Debt

9 Months Ended

Sep. 30, 2022

Debt

Debt

Note 5 – Debt

As of September 30, 2022, the Company had total gross indebtedness of $1.88 billion, including (i) $74.3 million of mortgage notes payable; (ii) $1.81 billion of senior unsecured notes; and (iii) no borrowings outstanding under the Revolving Credit Facility (defined below) as of September 30, 2022.

Mortgage Notes Payable

As of September 30, 2022, the Company had total gross mortgage indebtedness of $74.3 million, which was collateralized by related real estate and tenants’ leases with an aggregate net book value of $113.7 million. The weighted average interest rate on the Company’s mortgage notes payable was 3.84% as of September 30, 2022 and 4.16% as of December 31, 2021.

Mortgage notes payable consisted of the following (presented in thousands):

	September 30, 2022		December 31, 2021
Note payable in monthly installments of interest only at 3.60% per annum, with a balloon payment due January 2023	$	23,640	$	23,640
Note payable in monthly installments of interest only at 5.01% per annum, with a balloon payment due September 2023		4,622		4,622
Note payable in monthly installments of $92 including interest at 6.27% per annum, with a final monthly payment due July 2026		3,741		4,373
Note payable in monthly installments of interest only at 3.63% per annum, with a balloon payment due December 2029		42,250		—
Total principal		74,253		32,635
Unamortized debt issuance costs and assumed debt discount		(2,532)		(206)
Total	$	71,721	$	32,429

In connection with a four-property acquisition during the nine months ended September 30, 2022, the Company assumed an interest only, mortgage note payable with a principal balance of $42.3 million and stated interest rate of 3.63% maturing December 2029.  In connection with the purchase price allocation completed, the mortgage debt was fair valued as of the date of acquisition resulting in a $2.5 million debt discount that will be amortized over the term of the mortgage note payable into Interest Expense in the Condensed Consolidated Statements of Operations and Comprehensive Income.  

The mortgage loans encumbering the Company’s properties are generally non-recourse, subject to certain exceptions for which we would be liable for any resulting losses incurred by the lender. These exceptions vary from loan to loan, but generally include fraud or material misrepresentations, misstatements or omissions by the borrower, intentional or grossly negligent conduct by the borrower that harms the property or results in a loss to the lender, filing of a bankruptcy petition by the borrower, either directly or indirectly, and certain environmental liabilities. At September 30, 2022, there were no mortgage loans with partial recourse to the Company.

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

Unsecured Term Loan Facilities

In May 2021, the Company used the net proceeds from the offering of the 2028 Senior Unsecured Public Notes and the 2033 Senior Unsecured Public Notes (see Senior Unsecured Notes below) to repay all amounts outstanding under its unsecured term loans and settle the related swap agreements.  During the nine months ended September 30, 2021, the Company incurred a charge of $14.6 million upon this repayment and settlement, including swap termination costs of $13.4 million and the write-off of previously unamortized debt issuance costs of $1.2 million.

Senior Unsecured Notes

The following table presents the senior unsecured notes principal balances net of unamortized debt issuance costs and original issue discounts for the Company’s private placement and public offerings as of September 30, 2022, and December 31, 2021 (presented in thousands):

	All-in
	Interest Rate			Maturity	September 30, 2022		December 31, 2021
2025 Senior Unsecured Notes	4.16	%		May 2025	$	50,000	$	50,000
2027 Senior Unsecured Notes	4.26	%		May 2027		50,000		50,000
2028 Senior Unsecured Public Notes	2.11	%		June 2028		350,000		350,000
2028 Senior Unsecured Notes	4.42	%		July 2028		60,000		60,000
2029 Senior Unsecured Notes	4.19	%		September 2029		100,000		100,000
2030 Senior Unsecured Notes	4.32	%		September 2030		125,000		125,000
2030 Senior Unsecured Public Notes	3.49	%		October 2030		350,000		350,000
2031 Senior Unsecured Notes	4.42	%		October 2031		125,000		125,000
2032 Senior Unsecured Public Notes	3.96	%	(1)	October 2032		300,000		—
2033 Senior Unsecured Public Notes	2.13	%		June 2033		300,000		300,000
Total Principal						1,810,000		1,510,000
Unamortized debt issuance costs and original issue discount, net						(18,508)		(14,800)
Total					$	1,791,492	$	1,495,200

(1) All-in interest rate considers the straight-line amortization of the terminated swap agreements. Using the effective interest rate method to account for the impact of the terminated swap agreements results in an effective interest rate of 3.76%.

Senior Unsecured Notes – Private Placements

The 2025 Senior Unsecured Notes, 2027 Senior Unsecured Notes, 2028 Senior Unsecured Notes, 2029 Senior Unsecured Notes, 2030 Senior Unsecured Notes, and 2031 Senior Unsecured Notes (collectively the “Private Placements”) are private placements to individual investors. The Private Placements did not involve a public offering in reliance on the exemption from registration in Section 4(a)(2) of the Securities Act.

In October 2019, in connection with the 2031 Senior Unsecured Notes, the Operating Partnership issued $125 million of senior unsecured notes with a stated interest rate of 4.47%. In March 2019, the Company entered into forward-starting interest rate swap agreements to fix the interest for $100 million of long-term debt until maturity. The Company terminated the swap agreements at the time of pricing the 2031 Senior Unsecured Notes, which resulted in an effective annual fixed rate of 4.41% for $100 million aggregate principal amount of the 2031 Senior Unsecured Notes. Considering the effect of the terminated swap agreements, the blended all-in rate to the Company for the $125 million aggregate principal amount of 2031 Senior Unsecured Notes is 4.42%.

Senior Unsecured Notes – Public Offerings

The 2030 Senior Unsecured Public Notes, 2028 Senior Unsecured Public Notes, 2033 Senior Unsecured Public Notes and 2032 Senior Unsecured Public Notes  (collectively the “Public Notes”) are fully and unconditionally guaranteed by Agree

Realty Corporation and certain wholly owned subsidiaries of the Operating Partnership. The Public Notes are governed by an Indenture, dated August 17, 2020, among the Operating Partnership, the Company and respective trustee (as amended and supplemented by an officer’s certificate dated at the issuance of each of the Public Notes). The Indenture, as amended, contains various restrictive covenants, including limitations on the ability of the guarantors and the issuer to incur additional indebtedness and requirements to maintain a pool of unencumbered assets.

In August 2020, in connection with the 2030 Senior Unsecured Public Notes, the Operating Partnership issued $350 million aggregate principal amount of notes at a stated interest rate of 2.90% due October 2030. The Company terminated related swap agreements of $200 million that hedged the 2030 Senior Unsecured Public Notes, paying $23.4 million upon termination. Considering the effect of the terminated swap agreements, the blended all-in rate to the Company for the $350 million aggregate principal amount of 2030 Senior Unsecured Public Notes is 3.49%.

In May 2021, in connection with the 2028 Senior Unsecured Public Notes and 2033 Senior Unsecured Public Notes, the Operating Partnership issued $350 million aggregate principal amount of notes at a stated interest rate of 2.00% due June 2028 and $300 million aggregate principal amount of notes at a stated interest rate of 2.60% due June 2033, respectively. The Company terminated related swap agreements of $300 million that hedged the 2033 Senior Unsecured Public Notes, receiving $16.7 million upon termination. Considering the effect of the terminated swap agreements, the blended all-in rates to the Company for the $350 million aggregate principal amount of the 2028 Senior Unsecured Public Notes and the $300 million aggregate principal amount of the 2033 Senior Unsecured Public Notes are 2.11% and 2.13%, respectively.

In August 2022, the Operating Partnership issued the 2032 Senior Unsecured Public Notes in an underwritten public offering of $300 million aggregate principal amount of notes with a stated interest rate of 4.80% due October 2032. The Company terminated related swap agreements of $300 million notional amount that hedged the 2032 Senior Unsecured Public Notes, receiving $28.4 million upon termination. Considering the effect of the terminated swap agreements, the blended all-in rate to the Company for the 2032 Senior Unsecured Public Notes is 3.96%.

Senior Unsecured Revolving Credit Facility

In December 2019, the Company entered into a Second Amended and Restated Revolving Credit and Term Loan Agreement. This agreement provided for a $500 million unsecured revolving credit facility. It also provided for a $65 million unsecured term loan facility and a $35 million unsecured term loan facility. All amounts outstanding under these unsecured term loan facilities were repaid in May 2021 (see Unsecured Term Loan Facilities above) and cannot be reborrowed against.

In December 2021, the Company entered into a Third Amended and Restated Revolving Credit Agreement which increased its senior unsecured revolving credit facility (the “Revolving Credit Facility”) to $1.0 billion. The Revolving Credit Facility includes an accordion option that allows the Company to request additional lender commitments up to a total of $1.75 billion. The Revolving Credit Facility will mature in January 2026 with Company options to extend the maturity date to January 2027.

The Revolving Credit Facility’s interest rate is based on a pricing grid with a range of 72.5 to 140 basis points over LIBOR, determined by the Company’s credit ratings. The margins for the Revolving Credit Facility are subject to improvement based on the Company's leverage ratio, provided its credit ratings meet a certain threshold. Based on the Company's credit ratings and leverage ratio at the time of closing, pricing on the Revolving Credit Facility was 77.5 basis points over LIBOR. In connection with the Company's ongoing environmental, social and governance (“ESG”) initiatives, pricing may be reduced if specific ESG ratings are achieved.

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

Debt Maturities

The following table presents scheduled principal payments related to the Company’s debt as of September 30, 2022 (presented in thousands):

	Scheduled		Balloon
	Principal		Payment		Total
Remainder of 2022	$	218	$	—	$	218
2023		905		28,262		29,167
2024		963		—		963
2025		1,026		50,000		51,026
2026 (1)		629		—		629
Thereafter		—		1,802,250		1,802,250
Total scheduled principal payments	$	3,741	$	1,880,512	$	1,884,253

(1) The Revolving Credit Facility matures in January 2026, with options to extend the maturity to January 2027. The Revolving Credit Facility had no outstanding balance as of September 30, 2022.

Loan Covenants

Certain loan agreements contain various restrictive covenants, including the following financial covenants: maximum total leverage ratio, maximum secured leverage ratios, consolidated net worth requirements, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio, a minimum unsecured interest expense ratio, a minimum interest coverage ratio, a minimum unsecured debt yield and a minimum unencumbered interest expense ratio. As of September 30, 2022, the most restrictive covenant was the minimum unencumbered interest expense ratio. The Company was in compliance with all of its loan covenants and obligations as of September 30, 2022.