provide a reconciliation of FFO and AFFO to net income (loss) for the three and nine months ended September 30, 2012 and 2011:
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| Three Months Ended | Nine Months Ended | |||||||||||||||
| Reconciliation of Funds from Operations to Net Income | September 30, 2012 | September 30, 2011 | September 30, 2012 | September 30, 2011 | ||||||||||||
| Net income (loss) | $ | 4,025,032 | $ | (1,855,345 | ) | $ | 13,856,859 | $ | 6,668,049 | |||||||
| Depreciation of real estate assets | 1,393,091 | 1,537,947 | 4,274,001 | 4,501,868 | ||||||||||||
| Amortization of leasing costs | 26,301 | 188,431 | 78,002 | 240,718 | ||||||||||||
| Amortization of leasing intangibles | 287,000 | 169,860 | 820,537 | 378,890 | ||||||||||||
| Impairment charge | - | 13,500,000 | - | 13,500,000 | ||||||||||||
| Gain (loss) on sale of assets | 320,718 | - | (1,746,750 | ) | - | |||||||||||
| Funds from Operations | $ | 6,052,142 | $ | 13,540,893 | $ | 17,282,649 | $ | 25,289,525 | ||||||||
| Gain from extinguishment of debt | (2,360,000 | ) | (2,360,000 | ) | ||||||||||||
| Deferred revenue recognition | (5,700,000 | ) | (5,700,000 | ) | ||||||||||||
| Funds from Operations, as adjusted | $ | 6,052,142 | $ | 5,480,893 | $ | 17,282,649 | $ | 17,229,525 | ||||||||
| Funds from Operations Per Share - Dilutive | $ | 0.52 | $ | 1.35 | $ | 1.51 | $ | 2.52 | ||||||||
| Funds from Operations Per Share, as adjusted - Dilutive | $ | 0.52 | $ | 0.55 | $ | 1.51 | $ | 1.72 | ||||||||
| Weighted average shares and OP units outstanding | ||||||||||||||||
| Basic | 11,533,483 | 9,983,454 | 11,380,476 | 9,980,363 | ||||||||||||
| Diluted | 11,586,549 | 10,014,410 | 11,430,349 | 10,016,968 | ||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| Reconciliation of Adjusted Funds from Operations to Net Income | September 30, 2012 | September 30, 2011 | September 30, 2012 | September 30, 2011 | ||||||||||||
| Net income (loss) | $ | 4,025,032 | $ | (1,855,345 | ) | $ | 13,856,859 | $ | 6,668,049 | |||||||
| Cumulative adjustments to calculate FFO | 2,027,110 | 15,396,238 | 3,425,790 | 18,621,476 | ||||||||||||
| Funds from Operations | $ | 6,052,142 | $ | 13,540,893 | $ | 17,282,649 | $ | 25,289,525 | ||||||||
| Straight-line accrued rent | (197,235 | ) | (77,416 | ) | (498,393 | ) | (149,333 | ) | ||||||||
| Deferred revenue recognition | (115,845 | ) | (5,955,570 | ) | (347,535 | ) | (6,300,344 | ) | ||||||||
| Stock based compensation expense | 412,000 | 323,048 | 1,236,000 | 1,041,762 | ||||||||||||
| Amortization of financing costs | 78,954 | 32,939 | 199,413 | 92,449 | ||||||||||||
| Capitalized building improvements | (2,900 | ) | - | (2,900 | ) | - | ||||||||||
| Adjusted Funds from Operations | $ | 6,227,116 | $ | 7,863,894 | $ | 17,869,234 | $ | 19,974,059 | ||||||||
| Gain on extinguishment of debt | - | (2,360,231 | ) | - | (2,360,231 | ) | ||||||||||
| Adjusted Funds from Operations, as adjusted | $ | 6,227,116 | $ | 5,503,663 | $ | 17,869,234 | $ | 17,613,828 | ||||||||
| Additional supplemental disclosure | ||||||||||||||||
| Scheduled principal repayments | 802,051 | 783,741 | 2,328,560 | 2,805,298 | ||||||||||||
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are 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 our future financing requirements.
Our interest rate risk is monitored using a variety of techniques. The table below presents the principal payments (in thousands) and the weighted average interest rates on outstanding debt, by year of expected maturity, to evaluate the expected cash flows and sensitivity to interest rate changes.
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| Year ended September 30, | ||||||||||||||||||||||||||||
| 2013 | 2014 | 2015 | 2016 | 2017 | Thereafter | Total | ||||||||||||||||||||||
| Fixed rate mortgage | $ | 2,847 | $ | 12,125 | $ | 2,985 | $ | 11,769 | $ | 2,700 | $ | 14,402 | $ | 46,828 | ||||||||||||||
| Average interest rate | 6.54 | % | 5.44 | % | 6.67 | % | 6.59 | % | 6.69 | % | 6.44 | % | - | |||||||||||||||
| Variable rate mortgage | $ | 576 | $ | 610 | $ | 648 | $ | 687 | $ | 20,223 | - | $ | 22,744 | |||||||||||||||
| Average interest rate | 3.74 | % | 3.62 | % | 3.62 | % | 3.62 | % | 3.62 | % | - | - | ||||||||||||||||
| Other variable rate debt | - | - | $ | 54,840 | - | - | - | $ | 54,840 | |||||||||||||||||||
| Average interest rate | - | - | 2.18 | % | - | - | - | - | ||||||||||||||||||||
The fair value (in thousands) is estimated at $46,763, $21,778 and $54,840 for fixed rate mortgages, variable rate mortgage and other variable rate debt, respectively, as of September 30, 2012.
The table above incorporates those exposures that exist as of September 30, 2012; it does not consider those exposures or positions, which could arise after that date. As a result, our ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period and interest rates.
We entered into an interest rate swap agreement in 2009 to hedge interest rates on $24.5 million in variable-rate borrowings outstanding. Under the terms of the interest rate swap agreement, we will receive from the counterparty interest on the notional amount based on 1.5% plus one-month LIBOR and will pay to the counterparty a fixed rate of 3.744%. This swap effectively converted $24.5 million of variable-rate borrowings to fixed-rate borrowings to June 30, 2013. As of September 30, 2012, this interest rate swap was valued at a liability of $373,046. In addition, in April 2012, we entered into a forward starting interest rate swap agreement, for the same variable rate loan, to hedge interest rates on $22.3 million in variable-rate borrowings. Under the terms of the interest rate swap agreement, we will receive from the counterparty interest on the notional amount based on one-month LIBOR and will pay to the counterparty a fixed rate of 1.92%. This swap effectively converted $22.3 million of variable-rate borrowings to fixed-rate borrowings from July 1, 2013 to May 1, 2019. We do not use derivative instruments for trading or other speculative purposes and we did not have any other derivative instruments or hedging activities as of September 30, 2012.
As of September 30, 2012, a 100 basis point increase in interest rates on the portion of our debt bearing interest at variable rates would result in an annual increase in interest expense of approximately $548,000.
| ITEM 4. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
At the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting
PART II—Other Information
| Item 1. | Legal Proceedings |
We are not presently involved in any litigation nor, to our knowledge, is any other litigation threatened against us, except for routine litigation arising in the ordinary course of business which is expected to be covered by our liability insurance.
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| Item 1A. | Risk Factors |
There have been no material changes from our risk factors set forth under Item 1A of Part 1 of our most recently filed Form 10-K.
| 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 |
None.
| Item 6. | Exhibits |
| *3.1 | Articles of Incorporation of the Company (including all amendments and articles, supplementary thereto) |
| *31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Richard Agree, Chief Executive Officer and Chairman of the Board of Directors |
| *31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Alan D. Maximiuk, Vice President, Chief Financial Officer and Secretary |
| *32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Richard Agree, Chief Executive Officer and Chairman of the Board of Directors |
| *32.2 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Alan D. Maximiuk, Vice President, Chief Financial Officer and Secretary |
| *101 | The following materials from Agree Realty Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statement of Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and (v) related notes to these consolidated financial statements. |
As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
| * | Filed herewith. |
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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/ RICHARD AGREE | |
| Richard Agree | |
| Chief Executive Officer | |
| and Chairman of the Board of Directors | |
| (Principal Executive Officer) | |
| /s/ ALAN D. MAXIMIUK | |
| Alan D. Maximiuk | |
| Vice President, Chief Financial Officer and | |
| Secretary | |
| (Principal Financial and Accounting Officer) |
| Date: | November 2, 2012 |
| 25 |
AGREE REALTY
CORPORATION
ARTICLES OF INCORPORATION
First: THE UNDERSIGNED, James A. Grayer, whose address is c/o Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, 919 Third Avenue, New York, NY 10022, being at least eighteen years of age, acting as incorporator, does hereby form a corporation under the General Laws of the State of Maryland.
Second: The name of the corporation (which is hereinafter called the “Corporation”) is:
Agree Realty Corporation
Third: (a) The purposes for which and any of which the Corporation is formed and the business and objects to be carried on and promoted by it are:
(1) To engage in the business of a real estate investment trust (“REIT”) as that phrase is defined in the Internal Revenue Code of 1986, as amended (the “Code”), and to engage in any lawful act or activity for which corporations may be organized under the Maryland General Corporation Law.
(2) To engage in any one or more businesses or transactions, or to acquire all or any portion of any entity engaged in any one or more businesses or transactions, which the Board of Directors may from time to time authorize or approve, whether or not related to the business described elsewhere in this Article or to any other business at the time or theretofore engaged in by the Corporation.
(b) The foregoing enumerated purposes and objects shall be in no way limited or restricted by reference to, or inference from, the terms of any other clause of this or any other Article of the Charter of the Corporation, and each shall be regarded as independent; and they are intended to be and shall be construed as powers as well as purposes and objects of the Corporation and shall be in addition to and not in limitation of the general powers of corporations under the General Laws of the State of Maryland.
Fourth: The present address of the principal office of the Corporation in the State of Maryland is c/o Prentice-Hall Corporation System, Maryland, 11 East Chase Street, Baltimore, MD 21202.
Fifth: The name and address of the resident agent of the Corporation in this State is Prentice-Hall Corporation System, Maryland, which is a Maryland corporation whose address is 11 East Chase Street, Baltimore, MD 21202. Said resident agent is a Maryland corporation.
Sixth: (a) The total number of shares of stock of all classes which the Corporation has authority to issue is 20,000,000 shares of capital stock (par value $.0001 per share), amounting in aggregate par value to $2,000, of which shares 5,000,000 are initially classified as “Common Stock” and 2,500,000 are initially classified as “Excess Stock.” The Board of Directors may classify and reclassify any unissued shares of capital stock by setting or changing in any one or more respects the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms or conditions of redemption of such shares of stock.
(b) The following is a description of the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of the Common Stock of the Corporation:
(1) Each share of Common Stock shall have one vote, and, except as otherwise provided in respect of any class of stock hereafter classified or reclassified, the exclusive voting power for all purposes shall be vested in the holders of the Common Stock. Shares of Common Stock shall not have cumulative voting rights.
(2) Subject to the provisions of law and any preferences of any class of stock hereafter classified or reclassified, dividends, or other distributions, including dividends or other distributions payable in shares of another class of the Corporation’s stock, may be paid ratably on the Common Stock at such time and in such amounts as the Board of Directors may deem advisable.
(3) In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the Common Stock shall be entitled, together with the holders of Excess Stock and any other class of stock hereafter classified or reclassified not having a preference on distributions in the liquidation, dissolution or winding up of the Corporation, to share ratably in the net assets of the Corporation remaining, after payment or provision for payment of the debts and other liabilities of the Corporation and the amount to which the holders of any class of stock hereafter classified or reclassified having a preference on distributions in the liquidation, dissolution or winding up of the Corporation shall be entitled.
(4) The shares of Common Stock are convertible into Excess Stock as provided in Article NINTH hereof.
(c) A description of the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of the Excess Stock of the Corporation is set forth in Article NINTH hereof.
(d) Subject to the foregoing, the power of the Board of Directors to classify and reclassify any of the shares of capital stock shall include, without limitation, subject to the provisions of the Charter, authority to classify or reclassify any unissued shares of such stock into a class or classes of preferred stock, preference stock, special stock or other stock, and to divide and classify shares of any class into one or more series of such class, by determining, fixing, or altering one or more of the following:
(1) The distinctive designation of such class or series and the number of shares to constitute such class or series; provided that, unless otherwise prohibited by the terms of such or any other class or series, the number of shares of any class or series may be decreased by the Board of Directors in connection with any classification or reclassification of unissued shares and the number of shares of such class or series may be increased by the Board of Directors in connection with any such classification or reclassification, and any shares of any class or series which have been redeemed, purchased, otherwise acquired or converted into shares of Common Stock or any other class or series shall become part of the authorized capital stock and be subject to classification and reclassification as provided in this subparagraph.
| -2- |
(2) Whether or not and, if so, the rates, amounts and times at which, and the conditions under which, dividends shall be payable on shares of such class or series, whether any such dividends shall rank senior or junior to or on a parity with the dividends payable on any other class or series of stock, and the status of any such dividends as cumulative, cumulative to a limited extent or non-cumulative and as participating or non-participating.
(3) Whether or not shares of such class or series shall have voting rights, in addition to any voting rights provided by law and, if so, the terms of such voting rights.
(4) Whether or not shares of such class or series shall have conversion or exchange privileges and, if so, the terms and conditions thereof, including provision for adjustment of the conversion or exchange rate in such events or at such times as the Board of Directors shall determine.
(5) Whether or not shares of such class or series shall be subject to redemption and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; and whether or not there shall be any sinking fund or purchase account in respect thereof, and if so, the terms thereof.
(6) The rights of the holders of shares of such class or series upon the liquidation, dissolution or winding up of the affairs of, or upon any distribution of the assets of, the Corporation, which rights may vary depending upon whether such liquidation, dissolution or winding up is voluntary or involuntary and, if voluntary, may vary at different dates, and whether such rights shall rank senior or junior to or on a parity with such rights of any other class or series of stock.
(7) Whether or not there shall be any limitations applicable, while shares of such class or series are outstanding, upon the payment of dividends or making of distributions on, or the acquisition of, or the use of moneys for purchase or redemption of, any stock of the Corporation, or upon any other action of the Corporation, including action under this subparagraph, and, if so, the terms and conditions thereof.
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(8) Any other preferences, rights, restrictions, including restrictions on transferability, and qualifications of shares of such class or series, not inconsistent with law and the Charter of the Corporation.
(e) For the purposes hereof and of an, Articles Supplementary to the Charter providing for the classification or reclassification of any shares of capital stock or of any other charter document of the Corporation (unless otherwise provided in any such Articles or document), any class or series of stock of the Corporation shall be deemed to rank:
(1) prior to another class or series either as to dividends or upon liquidation, if the holders of such class or series shall be entitled to the receipt of dividends or amounts distributable on liquidation, dissolution or winding up, as the case may be, in preference or priority to holders of such other class or series;
(2) on a parity with another class or series either as to dividends or upon liquidation, whether or not the dividend rates, dividend payment dates or redemption or liquidation price per share thereof be different from those of such others, if the holders of such class or series of stock shall be entitled to receipt of dividends or amounts distributable upon liquidation, dissolution or winding up, as the case may be, in proportion to their respective dividend rates or redemption or liquidation prices, without preference or priority over the holders of such other class or series; and
(3) junior to another class or series either as to dividends or upon liquidation, if the rights of the holders of such class or series shall be subject or subordinate to the rights of the holders of such other class or series in respect of the receipt of dividends or the amounts distributable upon liquidation, dissolution or winding up, as the case may be.
Seventh: (a) The business and affairs of the Corporation shall be managed under the direction of the Board of Directors. The number of directors of the Corporation shall be five (5), which number may be increased or decreased by at least a majority of the entire Board of Directors pursuant to the By-Laws of the Corporation, but shall never be less than the minimum number permitted by the General Laws of the State of Maryland now or hereafter in force. At least a majority of the directors shall be Independent Directors (as defined in Article NINTH).
(b) Subject to the rights of the holders of any class of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors shall be filled by a vote of the stockholders or a majority of the entire Board of Directors, and any vacancies on the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office, or other cause shall be filled by a vote of the stockholders or a majority of the directors then in office. A director so chosen by the stockholders shall hold office for the balance of the term then remaining. A director so chosen by the remaining directors shall hold office until the next annual meeting of stockholders, at which time the stockholders shall elect a director to hold office for the balance of the term then remaining. No decrease in the number of directors constituting the Board of Directors shall affect the tenure of office of any director.
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(c) Whenever the holders of any one or more series of Preferred Stock of the Corporation shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the Board of Directors shall consist of said directors so elected in addition to the number of directors fixed as provided above in this Article. Notwithstanding the foregoing, and except as otherwise may be required by law, whenever the holders of any one or more series of Preferred Stock of the Corporation shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the terms of the director or directors elected by such holders shall expire at the next succeeding annual meeting of stockholders.
(d) Subject to the rights of the holders of any class separately entitled to elect one or more directors, any director, or the entire Board of Directors, may be removed from office at any time, but only for cause and then only by the affirmative vote of the holders of at least 80% of the combined voting power of all classes of shares of capital stock entitled to vote in the election for directors.
(e) At each annual meeting of stockholders beginning in 1994, successors to the class of directors whose term expires at that annual meeting shall be elected for a three year term.
(1) The following person shall serve as director until the 1994 annual meeting of stockholders:
Farris G. Kalil
(2) The following persons shall serve as director until the 1995 annual meeting of stockholders:
Edward Rosenberg
Ellis G. Wachs
(3) The following persons shall serve as director until the 1996 annual meeting of stockholders:
Richard Agree
Michael Rotchford
Eighth: (a) The following provisions are hereby adopted for the purpose of defining, limiting, and regulating the powers of the Corporation and of the directors and the stockholders:
(1) The Board of Directors is hereby empowered to authorize the issuance from time to time of shares of its stock of any class, whether now or hereafter authorized, or securities convertible into shares of its stock of any class or classes, whether now or hereafter authorized, for such consideration as may be deemed advisable by the Board of Directors and without any action by the stockholders.
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(2) No holder of any stock or any other securities of the Corporation, whether now or hereafter authorized, shall have any preemptive right to subscribe for or purchase any stock or any other securities of the Corporation other than such, if any, as the Board of Directors, in its sole discretion, may determine and at such price or prices and upon such other terms as the Board of Directors, in its sole discretion, may fix; and any stock or other securities which the Board of Directors may determine to offer for subscription may, as the Board of Directors in its sole discretion shall determine, be offered to the holders of any class, series or type of stock or other securities at the time outstanding to the exclusion of the holders of any or all other classes, series or types of stock or other securities at the time outstanding.
(3) The Board of Directors of the Corporation shall, consistent with applicable law, have power in its sole discretion to determine from time to time in accordance with sound accounting practice or other reasonable valuation methods what constitutes annual or other net profits, earnings, surplus, or net assets in excess of capital; to fix and vary from time to time the amount to be reserved as working capital, or determine that retained earnings or surplus shall remain in the hands of the Corporation; to set apart out of any funds of the Corporation such reserve or reserves in such amount or amounts and for such proper purpose or purposes as it shall determine and to abolish any such reserve or any part thereof; to redeem or purchase its stock or to distribute and pay distributions or dividends in stock, cash or other securities or property, out of surplus or any other funds or amounts legally available therefor, at such times and to the stockholders of record on such dates as it may, from time to time, determine; to determine the amount, purpose, time of creation, increase or decrease, alteration or cancellation of any reserves or charges and the propriety thereof (whether or not any obligation or liability for which such reserves or charges shall have been created shall have been paid or discharged); to determine the fair value and any matters relating to the acquisition, holding and disposition of any assets by the Corporation; and to determine whether and to what extent and at what times and places and under what conditions and regulations the books, accounts and documents of the Corporation, or any of them, shall be open to the inspection of stockholders, except as otherwise provided by statute or by the By-Laws, and, except as so provided, no stockholder shall have any right to inspect any book, account or document of the Corporation unless authorized so to do by resolution of the Board of Directors.
(4) Notwithstanding any provision of law requiring the authorization of any action by a greater proportion than a majority of the total number of shares of all classes of capital stock or of the total number of shares of any class of capital stock, such action shall be valid and effective if authorized by the affirmative vote of the holders of a majority of the total number of shares of all classes outstanding and entitled to vote thereon, except as otherwise provided in the Charter.
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(5) The Corporation shall provide any indemnification permitted by the laws of Maryland and shall indemnify directors, officers, agents and employees as follows: (A) the Corporation shall indemnify its directors and officers, whether serving the Corporation or at its request any other entity, to the full extent required or permitted by the General Laws of the State of Maryland now or hereafter in force, including the advance of expenses under the procedures and to the full extent permitted by law and (B) the Corporation shall indemnify other employees and agents, whether serving the Corporation or at its request any other entity, to such extent as shall be authorized by the Board of Directors or the Corporation’s By-Laws and be permitted by law. The foregoing rights of indemnification shall not be exclusive of any other rights to which those seeking indemnification may be entitled. The Board of Directors may take such action as is necessary to carry out these indemnification provisions and is expressly empowered to adopt, approve and amend from time to time such By-Laws, resolutions or contracts implementing such provisions or such further indemnification arrangements as may be permitted by law. No amendment of the Charter of the Corporation or repeal of any of its provisions shall limit or eliminate the right to indemnification provided hereunder with respect to acts or omissions occurring prior to such amendment or repeal or shall limit or eliminate the rights granted under indemnification agreements entered into by the Corporation and its directors, officers, agents and employees.
(6) To the fullest extent permitted by Maryland statutory or decisional law, as amended or interpreted, no director or officer of the Corporation shall be personally liable to the Corporation or its stockholders for money damages. No amendment of the Charter of the Corporation or repeal of any of its provisions shall limit or eliminate the benefits provided to directors and officers under this provision with respect to any act or omission which occurred prior to such amendment or repeal.
(7) The Board of Directors shall, in connection with the exercise of its business judgment involving a Business Combination (as defined in Section 3-601 of the Corporations and Associations Article of the Annotated Code of Maryland) or any actual or proposed transaction which would or may involve a change in control of the Corporation (whether by purchases of shares of stock or any other securities of the corporation in the open market, or otherwise, tender offer, merger, consolidation, dissolution, liquidation, sale of all or substantially all of the assets of the Corporation, proxy solicitation or otherwise), in determining what is in the best interests of the Corporation and its stockholders and in making any recommendation to its stockholders, give due consideration to all relevant factors, including, but not limited to (A) the economic effect, both immediate and long-term, upon the Corporation’s stockholders, including stockholders, if any, not to participate in the transaction; (B) the social and economic effect on the employees, customers of, and others dealing with, the Corporation and its subsidiaries and on the communities in which the Corporation and its subsidiaries operate or are located; (C) whether the proposal is acceptable based on the historical and current operating results or financial condition of the Corporation; (D) whether a more favorable price could be obtained for the Corporation’s stock or other securities in the future; (E) the reputation and business practices of the offeror and its management and affiliates as they would affect the employees of the Corporation and its subsidiaries; (F) the future value of the stock or any other securities of the Corporation; (G) any antitrust or other legal and regulatory issues that are raised by the proposal; and (H) the business and financial condition and earnings prospects of the acquiring person or entity, including, but not limited to, debt service and other existing financial obligations, financial obligations to be incurred in connection with the acquisition, and other likely financial obligations of the acquiring person or entity. If the Board of Directors determines that any proposed Business Combination (as defined in Section 3-601 of the Corporations and Associations Article of the Annotated Code of Maryland) or actual or proposed transaction which would or may involve a change in control of the Corporation should be rejected, it may take any lawful action to defeat such transaction, including, but not limited to, any or all of the following: advising stockholders not to accept the proposal; instituting litigation against the party making the proposal; filing complaints with governmental and regulatory authorities; acquiring the stock or any of the securities of the Corporation; selling or otherwise issuing authorized but unissued stock, other securities or granting options with respect thereto; acquiring a company to create an antitrust or other regulatory problem for the party making the proposal; and obtaining a more favorable offer from another individual or entity.
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(8) For any stockholder proposal to be presented in connection with an annual meeting of stockholders of the Corporation, including any proposal relating to the nomination of a director to be elected to the Board of Directors of the Corporation, the stockholders must have given timely written notice thereof in writing to the Secretary of the Corporation in the manner and containing the information required by the By-Laws. Stockholder proposals to be presented in connection with a special meeting of stockholders will be presented by the Corporation only to the extent required by Section 2-502 of the Corporations and Associations Article of the Annotated Code of Maryland.
(b) The Corporation reserves the right to amend, alter, change or repeal any provision contained in the Charter, including any amendments changing the terms or contract rights, as expressly set forth in the Charter, of any of its outstanding stock by classification, reclassification or otherwise, by a majority of the directors (including a majority of the Independent Directors) adopting a resolution setting forth the proposed change, declaring its advisability, and either calling a special meeting of the stockholders certified to vote on the proposed change, or directing the proposed change to be considered at the next annual stockholders meeting. Unless otherwise provided herein, the proposed change will be effective only if it is adopted upon the affirmative vote of the holders of not less than a majority of the aggregate votes entitled to be cast thereon (considered for this purpose as a single class); provided, however, that any amendment to, repeal of or adoption of any provision inconsistent with Article SEVENTH or paragraphs (a)(7) or (a)(8) or this paragraph (b) of Article EIGHTH will be effective only if it is adopted upon the affirmative vote of not less than 80% of the aggregate votes entitled to be cast thereon (considered for this purpose as a single class).
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(c) In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter or repeal the By-Laws of the Corporation.
(d) The enumeration and definition of particular powers of the Board of Directors included in the foregoing shall in no way be limited or restricted by reference to or inference from the terms of any other clause of this or any other Article of the Charter of the Corporation, or construed as or deemed by inference or otherwise in any manner to exclude or limit any powers conferred upon the Board of Directors under the General Laws of the State of Maryland now or hereafter in force.
Ninth: (a) Restrictions on Transfer; Conversion for Excess Stock.
(1) Definitions. The following terms shall have the following meanings:
“Agree-Rosenberg Group” shall mean Richard Agree and Edward Rosenberg, any spouses of the foregoing, any brothers or sisters of the foregoing, any ancestors of the foregoing, any other lineal descendants of any of the foregoing, any estates of any of the foregoing, any trusts established for the benefit of any of the foregoing, and any other entity controlled by any of the foregoing.
“Beneficial Ownership” shall mean ownership of Capital Stock by a Person who would be treated as an owner of such shares of Capital Stock either directly or indirectly through the application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The terms “Beneficial Owner,” “Beneficially Owns” and “Beneficially Owned” shall have correlative meanings.
“Beneficiary” shall mean a beneficiary of the Trust as determined pursuant to subparagraph (b)(5) of this Article NINTH.
“Board of Directors” shall mean the Board of Directors of the Corporation.
“By-Laws” shall mean the By-Laws of the Corporation.
“Capital Stock” shall mean stock that is Common Stock, Excess Stock or Preferred Stock.
“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.
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“Constructive Ownership” shall mean ownership of Capital Stock by a Person who would be treated as an owner of such shares of Capital Stock either directly or indirectly through the application of Section 318 of the Code, as modified by Section 856(d)(5) of the Code. The terms “Constructive Owner,” “Constructively Owns” and “Constructively Owned” shall have correlative meanings.
“Equity Stock” shall mean stock that is either Common Stock or Preferred Stock.
“Independent Director” means a director of the Corporation who is neither employed by the Corporation nor a member (or an affiliate of a member) of the Agree-Rosenberg Group.
“Initial Public Offering” means the sale of shares of Common Stock pursuant to the Corporation’s first effective registration statement for such Common Stock filed under the Securities Act of 1933, as amended.
“Market Price” on any date shall mean the average of the Closing Price for the five consecutive Trading Days ending on such date. The “Closing Price” on any date shall mean the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Equity Stock is not listed or admitted to trading or the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Equity Stock is listed or admitted to trading or, if the Equity Stock is not listed or admitted to trading on any national securities exchange, the last quoted price, or if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System or, if such system is no longer in use, the principal other automated quotation system that may then be in use or, if the Equity Stock is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Equity Stock selected by the Board of Directors of the Corporation. “Trading Day” shall mean a day on which the principal national securities exchange on which the Equity Stock is listed or admitted to trading is open for the transaction of business or, if the Equity Stock is not listed or admitted to trading on any national securities exchange, shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close.
“Ownership Limit” shall mean (i) in the case of any member of the Agree-Rosenberg Group, 24% of the value of the outstanding Equity Stock of the Corporation, and (ii) in the case of any other Person, 6.25% of the value of the outstanding Equity Stock of the Corporation.
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“Person” shall mean an individual, corporation, partnership, estate, trust (including a trust qualified under Section 401(a) or 501(c)(17) of the Code), a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock company or other entity and also includes a group as that term is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.
“Purported Beneficial Transferee” shall mean, with respect to any purported Transfer that results in Excess Stock, the purported beneficial transferee for whom the Purported Record Transferee would have acquired shares of Equity Stock if such Transfer had been valid under subparagraph (a)(2) of this Article NINTH.
“Purported Record Transferee” shall mean, with respect to any purported Transfer that results in Excess Stock, the record holder of the Equity Stock if such Transfer had been valid under subparagraph (a)(2) of this Article NINTH.
“Qualified Trust” shall mean any trust described under Section 401(a) of the Code and exempt from tax under Section 501(a) of the Code.
“REIT” shall mean a Real Estate Investment Trust under Section 856 of the Code.
“Restriction Termination Date” shall mean the first day after the date of the Initial Public Offering on which the Board of Directors determines that it is no longer in the best interests of the Corporation to attempt to, or continue to, qualify as a REIT.
“Rights” shall mean the rights granted under the Agree Realty Limited Partnership Agreement to the limited partners to acquire Common Stock.
“Transfer” shall mean any sale, transfer, gift, hypothecation, pledge, assignment, devise or other disposition of Capital Stock (including (i) the granting of any option or entering into any agreement for the sale, transfer or other disposition of Equity Stock or (ii) the sale, transfer, assignment or other disposition of any securities or rights convertible into or exchangeable for Capital Stock), whether voluntary or involuntary, whether of record, constructively or beneficially and whether by operation of law or otherwise.
“Trust” shall mean the trust created pursuant to subparagraph (b)(1) of this Article NINTH.
“Trustee’ shall mean the Corporation, acting as trustee for the Trust, or any successor trustee appointed by the Corporation.
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“Voting Stock” shall mean the outstanding shares of Capital Stock of the Corporation entitled to vote generally in the election of directors.
(2) Restriction on Transfers.
(A) Except as provided in subparagraph (a)(9) of this Article NINTH, from the date of the Initial Public Offering and prior to the Restriction Termination Date, no Person shall Beneficially Own or Constructively Own shares of the outstanding Equity Stock in excess of the Ownership Limit.
(B) Except as provided in subparagraph (a)(9) of this Article NINTH from the date of the Initial Public Offering and prior to the Restriction Termination Date, any Transfer that, if effective, would result in any Person Beneficially Owning or Constructively Owning Equity Stock in excess of the Ownership Limit shall be void ab initio as to the Transfer of that number of shares of Equity Stock which would be otherwise Beneficially or Constructively Owned by such Person in excess of the Ownership Limit; and the intended transferee shall acquire no rights in such excess shares of Equity Stock.
(C) Except as provided in subparagraph (a)(9) of this Article NINTH, from the date of the Initial Public Offering and prior to the Restriction Termination Date, any Transfer that, if effective, would result in the Equity Stock’s being Beneficially Owned by fewer than 100 Persons (determined without reference to any rules of attribution) shall be void ab initio as to the Transfer of that number of shares which would be otherwise Beneficially or Constructively Owned by the transferee; and the intended transferee shall acquire no rights in such excess shares of Equity Stock.
(D) From the date of the Initial Public Offering and prior to the Restriction Termination Date, any Transfer of shares of Equity Stock that, if effective, would result in the Corporation’s being “closely held” within the meaning of Section 856(h) of the Code shall be void ab initio as to the Transfer of that number of shares of Equity Stock which would cause the Corporation to be “closely held” within the meaning of Section 856(h) of the Code; and the intended transferee shall acquire no rights in such excess shares of Equity Stock.
(3) Conversion for Excess Stock.
(A) If, notwithstanding the other provisions contained in this Article NINTH, at any time after the date of the Initial Public Offering and prior to the Restriction Termination Date, there is a purported Transfer or other change in the capital structure of the Corporation such that any Person would either Beneficially Own or Constructively Own Equity Stock in excess of the Ownership Limit, then, except as otherwise provided in subparagraph (a)(9), such shares of Equity Stock in excess of the Ownership Limit (rounded up to the nearest whole share) shall be automatically converted into an equal number of shares of Excess Stock. Such conversion shall be effective as of the close of business on the business day prior to the date of the Transfer or change in capital structure.
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(B) If, notwithstanding the other provisions contained in this Article NINTH (subject to paragraph (e) of this Article NINTH), at any time after the date of the Initial Public Offering and prior to the Restriction Termination Date, there is a purported Transfer or other change in the capital structure of the Corporation which, if effective, would cause the Corporation to become “closely held” within the meaning of Section 856(h) of the Code, then the shares of Equity Stock being Transferred or which are otherwise affected by the change in capital structure and which, in either case, would cause the Corporation to be “closely held” within the meaning of Section 856(h) of the Code (rounded up to the nearest whole share) shall be automatically converted into an equal number of shares of Excess Stock. Such conversion shall be effective as of the close of business on the business day prior to the date of the Transfer or change in capital structure.
(4) Remedies for Breach. If the Board of Directors or its designees at any time determines in good faith that a Transfer has taken place in violation of subparagraph (a)(2) of this Article NINTH or that a Person intends to acquire or has attempted to acquire Beneficial Ownership or Constructive Ownership of any shares of Equity Stock in violation of subparagraph (a)(2) of this Article NINTH, the Board of Directors or its designees shall take such action as it or they deem advisable to refuse to give effect to or to prevent such Transfer, including, but not limited to, refusing to give effect to such Transfer on the books of the Corporation or instituting proceedings to enjoin such Transfer; provided, however, that any Transfers or attempted Transfers in violation of subparagraph (a)(2) of this Article NINTH shall be void ab initio and automatically result in the conversion described in subparagraph (a)(3), irrespective of any action (or nonaction) by the Board of Directors or its designees.
(5) Notice of Restricted Transfer. Any Person who acquires or attempts to acquire shares of Equity Stock in violation of subparagraph (a)(2) of this Article NINTH, or any Person who is a transferee such that Excess Stock results under subparagraph (a)(3) of this Article NINTH, shall immediately give written notice to the Corporation of such event and shall provide to the corporation such other information as the Corporation may request in order to determine the effect, if any, of such Transfer or attempted Transfer on the Corporation’s status as a REIT.
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(6) Owners Required to Provide Information. From the date of the Initial Public Offering and prior to the Restriction Termination Date:
(A) Every Beneficial Owner or Constructive Owner of 5% or more (during any periods in which the number of such Persons exceeds 1,999) or 1% or more (during any periods in which the number of such Persons is greater than 200 but not more than 1,999), or such lower percentages as required pursuant to regulations under the Code, of the outstanding Equity Stock of the Corporation shall, within 30 days after January 1 of each year, give written notice to the Corporation stating the name and address of such Beneficial Owner or Constructive Owner, the number of shares of Equity Stock Beneficially Owned or Constructively Owned, and a description of how such shares are held. Each such Beneficial Owner or Constructive Owner shall provide to the Corporation such additional information as the Corporation may request in order to determine the effect, if any, of such Beneficial Ownership on the Corporation’s status as a REIT and to ensure compliance with the Ownership Limit and Existing Holder Limit.
(B) Each Person who is a Beneficial Owner or Constructive Owner of Equity Stock and each Person (including the stockholder of record) who is holding Equity Stock for a Beneficial Owner or Constructive Owner shall provide to the Corporation such information as the Corporation may request in order to determine the Corporation’s status as a REIT and to ensure compliance with the Ownership Limit.
(7) Remedies Not Limited. Nothing contained in this Article NINTH (subject to paragraph (e) of this Article NINTH) shall limit the authority of the Board of Directors to take such other action as it deems necessary or advisable to protect the Corporation and the interests of its stockholders by preservation of the Corporation’s status as a REIT and to ensure compliance with the Ownership Limit.
(8) Ambiguity. In the case of an ambiguity in the application of any of the provisions of subparagraph (a) of this Article NINTH, including any definition contained in subparagraph (a)(1), the Board of Directors shall have the power to determine the application of the provisions of this subparagraph (a) with respect to any situation based on the facts known to it.
(9) Exception. The Board of Directors, upon receipt of a ruling from the Internal Revenue Service or an opinion of counsel in each case to the effect that the restrictions contained in subparagraph (a)(2)(C) and/or subparagraph (a)(2)(D) will not be violated, may exempt a Person from the Ownership Limit if such Person is not an individual for purposes of Section 542(a)(2) of the Code or is an underwriter which participates in a public offering of the Equity Stock for a period of 90 days following the purchase by such underwriter of the Equity Stock and the Board of Directors obtains such representations and undertakings from such Person as are reasonably necessary to ascertain that no individual’s Beneficial Ownership of Equity Stock will violate the Ownership Limit and agrees that any violation or attempted violation will result in such Equity Stock being converted into Excess Stock in accordance with subparagraph (a)(3) of this Article NINTH.
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(10) Each certificate for Equity Stock shall bear the following legend:
The shares of Agree Realty Corporation stock represented by this certificate are subject to restrictions on transfer for the purpose of the Corporation’s maintenance of its status as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the “Code”). Except as otherwise provided pursuant to the Charter of the Corporation, no Person may (1) Beneficially Own or Constructively Own shares of Equity Stock in excess of 6.25% of the value of the outstanding Equity Stock of the Corporation (other than members of the Agree-Rosenberg Group, who may not Beneficially Own or Constructively Own shares of Equity Stock in excess of 24% of the value of the outstanding Equity Stock of the Corporation); or (2) Beneficially Own Equity Stock that would result in the Corporation’s being “closely held” under section 856(h) of the Code. Any Person who attempts to Beneficially Own or Constructively Own shares of Equity Stock in excess of the above limitations must immediately notify the Corporation in writing at least 15 days prior to such proposed or attempted transfer. All capitalized terms in this legend have the meanings defined in the Corporation’s Charter, as the same may be further amended from time to time, a copy of which, including the restrictions on transfer, will be sent without charge to each stockholder who so requests. If the restrictions on transfer are violated, the shares of Equity Stock represented hereby will be automatically converted into shares of Excess Stock which will be held in trust by the Corporation.
(b) Excess Stock.
(1) Ownership in Trust. Upon any purported Transfer that results in Excess Stock pursuant to subparagraph (a)(3) of this Article NINTH, such Excess Stock shall be deemed to have been transferred to the Corporation, as Trustee of a Trust for the exclusive benefit of such Beneficiary or Beneficiaries to whom an interest in such Excess Stock may later be transferred pursuant to subparagraph (b)(5). Shares of Excess Stock so held in trust shall be issued and outstanding stock of the Corporation. The Purported Record Transferee shall have no rights in such Excess Stock except the right to designate a transferee of such Excess Stock upon the terms specified in subparagraph (b)(5) of this Article NINTH. The Purported Beneficial Transferee shall have no rights in such Excess Stock except as provided in subparagraph (b)(5).
(2) Dividend Rights. Excess Stock shall not be entitled to any dividends. Any dividend or distribution paid prior to the discovery by the Corporation that the shares of Equity Stock have been converted into Excess Stock shall be repaid to the Corporation upon demand, and any dividend or distribution declared but unpaid shall be rescinded as void ab initio with respect to such shares of Equity Stock.
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(3) Rights upon Liquidation. Subject to the preferential rights of the Preferred Stock, if any, as may be determined by the Board of Directors of the Corporation pursuant to Article SIXTH of the Charter, in the event of any voluntary or involuntary liquidation, dissolution or winding up of, or any distribution of the assets of, the Corporation, each holder of shares of Excess Stock shall be entitled to receive, ratably with each other holder of Common Stock and Excess Stock, that portion of the assets of the Corporation available for distribution to its stockholders as the number of shares of the Excess Stock held by such holder bears to the total number of shares of Common Stock and Excess Stock then outstanding. The Corporation, as holder of the Excess Stock in trust or, if the Corporation has been dissolved, any trustee appointed by the Corporation prior to its dissolution, shall distribute ratably to the Beneficiaries of the Trust, when determined, any such assets received in respect of the Excess Stock in any liquidation, dissolution or winding up of, or any distribution of the assets of, the Corporation.
(4) Voting Rights. The holders of shares of Excess Stock shall not be entitled to vote on any matters (except as required by the General Laws of the State of Maryland).
(5) Restrictions on Transfer; Designation of Beneficiary.
(A) Excess Stock shall not be transferable. The Purported Record Transferee may freely designate a Beneficiary of its interest in the Trust (representing the number of shares of Excess Stock held by the Trust attributable to a purported Transfer that resulted in the Excess Stock), if (i) the shares of Excess Stock held in the Trust would not be Excess Stock in the hands of such Beneficiary and (ii) the Purported Beneficial Transferee does not receive a price for designating such Beneficiary that reflects a price per share for such Excess Stock that exceeds (x) the price per share such Purported Beneficial Transferee paid for the Equity Stock in the purported Transfer that resulted in the Excess Stock, or (y) if the Purported Beneficial Transferee did not give value for such shares of Excess Stock (through a gift, devise or other transaction), a price per share equal to the Market Price on the date of the purported Transfer that resulted in the Excess Stock. Upon such transfer of an interest in the Trust, the corresponding shares of Excess Stock in the Trust shall be automatically converted into an equal number of shares of Equity Stock, and such shares of Equity Stock shall be transferred of record to the Beneficiary of the interest in the Trust designated by the Purported Record Transferee as described above if such Equity Stock would not be Excess Stock in the hands of such Beneficiary. Prior to any transfer of any interest in the Trust, the Purported Record Transferee must give advance notice to the Corporation of the intended transfer, and the Corporation must have waived in writing its purchase rights under subparagraph (b)(6) of this Article NINTH.
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(B) Notwithstanding the foregoing, if a Purported Beneficial Transferee receives a price for designating a Beneficiary of an interest in the Trust that exceeds the amounts allowable under subparagraph (b)(5)(A) of this Article NINTH, such Purported Beneficial Transferee shall pay, or cause the Beneficiary of the interest in the Trust to pay, such excess to the Corporation.
(6) Purchase Right in Excess Stock. Shares of Excess Stock shall be deemed to have been offered for sale to the Corporation, or its designee at a price per share equal to the lesser of (i) the price per share in the transaction that created such Excess Stock (or, in the case of devise or gift, the Market Price at the time of such devise or gift) and (ii) the Market Price on the date the Corporation, or its designee, accepts such offer. Subject to the satisfaction of any applicable requirements of the General Laws of the State of Maryland, the Corporation shall have the right to accept such offer for a period of ninety days after the later of (i) the date of the Transfer that resulted in such Excess Stock and (ii) the date the Board of Directors determines in good faith that a Transfer resulting in Excess Stock has occurred, if the Corporation has not received a notice of such Transfer pursuant to subparagraph (a)(5) of this Article NINTH.
(c) Further Authority. Nothing contained in this Article NINTH (subject to paragraph (e) of this Article NINTH) or in any other provision of the Charter shall limit the authority of the Board of Directors to take such other action as it in its sole discretion deems necessary or advisable to protect the Corporation and the interests of the stockholders by maintaining the Corporation’s eligibility to be, and preserving the Corporation’s status as, a qualified REIT under the Code.
(d) If any of the foregoing restrictions on transfer of Excess Stock are determined to be void, invalid or unenforceable by any court of competent jurisdiction, then the Purported Beneficial Transferee may be deemed, at the option of the Company, to have acted as an agent of the Company in acquiring such Excess Stock and to hold such Excess Stock on behalf of the Company.
(e) Nothing in this Article NINTH precludes the settlement of transactions entered into through the facilities of the New York Stock Exchange, provided that as set forth in this Article NINTH certain transactions may be settled by providing Excess Stock.
Tenth: The duration of the Corporation shall be perpetual.
Eleventh: In the event any term, provision, sentence or paragraph of the Charter of the Corporation is declared by a court of competent jurisdiction to be invalid or unenforceable, such term, provision, sentence or paragraph shall be deemed severed from the remainder of the Charter, and the balance of the Charter shall remain in effect and be enforced to the fullest extent permitted by law and shall be construed to preserve the intent and purposes of the Charter. Any such invalidity or enforceability in any jurisdiction shall not invalidate or render unenforceable such term, provision, sentence or paragraph of the Charter in any other jurisdiction.
| -17- |
IN WITNESS WHEREOF, I have signed these Articles of Incorporation, acknowledging the same to be my act, on December 14, 1993.
Witness:
|
/s/ Michael D. Moss Michael D. Moss |
/s/ James A. Grayer James A. Grayer |
| -18- |
AGREE REALTY CORPORATION
Articles of Amendment
AGREE REALTY CORPORATION, a Maryland corporation, having its principal office in Baltimore City, Maryland (which is hereinafter called the “Corporation”), hereby certifies to the State Department of Assessments and Taxation of Maryland that:
First: The Charter of the Corporation is hereby amended as follows:
(a) The definition of “Ownership Limits” in Article NINTH (a)(1) of the Charter is amended in its entirety to read as follows:
“Ownership Limit” shall mean (i) in the case of any member of the Agree-Rosenberg Group, 24% of the value of the outstanding Equity Stock of the Corporation, and (ii) in the case of any other Person, 9.8% of the value of the outstanding Equity Stock of the Corporation.
(b) The legend in Article NINTH (a)(10) of the Charter is amended in its entirety to read at follows:
The shares of Agree Realty Corporation stock represented by this certificate are subject to restrictions on transfer for the purpose of the Corporation’s maintenance of its status as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the “Code”). Except as otherwise provided pursuant to the Charter of the Corporation, no Person may (1) Beneficially Own or Constructively Own shares of Equity Stock in excess of 9.8% of the value of the outstanding Equity Stock of the Corporation (other than members of the Agree-Rosenberg Group, who may not Beneficially Own or Constructively Own shares of Equity Stock in excess of 24% of the value of the outstanding Equity Stock of the Corporation); or (2) Beneficially Own Equity Stock that would result in the Corporation’s being “closely held” under section 856(h) of the Code. Any Person who attempts to Beneficially Own or Constructively Own shares of Equity Stock in excess of the above limitations must immediately notify the Corporation in writing at least 15 days prior to such proposed or attempted transfer. All capitalized terms in this legend have the meanings defined in the Corporation’s Charter, as the same may be further amended from time to time, a copy of which, including the restrictions on transfer, will be sent without charge to each stockholder who so requests. If the restrictions on transfer are violated, the shares of Equity Stock represented hereby will be automatically converted into shares of Excess Stock which will be held in trust by the Corporation.
Second: The amendment does not increase the authorized stock of the Corporation.
Third: The foregoing amendment to the Charter of the Corporation has been advised by the Board of Directors and approved by the stockholders of the Corporation.
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IN WITNESS WHEREOF, AGREE REALTY CORPORATION has caused thee presents to be signed in its name and on its behalf by its President and witnessed by its Secretary on April 6, 1994.
WITNESS: AGREE REALTY CORPORATION
|
/s/ Kenneth Howe Kenneth Howe, Secretary |
By /s/ Richard Agree Richard Agree, President |
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THE UNDERSIGNED, President of AGREE REALTY CORPORATION, who executed on behalf of the Corporation the foregoing Articles of Amendment of which this certificate is made a part, hereby acknowledges in the name and on behalf of said Corporation the foregoing Articles of Amendment to be the corporate act of said Corporation and hereby certifies that to the best of his knowledge, information, and belief the matters and facts set forth therein with respect to the authorization and approval thereof are true in all material respects under the penalties of perjury.
/s/ Richard Agree
Richard Agree,
President
| -4- |
ARTICLES SUPPLEMENTARY
AGREE REALTY CORPORATION
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
Agree Realty Corporation, a Maryland corporation, having its principal office in the State of Maryland in the City of Baltimore (the “Corporation”), hereby certifies to the State of Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to authority conferred upon the Board of Directors by the charter (the “Charter”) of the Corporation, the Board of Directors of the Corporation adopted resolutions classifying 150,000 shares of the Corporation’s authorized but unissued capital stock, par value $.0001 per share, without designation as to class or series, as shares of “Series A Junior Participating Preferred Stock” with the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption of the shares of such series as follows:
Section 1. Designation and Amount. The shares of such series shall be designated as “Series A Junior Participating Preferred Stock” (the “Series A Preferred Stock”) and the number of shares constituting the Series A Preferred Stock shall be One Hundred and Fifty Thousand (150,000). Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
(a) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock, par value $0.0001 per share (the “Common Stock”), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (i) One Dollar and No/100 ($1.00) or (ii) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (ii) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (a) of this Section 2 immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock), provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive the payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
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(b) Except as otherwise provided herein, in any other Articles Supplementary creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation.
(c) Except as set forth herein, or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.
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(b) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (a) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Articles of Incorporation, or in any other Articles Supplementary creating a series of Preferred Stock or any similar stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (a) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (b) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (a) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
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Section 8. No Redemption. The shares of Series A Preferred Stock shall not be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all series of any other class of the Corporation’s Preferred Stock.
Section 10. Amendment. The Articles of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class.
SECOND: These Articles Supplementary have been approved by the Board of Directors in the manner and by the vote required by law.
THIRD: The undersigned officer of the Corporation acknowledges these Articles Supplementary to be the corporate act of the Corporation and, as to all matters or facts required to be verified under oath, the undersigned acknowledges that, to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties of perjury.
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IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary to be signed in its name and on its behalf by its President and attested to by its Secretary as of the 8th day of December, 2008.
ATTEST:
By: /s/ Kenneth R. Howe
Name: Kenneth R. Howe
Title: Secretary
AGREE REALTY CORPORATION
By: /s/ Richard Agree
Name: Richard Agree
Title: President
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ARTICLES SUPPLEMENTARY
AGREE REALTY CORPORATION
Agree Realty Corporation, a Maryland corporation (the “Corporation”), hereby certifies to the State of Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to authority conferred upon the Board of Directors by the charter (the “Charter”) of the Corporation, the Board of Directors of the Corporation adopted resolutions classifying (i) 8,350,000 shares of the Corporation’s authorized but unissued capital stock, par value $.0001 per share, without designation as to class or series, as shares of common stock, par value $.0001 per share, of the Corporation (the “Common Stock”), with the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption of the Common Stock set forth in the Charter, and (ii) 4,000,000 shares of the Corporation’s authorized but unissued capital stock, par value $.0001 per share, without designation as to class or series, as shares of excess stock, par value $.0001 per share, of the Corporation (the “Excess Stock”), with the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption of the Excess Stock as set forth in the Charter. After giving effect to the foregoing classification, the Corporation has the authority to issue 20,000,000 shares of capital stock, par value $.0001 per share, of which 13,350,000 shares are classified as shares of Common Stock and 6,500,000 shares are classified as shares of Excess Stock.
SECOND: These Articles Supplementary have been approved by the Board of Directors of the Corporation in the manner and by the vote required by law.
THIRD: The undersigned officer of the Corporation acknowledges these Articles Supplementary to be the corporate act of the Corporation and, as to all matters or facts required to be verified under oath, the undersigned acknowledges that, to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties of perjury.
- Signature page follows -
IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary to be signed in its name and on its behalf by its President and attested to by its Secretary as of the 8th day of December, 2008.
ATTEST:
By: /s/ Kenneth R. Howe
Name: Kenneth R. Howe
Title: Secretary
AGREE REALTY CORPORATION
By: /s/ Richard Agree
Name: Richard Agree
Title: President
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ARTICLES SUPPLEMENTARY
of
AGREE REALTY CORPORATION
September 21, 2012
Agree Realty Corporation, a Maryland corporation (the “Corporation”), hereby certifies to the State Department of Assessments and Taxation of Maryland (the “Department”) that:
FIRST: Under a power contained in Article SIXTH of the Articles of Incorporation of the Corporation (the “Charter”), the Board of Directors of the Corporation (the “Board of Directors”), by resolutions duly adopted on August 17, 2012, has reclassified and designated 2,500,000 authorized but unissued shares of Excess Stock, par value $0.0001 per share, of the Corporation (“Excess Stock”), as shares of Common Stock, par value $.0001 per share, of the Corporation (“Common Stock”) with the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption as set forth in the Charter.
SECOND: After giving effect to the foregoing classification, the Corporation has the authority to issue 20,000,000 shares of capital stock, par value $0.0001 per share, of which 15,850,000 shares are classified as shares of Common Stock, 4,000,000 shares are classified as shares of Excess Stock and 150,000 shares are classified as shares of the Corporation’s Series A Junior Participating Preferred Stock.
THIRD: The Excess Stock has been reclassified and designated by the Board of Directors under the authority contained in the Charter.
FOURTH: These Articles Supplementary have been approved by the Board of Directors in the manner and by the vote required by law.
FIFTH: These Articles Supplementary shall be effective at the time the Department accepts these Articles Supplementary for record.
SIXTH: The undersigned President of the Corporation acknowledges these Articles Supplementary to be the corporate act of the Corporation and as to all matters of facts required to be verified under oath, the undersigned President acknowledges that to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties of perjury.
[Signature page follows]
IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary to be signed in its name and on its behalf by its President and Chief Operating Officer and attested to by its Vice President, Chief Financial Officer and Secretary as of the date first written above.
| AGREE REALTY CORPORATION | ||
| By: | /s/ Joey Agree | [SEAL] |
| Name: Title: |
Joey Agree President and Chief Operating Officer |
|
ATTEST:
| AGREE REALTY CORPORATION | ||
| By: | /s/ Alan D. Maximiuk | |
| Name: Title: |
Alan D. Maximiuk Vice President, Chief Financial Officer and Secretary |
|
[Signature page to Articles Supplementary]
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Richard Agree, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Agree Realty Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: November 2, 2012 | /s/ Richard Agree | |
| Name: | Richard Agree | |
| Title: | Chief Executive Officer and | |
| Chairman of the Board of Directors |
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Alan D. Maximiuk, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Agree Realty Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: November 2, 2012 | /s/ Alan D. Maximiuk |
| Name: Alan D. Maximiuk | |
| Title: Vice President, Chief Financial Officer | |
| and Secretary |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Based on a review of the Quarterly Report on Form 10-Q for the period ending September 30, 2012 of Agree Realty Corporation (the “Company”), as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard Agree, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report, containing the financial statements, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Richard Agree | |
| Richard Agree | |
| Chief Executive Officer and | |
| Chairman of the Board of Directors |
November 2, 2012
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Based on a review of the Quarterly Report on Form 10-Q for the period ending September 30, 2012 of Agree Realty Corporation (the “Company”), as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Alan D. Maximiuk, Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report, containing the financial statements, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Alan D. Maximiuk | |
| Alan D. Maximiuk | |
| Vice President, Chief Financial | |
| Officer and Secretary | |
| November 2, 2012 |
|
Deferred Revenue (Details Textual) (USD $)
|
3 Months Ended | 9 Months Ended | |||||
|---|---|---|---|---|---|---|---|
|
Sep. 30, 2012
|
Sep. 30, 2011
|
Sep. 30, 2004
|
Sep. 30, 2012
|
Sep. 30, 2011
|
Dec. 31, 2011
|
Jul. 31, 2004
|
|
| Proceeds From Related Party Debt | $ 4,000,000 | ||||||
| Business Acquisition, Purchase Price Allocation, Property | 4,000,000 | ||||||
| Deferred Revenue | 2,046,628 | 2,046,628 | 2,394,163 | 4,000,000 | |||
| Minimum rents | $ 8,722,275 | $ 7,128,637 | $ 2,000,000 | $ 24,697,681 | $ 21,204,854 | ||
| Minimum Lease Rental Years | 4.4 years | ||||||
|
Fair Value Measurements (Details) (USD $)
|
Sep. 30, 2012
|
Dec. 31, 2011
|
|---|---|---|
| Interest Rate Derivative Liabilities, at Fair Value | $ 1,333,615 | $ 629,460 |
|
Interest Rate Swap [Member]
|
||
| Interest Rate Derivative Liabilities, at Fair Value | 1,333,615 | |
|
Fixed Rate Mortgage [Member]
|
||
| Interest Rate Derivative Liabilities, at Fair Value | 46,828,508 | |
|
Variable Rate Mortgage [Member]
|
||
| Interest Rate Derivative Liabilities, at Fair Value | 22,743,728 | |
|
Variable Rate Debt [Member]
|
||
| Interest Rate Derivative Liabilities, at Fair Value | 54,840,000 | |
|
Fair Value, Inputs, Level 1 [Member] | Interest Rate Swap [Member]
|
||
| Interest Rate Derivative Liabilities, at Fair Value | 0 | |
|
Fair Value, Inputs, Level 1 [Member] | Fixed Rate Mortgage [Member]
|
||
| Interest Rate Derivative Liabilities, at Fair Value | 0 | |
|
Fair Value, Inputs, Level 1 [Member] | Variable Rate Mortgage [Member]
|
||
| Interest Rate Derivative Liabilities, at Fair Value | 0 | |
|
Fair Value, Inputs, Level 1 [Member] | Variable Rate Debt [Member]
|
||
| Interest Rate Derivative Liabilities, at Fair Value | 0 | |
|
Fair Value, Inputs, Level 2 [Member] | Interest Rate Swap [Member]
|
||
| Interest Rate Derivative Liabilities, at Fair Value | 1,333,615 | |
|
Fair Value, Inputs, Level 2 [Member] | Fixed Rate Mortgage [Member]
|
||
| Interest Rate Derivative Liabilities, at Fair Value | 0 | |
|
Fair Value, Inputs, Level 2 [Member] | Variable Rate Mortgage [Member]
|
||
| Interest Rate Derivative Liabilities, at Fair Value | 0 | |
|
Fair Value, Inputs, Level 2 [Member] | Variable Rate Debt [Member]
|
||
| Interest Rate Derivative Liabilities, at Fair Value | 54,840,000 | |
|
Fair Value, Inputs, Level 3 [Member] | Interest Rate Swap [Member]
|
||
| Interest Rate Derivative Liabilities, at Fair Value | 0 | |
|
Fair Value, Inputs, Level 3 [Member] | Fixed Rate Mortgage [Member]
|
||
| Interest Rate Derivative Liabilities, at Fair Value | 46,762,702 | |
|
Fair Value, Inputs, Level 3 [Member] | Variable Rate Mortgage [Member]
|
||
| Interest Rate Derivative Liabilities, at Fair Value | 21,778,101 | |
|
Fair Value, Inputs, Level 3 [Member] | Variable Rate Debt [Member]
|
||
| Interest Rate Derivative Liabilities, at Fair Value | $ 0 |
|
Fair Value Measurements (Tables)
|
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Sep. 30, 2012
|
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| Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Derivative Liabilities at Fair Value [Table Text Block] | The table below sets forth the Company’s fair value hierarchy for liabilities measured or disclosed at fair value as of September 30, 2012.
|
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|
Purchase Accounting for Acquisitions of Real Estate (Details Textual) (USD $)
|
9 Months Ended | ||||||
|---|---|---|---|---|---|---|---|
|
Sep. 30, 2012
|
Jul. 31, 2004
|
Jul. 31, 2012
Assumed Debt [Member]
|
May 31, 2012
Assumed Debt [Member]
|
Sep. 30, 2012
Land [Member]
|
Sep. 30, 2012
Building and Building Improvements [Member]
|
Sep. 30, 2012
Lease Intangible Costs [Member]
|
|
| Payments To Acquire Retail Assets | $ 50,000,000 | ||||||
| Weighted Average Capitalization Rate For Acquired Assets | 8.43% | ||||||
| Percentage Of Control Of Assets | 100.00% | ||||||
| Business Acquisition, Purchase Price Allocation, Assets Acquired | 22,000,000 | 21,000,000 | 7,000,000 | ||||
| Real Estate Revenue, Net | 1,140,000 | ||||||
| Income (Loss) From Continuing Operations Attributable To Parent | 236,000 | ||||||
| Acquired Finite-lived Intangible Assets, Weighted Average Useful Life | 19 years 1 month 6 days | ||||||
| Business Acquisition, Purchase Price Allocation, Property | $ 4,000,000 | $ 8,580,000 | $ 9,640,000 | ||||
|
Mortgages Payable (Details Textual) (USD $)
|
12 Months Ended | 1 Months Ended | 9 Months Ended | 12 Months Ended | 9 Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Dec. 31, 2011
|
Sep. 30, 2012
|
Jul. 31, 2004
|
Jul. 31, 2012
Assumed Debt [Member]
|
May 31, 2012
Assumed Debt [Member]
|
Dec. 31, 2011
Mortgage Loans On Real Estate [Member]
|
Sep. 30, 2012
May 14 2017 [Member]
|
Dec. 31, 2011
May 14 2017 [Member]
|
Sep. 30, 2012
January 2020 [Member]
|
Sep. 30, 2012
July 2026 [Member]
|
Sep. 30, 2012
June 2014 [Member]
|
Sep. 30, 2012
March 2012 [Member]
|
Sep. 30, 2012
February 2017 [Member]
|
Sep. 30, 2012
February 2020 [Member]
|
Sep. 30, 2012
June 11 2016 [Member]
|
Sep. 30, 2012
Restatement Adjustment [Member]
|
|
| Debt Instrument, Periodic Payment | $ 44,550 | $ 153,838 | $ 91,675 | $ 60,097 | $ 128,205 | $ 99,598 | $ 23,004 | $ 48,467 | ||||||||
| Debt Instrument, Interest Rate, Stated Percentage | 1.91% | 1.78% | 6.90% | 6.27% | 5.08% | 11.20% | 6.63% | 6.24% | 6.56% | |||||||
| Line of Credit Facility, Interest Rate Description | interest at 170 and 150 basis points over LIBOR | interest at 170 and 150 basis points over LIBOR | loan bear interest at LIBOR plus a spread of 170 basis points | |||||||||||||
| Repayments Of Debt | 19,744,758 | 9,167,573 | 2,766,628 | 8,580,000 | ||||||||||||
| Long-Term Debt, Gross | 9,200,000 | 22,882,778 | ||||||||||||||
| Real Estate Investment Property, Net | 271,484,133 | 300,978,025 | 9,100,000 | |||||||||||||
| Annualized Based Rent Of Property One | approximately $.5 million, or 1.4% of the Company's annualized base rent | |||||||||||||||
| Extended Maturity Date | Two years to May 14, 2019, subject to certain conditions. | |||||||||||||||
| Long-term Debt, Maturities, Repayments of Principal in Next Twelve Months | 3,422,581 | |||||||||||||||
| Long-term Debt, Maturities, Repayments of Principal in Year Two | 12,735,342 | |||||||||||||||
| Long-term Debt, Maturities, Repayments of Principal in Year Three | 3,632,216 | |||||||||||||||
| Long-term Debt, Maturities, Repayments of Principal in Year Four | 12,456,396 | |||||||||||||||
| Long-term Debt, Maturities, Repayments of Principal in Year Five | 22,924,073 | |||||||||||||||
| Long-Term Debt, Maturities, Repayments Of Principal After Year Five | 14,401,628 | |||||||||||||||
| Short-Term Debt, Weighted Average Interest Rate | 5.41% | |||||||||||||||
| Business Acquisition, Purchase Price Allocation, Property | $ 4,000,000 | $ 8,580,000 | $ 9,640,000 | |||||||||||||
| Debt Maturity Date | June 2016 | June 2014 | ||||||||||||||
| Debt Stated Percentage | 6.56% | 5.08% | ||||||||||||||
|
Restricted Cash
|
9 Months Ended | ||
|---|---|---|---|
|
Sep. 30, 2012
|
|||
| Cash and Cash Equivalents [Abstract] | |||
| Restricted Cash and Cash Equivalents Disclosure [Text Block] |
Pursuant to an agreement with an unrelated third party, cash held in escrow is for the acquisition of real estate. |