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Summary of Significant Accounting Policies | 12 Months Ended
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Dec. 31, 2013
Accounting Policies [Abstract] |
Significant Accounting Policies [Text Block] | 2. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements of Agree Realty Corporation include the accounts of the Company, its majority-owned partnership, Agree Limited Partnership (the “Operating Partnership”), and its wholly-owned subsidiaries. The Company controlled, as the sole general partner, 97.72% and 97.05% of the Operating Partnership as of December 31, 2013 and 2012, respectively. All material intercompany accounts and transactions are eliminated. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of (1) assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and (2) revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications 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 2012 and 2011 balances have been reclassified to conform to the 2013 presentation. Certain reclassifications of prior period amounts have been made in the financial statements in order to conform to the 2013 presentation. Fair Values of Financial Instruments Certain of the Company’s assets and liabilities are disclosed or recorded 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 the market, income and cost approaches. The assumptions used in the application of these valuation methods are developed from the perspective of market participants, pricing the asset or liability. Inputs used in the valuation methods can be either readily observable, market corroborated, or generally unobservable inputs. Whenever possible the Company attempts to utilize valuation methods that maximize the 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 assets and liabilities measured or disclosed at fair value as of December 31, 2013.
|  |  |  |  |  |  |  |  |  |  | Carrying |
Asset: |  | Level 1 |  | Level 2 |  | Level 3 |  | Value |
Interest rate swaps |  | $ | - |  | $ | 679,234 |  | $ | - |  | $ | 679,234 |
|  |  |  |  |  |  |  |  |  |  | Carrying |
Liability: |  | Level 1 |  | Level 2 |  | Level 3 |  | Value |
Interest rate swap |  | $ | - |  | $ | 204,696 |  | $ | - |  | $ | 204,696 |
Mortgage notes payable |  | $ | - |  | $ | - |  | $ | 108,385,281 |  | $ | 113,897,758 |
Unsecured revolving credit facility |  | $ | - |  | $ | 9,500,000 |  | $ | - |  | $ | 9,500,000 |
Unsecured term loan |  | $ | - |  | $ | - |  | $ | 32,728,011 |  | $ | 35,000,000 |
The table below sets forth the Company’s fair value hierarchy for liabilities measured or disclosed at fair value as of December 31, 2012.
|  |  |  |  |  |  |  |  |  |  | Carrying |
Liability: |  | Level 1 |  | Level 2 |  | Level 3 |  | Value |
Interest rate swaps |  | $ | - |  | $ | 1,337,998 |  | $ | - |  | $ | 1,337,998 |
Mortgage notes payable |  | $ | - |  | $ | - |  | $ | 119,581,000 |  | $ | 117,376,142 |
Unsecured revolving credit facility |  | $ | - |  | $ | 43,530,005 |  | $ | - |  | $ | 43,530,005 |
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 are based on the net present value of expected future cash flows on each leg of the swap 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 of 5.04% and 3.76% at December 31, 2013 and 2012, respectively. 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. Real Estate Investments – Carrying Value of Assets Real Estate Investments 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. Subsequent to completion of construction, expenditures for property maintenance are charged to operations as incurred, while significant renovations are capitalized. Depreciation and Amortization Depreciation expense is computed using the straight-line method and estimated useful lives for buildings and improvements of 20 to 40 years and equipment and fixtures of 5 to 10 years. Purchase Accounting for Acquisitions of Real Estate Acquired Real Estate Investments have been accounted for using the purchase method of accounting and accordingly, the results of operations are included in the consolidated statements of operations and comprehensive 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 of fair value and (ii) identifiable intangible assets or liabilities generally consisting of above- and below-market in-place leases and foregone leasing costs. The Company makes 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 intangibles cost 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. The fair value of intangible assets acquired is amortized to depreciation and amortization on the consolidated statements of operations and comprehensive income over the remaining term of the respective leases. The weighted average amortization period for the lease intangible costs is 19.4 years. Real Estate Investments – Impairment Evaluation Management periodically assesses its Real Estate Investments for possible impairment indicating that the carrying value of the asset, including accrued rental income, may not be recoverable through operations. Events or circumstances that may occur include significant changes in real estate market conditions and the ability of the Company to re-lease or sell properties that are currently vacant or become vacant. 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, with the carrying cost of the individual asset. If an impairment is indicated, a loss will be recorded for the amount by which the carrying value of the asset exceeds fair value. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company maintains its cash and cash equivalents at financial institutions. The account balances periodically exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance coverage, and as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. Accounts Receivable – Tenants Accounts receivable from tenants are unsecured and reflect primarily reimbursement of specified common area expenses. Amounts outstanding in excess of 30 days are considered past due. The Company determines its allowance for uncollectible accounts based on historical trends, existing economic conditions, and known financial position of its tenants. Tenant accounts receivable are written-off by the Company in the year when receipt is determined to be remote. Unamortized Deferred Expenses Deferred expenses are stated net of total accumulated amortization. The nature and treatment of these capitalized costs are as follows: (1) financing costs, consisting of expenditures incurred to obtain long-term financing, are amortized using the straight-line method which approximates the effective interest method over the term of the related loan, (2) leasing costs, are amortized on a straight-line basis over the term of the related lease and (3) lease intangibles, are amortized over the remaining term of the lease acquired. The Company’s amortization expense for deferred expenses was $2,483,217, $1,712,530, and $1,105,087 for the years ended December 31, 2013, 2012 and 2011, respectively. The following table represents estimated future aggregate amortization expense related to deferred expenses as of December 31, 2013.
Year Ending December 31, |  |  |  |
2014 |  | $ | 2,856,168 |
2015 |  |  | 2,551,978 |
2016 |  |  | 2,423,747 |
2017 |  |  | 2,330,506 |
2018 |  |  | 2,198,622 |
Thereafter |  |  | 18,629,283 |
Total |  | $ | 30,990,304 |
Other Assets The Company records prepaid expenses, deposits, furniture and fixtures, leasehold improvements, acquisition advances and miscellaneous receivables as other assets in the accompanying balance sheets. Accounts Payable – Capital Expenditures Included in accounts payable are amounts related to the construction of buildings and improvements. Due to the nature of these expenditures, they are reflected in the statements of cash flows as a non-cash financing activity. Revenue Recognition 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 volume. These percentage rents are recognized when determinable by the Company. Taxes Collected and Remitted to Governmental Authorities The Company reports taxes, collected from tenants that are to be remitted to governmental authorities, on a net basis and therefore does not include the taxes in revenue. Operating Cost Reimbursement Substantially all of the Company's community shopping center leases and various of the net leased properties contain provisions requiring tenants to pay as additional rent a proportionate share of operating expenses such as real estate taxes, repairs and maintenance, and insurance, also referred to as common area maintenance or “CAM” charges. The related revenue from tenant billings for CAM charges is recognized as operating cost reimbursement in the same period the expense is recorded. Development Fee Income For contracts where the Company receives fee income for managing a development project and does not retain ownership of the real property developed, the Company uses the percentage of completion accounting method. Under this approach, income is recognized based on the status of the uncompleted contracts and the current estimates of costs to complete. The percentage of completion is determined by the relationship of costs incurred to the total estimated costs of the contract. Provisions are made for estimated losses on uncompleted contracts in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income. Such revisions are recognized in the period in which they are determined. Claims for additional compensation due to the Company are recognized in contract revenues when realization is probable and the amount can be reliably estimated. Income Taxes The Company has made an election to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) and related regulations. The Company generally will not be subject to federal income taxes on amounts distributed to stockholders, providing it distributes 100 percent of its REIT taxable income and meets certain other requirements for qualifying as a REIT. For each of the years in the three-year period ended December 31, 2013, the Company believes it has qualified as a REIT. Notwithstanding the Company’s qualification for taxation as a REIT, the Company is subject to certain state taxes on its income and real estate. The Company and its taxable REIT subsidiaries (“TRS”) have made a timely TRS election pursuant to the provisions of the REIT Modernization Act. A TRS is able to engage in activities resulting in income that previously would have been disqualified from being eligible REIT income under the federal income tax regulations. As a result, certain activities of the Company which occur within its TRS entity are subject to federal and state income taxes (See Note 9). All provisions for federal income taxes in the accompanying consolidated financial statements are attributable to the Company’s TRS. Dividends The Company declared dividends of $1.64, $1.60 and $1.60 per share during the years ended December 31, 2013, 2012, and 2011; the dividends have been reflected for federal income tax purposes as follows:
December 31, |  | 2013 |  | 2012 |  | 2011 |
Ordinary income |  | $ | 1.372 |  | $ | 1.200 |  | $ | 1.570 |
Return of capital |  |  | .268 |  |  | .400 |  |  | .030 |
Total |  | $ | 1.640 |  | $ | 1.600 |  | $ | 1.600 |
The aggregate federal income tax basis of Real Estate Investments is approximately $18.9 million less than the financial statement basis. Earnings Per Share Earnings per share have been computed by dividing the net income by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the weighted average common and potential dilutive common shares outstanding in accordance with the treasury stock method. 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:
|  | Year Ended December 31, |
|  | 2013 |  | 2012 |  | 2011 |
Weighted average number of common shares outstanding |  | 13,314,989 |  | 11,321,498 |  | 9,854,285 |
Unvested restricted stock |  | 249,082 |  | 250,180 |  | 216,920 |
Weighted average number of common shares outstanding used in basic earnings per share |  | 13,065,907 |  | 11,071,318 |  | 9,637,365 |
Weighted average number of common shares outstanding used in basic earnings per share |  | 13,065,907 |  | 11,071,318 |  | 9,637,365 |
Effect of dilutive securities: |  |  |  |  |  |  |
Restricted stock |  | 91,598 |  | 65,592 |  | 43,867 |
Weighted average number of common shares outstanding used in diluted earnings per share |  | 13,157,505 |  | 11,136,910 |  | 9,681,232 |
Stock Based Compensation The Company estimates fair value of restricted stock grants based on the stock price 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. Recent Accounting Pronouncements In February 2013, the Financial Accounting Standards Board (“FASB”) updated ASC 220 “Comprehensive Income” with ASU 2013-2 “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” This update requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, ASU 2013-2 requires an entity to present, either on the face of the income statement or in the notes to financial statements, significant amounts reclassified out of accumulated other comprehensive income by respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. The amendments in ASU 2013-2 do not change the current requirements for reporting net income or other comprehensive income in financial statements. For public entities, the amendments in ASU 2013-2 are effective prospectively for reporting periods beginning after December 31, 2012. The adoption of this guidance concerns disclosure only and did not have an impact on our consolidated financial statements. In July 2013, the FASB updated ASC 815 “Derivatives and Hedging” with ASU 2013-10 “Inclusion of the Fed Funds Effective Swap Rate (of Overnight Index Swap Rate) as a Benchmark Interest rate for Hedge Accounting Purposes.” ASU 2013-10 permits the Overnight Index Swap (“OIS”) Rate, also referred to as the Fed Funds effective Swap Rate, to be used as a U.S. benchmark for hedge accounting purposes, in addition to London Interbank Offered Rate (“LIBOR”) and the interest rate on direct U.S. Treasury obligations. The guidance also removes the restriction on using different benchmarks for similar hedges. ASU 2013-10 is effective prospectively for qualifying new or re-designated hedges entered into on or after July 17, 2013. The adoption of this guidance did not have an impact on our consolidated financial statements.

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