# AGREE REALTY CORP (ADC) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from AGREE REALTY CORP's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/917251/000155837024001056/adc-20231231x10k.htm
Accession: 0001558370-24-001056
Filing date: 2024-02-13
Report date: 2023-12-31
Extracted from a substantive MD&A body after the formal Item 7 span was a TOC or reference stub.
Confidence: high

Company profile: /company/ADC/
All MD&A years: /company/ADC/mda/
Previous year: /company/ADC/mda/fy2022/ (FY 2022)
Next year: /company/ADC/mda/fy2024/ (FY 2024)

Overview

The Company is a fully integrated REIT primarily focused on the ownership, acquisition, development and management of retail properties net leased to industry leading tenants. The Company was founded in 1971 by its current Executive Chairman, Richard Agree, and its common stock was listed on the NYSE in 1994.  The Company’s assets are held by, and all of its operations are conducted through, directly or indirectly, the Operating Partnership, of which the Company is the sole general partner and in which the Company held a 99.7% common interest as of December 31, 2023.  Refer to Note 1-Organization in the Notes to the Consolidated Financial Statements in this Form 10-K for further information on the ownership structure.  Under the agreement of limited partnership of the Operating Partnership, the Company, as the sole general partner, has exclusive responsibility and discretion in the management and control of the Operating Partnership.  

As of December 31, 2023, the Company’s portfolio consisted of 2,135 properties located in 49 states and totaling approximately 44.2 million square feet of GLA. The portfolio was approximately 99.8% leased and had a weighted average remaining lease term of approximately 8.4 years. A significant majority of the Company’s properties are leased to national tenants and approximately 69.1% of our annualized base rent was derived from tenants, or parent entities thereof, with an investment grade credit rating from S&P Global Ratings, Moody’s Investors Service, Fitch Ratings or the National Association of Insurance Commissioners. A net lease typically requires the tenant to be responsible for minimum monthly rent and property operating expenses including property taxes, insurance and maintenance.

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

Results of Operations

Overall

The Company’s real estate investment portfolio grew from approximately $5.74 billion in net investment amount representing 1,839 properties with 38.1 million square feet of gross leasable space as of December 31, 2022 to approximately $6.74 billion in net investment amount representing 2,135 properties with 44.2 million square feet of gross leasable space at December 31, 2023. The Company’s real estate investments were made throughout and between the periods presented and were not all outstanding for the entire period; accordingly, a portion of the increase in rental income between periods is related to recognizing revenue in 2023 on acquisitions that were made during 2022. Similarly, the full rental income impact of acquisitions made during 2023 will not be seen until 2024.

Acquisitions

During the year ended December 31, 2023, the Company acquired 282 retail net lease assets for approximately $1.20 billion, which includes acquisition and closing costs. These properties are located in 40 states and are leased to tenants operating in 26 diverse retail sectors for a weighted average lease term of approximately 11.3 years. The underwritten weighted-average capitalization rate on the acquisitions was 6.9%.1

Dispositions

During the year ended December 31, 2023, the Company sold six assets, including one former corporate headquarters office building, for net proceeds of $13.8 million. The weighted-average capitalization rate on the dispositions was 6.1%.1

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

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Development and Developer Funding Platform

During the year ended December 31, 2023, the Company commenced 13 development and Developer Funding Platform projects. At December 31, 2023 the Company had 16 development or Developer Funding Platform projects under construction.

Comparison of Year Ended December 31, 2023 to Year Ended December 31, 2022

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​

The variances in rental income, real estate tax expense, property operating expense and depreciation and amortization expense shown above were due to the acquisition and the ownership of an increased number of properties during the year ended December 31, 2023 compared to the year ended December 31, 2022, as further described under Results of Operations - Overall above.

General and administrative expenses increased $4.7 million, or 15%, to $34.8 million for the year ended December 31, 2023, compared to $30.1 million for the year ended December 31, 2022. The increase was primarily the result of increased compensation costs due to inflationary increases and higher stock based compensation expense as a result of changing the vesting period for awards granted in 2023. General and administrative expenses as a percentage of total revenue decreased to 6.5% for the year ended December 31, 2023 from 7.0% for the year ended December 31, 2022.

Interest expense increased $17.7 million, or 28%, to $81.1 million for the year ended December 31, 2023, compared to $63.4 million for the year ended December 31, 2022. The increase in interest expense was primarily a result of higher levels of borrowings in 2023 in comparison to 2022 in order to finance the acquisition and development of additional properties, as well as higher interest rates under the Revolving Credit Facility. Borrowings increased due to the $350 million 2029 Unsecured Term Loan that closed in July 2023 and the issuance of the $300 million 2032 Senior Unsecured Public Notes in August 2022. These borrowings resulted in increases in interest expense during the year ended December 31, 2023 of $6.7 million related to the 2029 Unsecured Term Loan, $7.1 million related to the 2032 Senior Unsecured Public Notes, and $0.5 million related to the amortization of deferred financing fees. In addition, borrowing levels and interest rates on the Revolving Credit Facility during the year ended December 31, 2023 were higher than the comparative period in 2022 resulting in an increase in interest expense of $4.4 million. These increases in interest expense during 2023 were partially offset by an increase of $0.7 million of capitalized interest during the year ended December 31, 2023 as compared to the same period in 2022 due to the increased level of activity in development and Development Funding Platform projects during 2023 as well as a decrease of $0.5 million of interest expense related to mortgages driven by the repayment of mortgage principal during 2023 and 2022. (see Liquidity and Capital Resources – Debt below).

Gain on sale of assets decreased $3.5 million to $1.8 million for the year ended December 31, 2023, compared to $5.3 million for the year ended December 31, 2022.  Six properties were sold during the year ended December 31, 2023 while seven properties were sold during the year ended December 31, 2022. Gains on sales of assets are dependent on the levels of disposition activity and the assets’ basis relative to their sales prices.  As a result, such gains are not necessarily comparable period-to-period.

Provision for impairment increased $6.2 million to $7.2 million for the year ended December 31, 2023, compared to $1.0 million for the year ended December 31, 2022.  Provisions for impairment are recorded when events or changes in circumstances indicate that the carrying amount may not be recoverable through operations plus estimated disposition proceeds and are not necessarily comparable period-to-period.

Net income increased $17.5 million, or 11%, to $170.5 million for the year ended December 31, 2023, compared to $153.0 million for the year ended December 31, 2022. The change was the result of the growth in the portfolio partially offset by

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the items discussed above. After allocation of income to non-controlling interest and preferred stockholders, net income attributable to common stockholders increased $17.5 million, or 12% to $162.5 million for the year ended December 31, 2023, compared to $145.0 million for the year ended December 31, 2022.

Liquidity and Capital Resources

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

In September 2023, the Company repaid a $4.6 million, 5.01% per annum, interest only mortgage note at maturity.

In July 2023, the Company closed on an unsecured $350 million 5.5-year term loan (the “2029 Unsecured Term Loan”) which includes an accordion option that allows the Company to request additional lender commitments up to a total of $500 million and matures in January 2029. Borrowings under the Term Loan are priced at SOFR plus a spread of 80 to 160 basis points over SOFR, depending on the Company’s credit ratings, plus a SOFR adjustment of 10 basis points. Based on the Company’s credit ratings at the time of closing, pricing on the 2029 Unsecured Term Loan was 95 basis points over SOFR. The Company used the existing $350 million of forward starting interest rate swaps to hedge the variable SOFR priced interest to a weighted average fixed rate of 3.57% until January 2029.

The Company expects to meet its short-term liquidity requirements through cash and cash equivalents held as of December 31, 2023, cash provided from operations, and borrowings under its revolving credit facility. As of December 31, 2023, available cash and cash equivalents, including cash held in escrow, was $14.5 million.

As of December 31, 2023, the Company had $227.0 million outstanding on its revolving credit facility and $773.0 million  available for future borrowings, subject to its compliance with covenants. The Company anticipates funding its long-term capital needs through cash provided from operations, borrowings under its revolving credit facility, and the issuance of debt and common or preferred equity or other instruments convertible into or exchangeable for common or preferred equity.

We continually evaluate alternative financing and believe that we can obtain financing on reasonable terms. However, there can be no assurance that additional financing or capital will be available, or that the terms will be acceptable or advantageous to us. Our ability to access capital on favorable terms as well as to use cash from operations to continue to meet our liquidity needs, is uncertain and cannot be predicted and could be affected by various risks and uncertainties, including, but not limited to the risks detailed in Part I, Item 1A, “Risk Factors.”

Capitalization

As of December 31, 2023, the Company’s total enterprise value was approximately $8.94 billion. Total enterprise value consisted of $6.35 billion of common equity (based on the December 31, 2023 closing price of Company common stock on the NYSE of $62.95 per common share and assuming the conversion of Operating Partnership Common Units), $175.0 million of preferred equity (stated at liquidation value), and $2.43 billion of total debt including (i) $227.0 million of borrowings under its revolving credit facility; (ii) $1.81 billion of senior unsecured notes; (iii) $350.0 million of unsecured term loans (iv) $44.9 million of mortgage notes payable; less $14.5 million cash, cash equivalents and cash held in escrow. The Company’s total debt to total enterprise value was 27.2% at December 31, 2023.

At December 31, 2023, the non-controlling interest in the Operating Partnership consisted of a 0.3% common ownership interest in the Operating Partnership. The Operating Partnership Common Units may, under certain circumstances, be exchanged for shares of Company common stock on a one-for-one basis. The Company, as sole general partner of the Operating Partnership, has the option to settle exchanged Operating Partnership Common Units held by others for cash based on the current trading price of our shares. Assuming the exchange of all Operating Partnership Common Units, there would have been 100,866,974 shares of common stock outstanding at December 31, 2023.

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Equity

Shelf Registration

The Company has filed with the SEC an automatic shelf registration statement on Form S-3ASR, registering an unspecified amount of common stock, preferred stock, depositary shares, warrants of the Company and guarantees of debt securities of the Operating Partnership, as well as an unspecified amount of debt securities of the Operating Partnership, at an indeterminate aggregate initial offering price. The Company may periodically offer one or more of these securities in amounts, prices and on terms to be announced when and if these securities are offered.  The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering.

Common Stock Offerings

In December 2021, the Company completed a follow-on public offering of 5,750,000 shares of common stock, including the full exercise of the underwriters' option to purchase an additional 750,000 shares, in connection with forward sale agreements. During 2022, the Company settled all of the December 2021 forward sale agreements. The offering resulted in net proceeds to the Company of approximately $368.7 million after deducting fees and expenses and making certain other adjustments.

In May 2022, the Company completed a follow-on public offering of 5,750,000 shares of common stock, including the full exercise of the underwriters’ option to purchase 750,000 shares in connection with forward sale agreements.  The Company settled all of the May 2022 forward sales agreements in 2022 which resulted in net proceeds to the Company of approximately $386.7 million, after deducting fees and expenses and making certain other adjustments.

In October 2022, the Company completed a follow-on public offering of 5,750,000 shares of common stock, including the full exercise of the underwriters' option to purchase 750,000 shares, in connection with forward sale agreements. During 2022, the Company settled 1,600,000 shares of common stock under the forward sale agreements, realizing net proceeds of $106.2 million. During 2023, the Company settled the remaining 4,150,000 shares of these October 2022 forward sale agreements, realizing net proceeds of $275.0 million. The offering resulted in total net proceeds to the Company of $381.2 million after deducting fees and expenses and making certain adjustments.

Preferred Stock Offering

As of December 31, 2023, the Company had 7,000,000 depositary shares (the “Depositary Shares”) outstanding, each representing 1/1,000th of a share of Series A Preferred Stock.  

Dividends on the Series A Preferred Shares are payable monthly in arrears on the first day of each month (or, if not on a business day, on the next succeeding business day). The dividend rate is 4.25% per annum of the $25,000 (equivalent to $25.00 per Depositary Share) liquidation preference. Dividends on the Series A Preferred Shares are in the amount of $0.08854 per Depositary Share, equivalent to $1.0625 per annum.

The Company may not redeem the Series A Preferred Shares before September 2026 except in limited circumstances to preserve its status as a real estate investment trust for federal income tax purposes and except in certain circumstances upon the occurrence of a change of control of the Company.  Beginning in September 2026, the Company, at its option, may redeem the Series A Preferred Shares, in whole or from time to time in part, by paying $25.00 per Depositary Share, plus any accrued and unpaid dividends. Upon the occurrence of a change in control of the Company, if the Company does not otherwise redeem the Series A Preferred Shares, the holders have a right to convert their shares into common stock of the Company at the $25.00 per share liquidation value, plus any accrued and unpaid dividends.  This conversion value is limited by a share cap if the Company’s stock price falls below a certain threshold.

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ATM Programs

The Company enters into ATM programs through which the Company, from time to time, sells shares of common stock and enters into forward sale agreements.  The results of ATM programs are shown in the following table.

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* ATM Programs have been terminated and no future issuance will occur under them.

In September 2022, the Company entered into a $750 million ATM program (the “2022 ATM Program”) through which the Company, from time to time, may sell shares of common stock and/or enter into forward sale agreements.  

As of December 31, 2023, the Company entered into forward sale agreements to sell an aggregate of 10,197,230 shares of common stock under the 2022 ATM Program, for anticipated net proceeds of $669.1 million. The Company has settled  6,363,359 shares of these forward sale agreements as of December 31, 2023 for net proceeds of approximately $433.4 million after deducting fees and expenses. The Company is required to settle the remaining outstanding shares of common stock under the 2022 ATM Program by January 2025. The Company had approximately $75.8 million of availability remaining under this program as of December 31, 2023.

Debt

The below table summarizes the Company’s outstanding debt as of December 31, 2023 and December 31, 2022 (presented in thousands):

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(1) The interest rate of the Revolving Credit Facility assumes SOFR as of December 31, 2023 of 5.39%.

(2) The interest rate of the Unsecured Term Loan reflects the spread of 95 basis points plus the impact of the interest rate swaps which convert $350 million of SOFR based interest to a fixed interest rate of 3.57%.

(3) All-in interest rate for Senior Unsecured Notes reflects the straight-line amortization of the terminated swap agreements, as applicable.

(4) The principal amounts outstanding are presented excluding their original issue discounts.

​

Senior Unsecured Revolving Credit Facility

The Company’s First Amendment to the Third Amended and Restated Revolving Credit Agreement provides for a $1.0 billion Revolving Credit Facility and converted the interest rate on the existing $1.0 billion Revolving Credit Facility from a spread over LIBOR to a spread over SOFR plus a SOFR adjustment of 10 basis points. 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 SOFR, determined by the Company's credit ratings and leverage ratio, plus a SOFR adjustment of 10 basis points. 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 87.5 basis points over SOFR. In connection with the Company's ongoing environmental, social and governance ("ESG") initiatives, pricing on the Revolving Credit Facility will decrease 1 basis point beginning in January 2024 due to improvements in the Company’s ESG rating score during 2023. Pricing may further be reduced if additional specific ESG rating improvements are achieved.

The Company and Richard Agree, the Executive Chairman of the Company, were parties to a Reimbursement Agreement dated November 18, 2014 (the “Reimbursement Agreement”).  Pursuant to the Reimbursement Agreement, Mr. Agree had agreed to reimburse the Company for any loss incurred under the Revolving Credit Facility in an amount not to exceed $14.0 million to the extent that the value of the Operating Partnership’s assets available to satisfy the Operating Partnership’s obligations under the Revolving Credit Facility is less than $14.0 million. The parties terminated the Reimbursement Agreement and entered into a new reimbursement agreement dated October 3, 2023 (the “New Reimbursement Agreement”). Pursuant to the New Reimbursement Agreement, Mr. Agree has agreed to reimburse the Company for his proportionate share of loss incurred under the Revolving Credit Facility in an amount to be determined by facts and circumstances at the time of loss.

Unsecured Term Loan

On July 31, 2023, the Company closed on the 2029 Unsecured Term Loan, an unsecured $350 million 5.5-year term loan which includes an accordion option that allows the Company to request additional lender commitments up to a total of $500 million and matures in January 2029. Borrowings under the 2029 Unsecured Term Loan are priced at SOFR plus a spread of 80 to 160 basis points over SOFR, depending on the Company’s credit ratings, plus a SOFR adjustment of 10 basis points. The Company used the existing $350 million of forward starting interest rate swaps to hedge the variable SOFR priced interest to a weighted average fixed rate of 3.57% until January 2029.

Senior Unsecured Notes – Private Placement

The Senior Unsecured Notes (collectively the “Private Placements”) were issued in private placements to individual investors. The Private Placements did not involve a public offering in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act.

​

Senior Unsecured Notes – Public Offerings

The 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. These guarantees are senior

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unsecured obligations of the guarantors, rank equally in right of payment with all other existing and future senior unsecured indebtedness and are effectively subordinated to all secured indebtedness of the Operating Partnership and each guarantor (to the extent of the value of the collateral securing such indebtedness) of the guarantors.

​

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”). The Indenture 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.

​

Mortgage Notes Payable

As of December 31, 2023, the Company had total gross mortgage indebtedness of $44.9 million which was collateralized by related real estate and tenants’ leases with an aggregate net book value of $79.3 million. The weighted average interest rate on the Company’s mortgage notes payable was 3.78% as of December 31, 2023.

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

Loan Covenants

Certain loan agreements contain various restrictive covenants, including the following financial covenants: maximum leverage ratio, maximum secured 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 December 31, 2023, the most restrictive covenant was the minimum unencumbered interest expense ratio. The Company was in compliance with all of its material loan covenants and obligations as of December 31, 2023.

Cash Flows

Operating - Most of the Company’s cash from operations is generated by rental income from its investment portfolio.  Net cash provided by operating activities for the year ended December 31, 2023 increased by $29.5 million over 2022, primarily due to the increase in the size of the Company’s real estate investment portfolio, partially offset by normal course changes in working capital as well as the proceeds received in connection with the settlement of interest rate swaps during 2022.  No such settlements were completed in 2023.

Investing - Net cash used in investing activities was $341.0 million lower during the year ended December 31, 2023, compared to 2022 primarily due to:

[[GREPCENT_TABLE]]
[["","\u25cf","Cash used for property acquisitions decreased $372.5 million due to the overall decrease in the level of acquisition activity; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Proceeds from asset sales decreased by $31.1 million. Proceeds from asset sales are dependent on levels of disposition activity and the specific assets sold and are not necessarily comparable period-to-period."]]
[[/GREPCENT_TABLE]]

Financing - Net cash provided by financing activities decreased by $368.5 million during the year ended December 31, 2023, compared to 2022 primarily due to:

[[GREPCENT_TABLE]]
[["","\u25cf","Net proceeds from the issuance of common stock decreased by $567.9 million;"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","\u25cf","Net borrowings under the Revolving Credit Facility increased by $187.0 million. During 2023, the Company borrowed a net of $127.0 million under the Revolving Credit Facility while net repayments of $60.0 million were completed in 2022;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Total dividends and distributions paid to the Company\u2019s common and preferred stockholders and non-controlling interest increased by $57.4 million to $286.1 million in 2023 as compared to $228.7 million in 2022 due to the increase in the annualized common dividend rate and increased number of common shares outstanding. The Company\u2019s annualized common stock dividend declared during the fourth quarter of 2023 of $2.964 per common share, represents a 2.9% increase over the annualized dividend amount of $2.880 per common share declared in December 2022;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Net proceeds from unsecured borrowings increased by $52.5 million. During the year ended December 31, 2023, $350 million of proceeds were received as a result of the issuance of the 2029 Unsecured Term Loan while $297.5 million of proceeds were received during the year ended December 31, 2022 from the issuance of the 2032 Senior Unsecured Public Notes; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Payments of mortgage notes payable decreased $19.0 million driven by the principal repayment on interest only mortgage notes payable. During 2023, the Company repaid a $4.6 million, 5.01% per annum, interest only mortgage note as compared to the repayment of a $23.6 million, 3.60% per annum, interest only mortgage note during 2022."]]
[[/GREPCENT_TABLE]]

Material Cash Requirements

In conducting our business, the Company enters into contractual obligations, including those for debt and operating leases for land.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","2024","","2025","","2026","","2027","","2028","","Thereafter","","Total"],["Mortgage Notes Payable","\u200b","$","963","\u200b","$","1,026","\u200b","$","629","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","42,250","\u200b","$","44,868"],["Revolving Credit Facility (1)","\u200b","","\u2014","\u200b","","\u2014","\u200b","","227,000","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","227,000"],["Unsecured Term Loan","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","350,000","\u200b","\u200b","350,000"],["Senior Unsecured Notes","\u200b","","\u2014","\u200b","","50,000","\u200b","","\u2014","\u200b","","50,000","\u200b","","410,000","\u200b","","1,300,000","\u200b","","1,810,000"],["Land Lease Obligations","\u200b","","7,449","\u200b","","1,197","\u200b","","1,195","\u200b","","1,042","\u200b","","1,013","\u200b","","27,796","\u200b","","39,692"],["Estimated Interest Payments on Outstanding Debt (2)","\u200b","","99,497","\u200b","","98,217","\u200b","","83,652","\u200b","","81,812","\u200b","","75,811","\u200b","","136,285","\u200b","","575,274"],["Total","\u200b","$","107,909","\u200b","$","150,440","\u200b","$","312,476","\u200b","$","132,854","\u200b","$","486,824","\u200b","$","1,856,331","\u200b","$","3,046,834"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(1)","The Revolving Credit Facility matures in January 2026, with options to extend the maturity date by six months up to two times, for a maximum maturity of January 2027."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(2)","Estimated interest payments calculated for (i) variable rate debt based on the rate in effect at period-end and (ii) fixed rate debt based on the coupon interest rate."]]
[[/GREPCENT_TABLE]]

In addition to items reflected in the table above, the Company has preferred stock with cumulative cash dividends, as described under Equity – Preferred Stock Offering above.

During the year ended December 31, 2023 the Company had 37 development or Developer Funding Platform projects completed or under construction, for which 16 remain under construction as of December 31, 2023. Anticipated total costs for the 16 projects are approximately $63.7 million. These construction commitments will be funded using cash provided from operations, current capital resources on hand, and/or other sources of funding available to the Company.

​

The Company’s recurring obligations under its tenant leases for maintenance, taxes, and/or insurance will also be funded

through the sources available to the Company described earlier.

​

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Dividends

During the fourth quarter of 2023 the Company declared monthly dividends of $0.247 per common share for October, November, and December 2023. The holder of the Operating Partnership Common Units is entitled to an equal distribution per Operating Partnership Common Unit held. The dividends and distributions payable for October and November were paid during the quarter.  The December dividends and distributions were recorded as a liability on the Consolidated Balance Sheet at December 31, 2023 and were paid on January 16, 2024.

​

During the fourth quarter of  2023, the Company declared monthly dividends on the Series A Preferred Shares for October, November, and December 2023 in the amount of $0.08854 per Depositary Share. The dividends payable for October and November were paid during the quarter. The December dividend was recorded as a liability on the Consolidated Balance Sheet at December 31, 2023 and were paid on January 2, 2024.  

​

Recent Accounting Pronouncements

Refer to Note 2 – Summary of Significant Accounting Policies in the consolidated financial statements for a summary and anticipated impact of each accounting pronouncement on the Company’s financial statements.

Critical Accounting Policies and Estimates

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires the Company’s management to use judgment in the application of accounting policies, including making estimates and assumptions.  Management bases estimates on the best information available at the time, its experience and on various other assumptions believed to be reasonable under the circumstances. These estimates affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  If management’s judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, it is possible that different accounting principles would have been applied, resulting in a different presentation of the consolidated financial statements.  From time-to-time, the Company may re-evaluate its estimates and assumptions.  In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain.  A summary of the Company’s critical accounting policies is included below.  This summary should be read in conjunction with the more complete discussion of our accounting policies and procedures included in Note 2 to our consolidated financial statements.

Accounting for Acquisitions of Real Estate

The acquisition of property for investment purposes is typically accounted for as an asset acquisition. The Company allocates the purchase price to land, building, assumed debt, if any, and identified intangible assets and liabilities, based in each case on their relative estimated fair values and without giving rise to goodwill. In making estimates of fair values, the Company may use various sources, including data provided by independent third parties, as well as information obtained by the Company as a result of due diligence, including expected future cash flows of the property and various characteristics of the markets where the property is located. Certain assumptions, including those around market land values and market rental rates, are inherently subjective. While assumptions of market land values and market rental rates are based on available market data, the application of market data to the unique nature of properties acquired may require significant judgment. The use of different assumptions in the allocation of the purchase price of the acquired properties could affect the timing of recognition of the related revenue and expenses.

Impairments

We review our real estate investments for possible impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable through operations plus estimated disposition proceeds. Events or circumstances that may occur include, but are not limited to, significant changes in real estate market conditions, estimated residual values, our ability or expectation to re-lease properties that are vacant or become vacant or a change in the anticipated holding period for a property. Identification of such events may involve certain assumptions, estimates, and significant judgment.

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Management determines whether an impairment in value has occurred by comparing the estimated future cash flows (undiscounted and without interest charges), including the residual value of the real estate, to the carrying cost of the individual asset. Impairments are measured to the extent the current book value exceeds the estimated fair value of the asset less disposition costs for any assets classified as held for sale.

The valuation of impaired assets is determined using valuation techniques including discounted cash flow analysis, analysis of recent comparable sales transactions and/or purchase offers received from third parties. The Company may consider a single valuation technique or multiple valuation techniques, as appropriate, when estimating the fair value of its real estate.

The expected cash flows of a property are dependent on estimates and other factors subject to change, including (1) changes in the national, regional, and/or local economic climates and/or market conditions, (2) competition from other retail, (3) increases in operating costs, (4) bankruptcy and/or other changes in a tenant’s condition and (5) expected holding period. These factors could cause our expected future cash flows from a property to change, and, as a result, an impairment could be considered to have occurred. Determination of the fair value of a property for purposes of measuring impairment may involve significant judgment.

Non-GAAP Financial Measures

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

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

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

Core Funds from Operations (“Core FFO”)

The Company defines Core FFO as Nareit FFO with the addback of (i) noncash amortization of acquisition purchase price related to above- and below- market lease intangibles and discount on assumed mortgage debt and (ii) certain infrequently occurring items that reduce or increase net income in accordance with GAAP. Management believes that its measure of Core FFO facilitates useful comparison of performance to its peers who predominantly transact in sale-leaseback transactions and are thereby not required by GAAP to allocate purchase price to lease intangibles.  Unlike many of its peers, the Company has acquired the substantial majority of its net-leased properties through acquisitions of properties from third parties or in connection with the acquisitions of ground leases from third parties.

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

Adjusted Funds from Operations (“AFFO”)

AFFO is a non-GAAP financial measure of operating performance used by many companies in the REIT industry. AFFO further adjusts FFO and Core FFO for certain non-cash items that reduce or increase net income computed in accordance with GAAP. Management considers AFFO a useful supplemental measure of the Company’s performance, however,

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

The following table provides a reconciliation of net income to FFO, Core FFO, and AFFO for the years ended December 31, 2023, 2022 and 2021 (presented in thousands):

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","Year Ended"],["\u200b","","","\u200b","December 31, 2023","","December 31, 2022","","December 31, 2021"],["Reconciliation from Net Income to Funds from Operations","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net income","\u200b","\u200b","\u200b","$","170,547","\u200b","$","153,035","\u200b","$","122,876"],["Less Series A preferred stock dividends","\u200b","\u200b","\u200b","\u200b","7,437","\u200b","\u200b","7,437","\u200b","\u200b","2,148"],["Net income attributable to Operating Partnership common unitholders","\u200b","\u200b","\u200b","\u200b","163,110","\u200b","\u200b","145,598","\u200b","\u200b","120,728"],["Depreciation of rental real estate assets","\u200b","\u200b","\u200b","","115,617","\u200b","","88,685","\u200b","","66,732"],["Amortization of lease intangibles - in-place leases and leasing costs","\u200b","\u200b","\u200b","","58,967","\u200b","","44,107","\u200b","","28,379"],["Provision for impairment","\u200b","\u200b","\u200b","","7,175","\u200b","","1,015","\u200b","","1,919"],["(Gain) loss on sale or involuntary conversion of assets, net","\u200b","\u200b","\u200b","","(1,849)","\u200b","","(5,258)","\u200b","","(15,111)"],["Funds from Operations - Operating Partnership common unitholders","\u200b","\u200b","\u200b","$","343,020","\u200b","$","274,147","\u200b","$","202,647"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Loss on extinguishment of debt and settlement of related hedges","\u200b","\u200b","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","14,614"],["Amortization of above (below) market lease intangibles, net and assumed mortgage debt discount, net","\u200b","\u200b","\u200b","\u200b","33,430","\u200b","\u200b","33,563","\u200b","\u200b","24,284"],["Core Funds from Operations - Operating Partnership common unitholders","\u200b","\u200b","\u200b","$","376,450","\u200b","$","307,710","\u200b","$","241,545"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Straight-line accrued rent","\u200b","\u200b","\u200b","","(12,142)","\u200b","","(13,176)","\u200b","","(11,857)"],["Stock-based compensation expense","\u200b","\u200b","\u200b","","8,338","\u200b","","6,464","\u200b","","5,467"],["Amortization of financing costs and original issue discounts","\u200b","\u200b","\u200b","","4,403","\u200b","","3,141","\u200b","","1,197"],["Non-real estate depreciation","\u200b","\u200b","\u200b","","1,693","\u200b","","778","\u200b","","618"],["Adjusted Funds from Operations - Operating Partnership common unitholders","\u200b","\u200b","\u200b","$","378,742","\u200b","$","304,917","\u200b","$","236,970"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Funds from Operations per common share and partnership unit - diluted","\u200b","\u200b","\u200b","$","3.58","\u200b","$","3.45","\u200b","$","3.00"],["Core Funds from Operations per common share and partnership unit - diluted","\u200b","\u200b","\u200b","$","3.93","\u200b","$","3.87","\u200b","$","3.58"],["Adjusted Funds from Operations per common share and partnership unit - diluted","\u200b","\u200b","\u200b","$","3.95","\u200b","$","3.83","\u200b","$","3.51"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Weighted average shares and Operating Partnership common units outstanding","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Basic","\u200b","\u200b","\u200b","","95,539,028","\u200b","","79,006,952","\u200b","","67,149,861"],["Diluted","\u200b","\u200b","\u200b","","95,785,031","\u200b","","79,512,005","\u200b","","67,486,698"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Additional supplemental disclosure","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Scheduled principal repayments","\u200b","\u200b","\u200b","$","905","\u200b","$","850","\u200b","$","799"],["Capitalized interest","\u200b","\u200b","\u200b","$","1,957","\u200b","$","1,261","\u200b","$","249"],["Capitalized building improvements","\u200b","\u200b","\u200b","$","9,819","\u200b","$","7,945","\u200b","$","5,821"]]
[[/GREPCENT_TABLE]]

​

​

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