##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 For
the fiscal year ended December 31, 2005
 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
    
    (I.R.S. EmployerIncorporation or organization)
    
    identification No.)31850 Northwestern Highway
    
    (248) 737-4190Farmington Hills, Michigan
48334
    
    (Registrants telephone number,Including area code)
 Securities Registered Pursuant to Section 12(b) of the Act:
 Title of each class
    
    Name of each exchange on which registeredCommon Stock, $.0001 par value Exchange
    
    New York Stock
 Securities Registered Pursuant to Section 12(g) of the Act:
None
(
 o þ
 o þ
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer
o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE:




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##### 



TABLE OF CONTENTS
 Part IItem 1.
    
    Business
    
    
    4Item 1A.
    
    Risk Factors
    
    
    6Item 1B.
    
    Unresolved Staff Comments
    
    
    11Item 2.
    
    Properties
    
    
    11Item 3.
    
    Legal Proceedings
    
    
    17Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    17Part IIItem 5.
    
    Market for Registrants Common Equity and Related Stockholder Matters
    
    
    18Item 6.
    
    Selected Financial Data
    
    
    18Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    26Item 8.
    
    Financial Statements and Supplementary Data
    
    
    27Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    27Item 9A.
    
    Controls and Procedures
    
    
    27Item 9B.
    
    Other Information
    
    
    30Part IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    30Item 11.
    
    Executive Compensation
    
    
    30Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management
    
    
    31Item 13.
    
    Certain Relationships and Related Transactions
    
    
    31Item 14.
    
    Principal Accountant Fees and Services
    
    
    31Part IVItem 15.
    
    Exhibits, Financial Statements and Schedules
    
    
    31Signatures
    
    
    35Subsidiaries of Agree Realty CorporationConsent of BDO Seidman, LLPCertification pursuant to Section 302 of Richard Agree, Chief Executive OfficerCertification pursuant to Section 302 of Kenneth R. Howe, Chief Financial OfficerCertification pursuant to Section 906 of Richard Agree, Chief Executive OfficerCertification pursuant to Section 906 of Kenneth R. Howe, Chief Financial Officer
  2




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Part I
 FORWARD LOOKING STATEMENTS
   
    
    Our inability to effect the development or acquisition of properties on favorable
terms.
    
    The effect of economic conditions. If an economic downturn occurs, any
corresponding decrease in disposable income could result in consumers being less
willing to purchase goods from our tenants which could adversely affect our financial
condition and results of operations. Our financial condition and results of operations
could also be adversely affected if our tenants are otherwise unable to make lease
payments or fail to renew their leases.
    
    Our inability to obtain long-term financing at interest rates that will allow us to
offer attractive rental rates to our tenants in order to continue the development or
acquisition of retail properties leased to national tenants on a long-term basis.
    
    Actions of our competitors. We seek to remain competitive in the development of
real estate assets in the markets that we currently serve. With regard to our
acquisition of properties, we compete with insurance companies, credit companies,
pension funds, private individuals, investment companies and other REITs, some of which
have greater resources than we do.
    
    Failure to qualify as a REIT. Although we believe that we were organized and have
been operating in conformity with the requirements for qualification as a REIT under
the Internal Revenue Code, we cannot assure you that we will continue to qualify as a
REIT.
    
    Changes in government regulations, tax rates and similar matters, For example,
changes in real estate and zoning laws, environmental uncertainties and natural
disasters could adversely affect our financial condition and results of operations.
    3




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Item 1.
    
    BUSINESS
 General
    Growth Strategy
   Financing Strategy
  4




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Property Management
   Agree Limited Partnership
  Headquarters
  Major Tenants
  Tax Status
  5




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Competition
  Potential Environmental Risks
    Employees
  Financial Information About Industry Segments
  
 ITEM 1A.
    
    RISK FACTORS
 General
 We rely significantly on three major tenants.
 6




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We could be adversely affected by a tenants bankruptcy.
 Risks involved in single tenant leases.
 Risks associated with borrowing, including loss of properties in the event of a foreclosure.
 Risks associated with our development and acquisition activities.
 Our portfolio has limited geographic diversification.
 Dependence on key personnel.
 7




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We are not limited by our organization documents as to the amount of debt we may incur.
 We can change our investment and financing policies without stockholder approval.
 Competition
 Risks Associated With Investment In Real Estate
  
    
    The risk that tenants will not perform under their leases, reducing our income from
the leases or requiring us to assume the cost of performing obligations (such as taxes,
insurance and maintenance) that are the tenants responsibility under the lease.
    
    The risk that changes in economic conditions or real estate markets may adversely
affect the value of our properties.
    
    The risk that local conditions (such as oversupply of similar properties) could
adversely affect the value of our properties.
    
    The risk that we may not always be able to lease properties at favorable rental
rates.
    
    The risk that we may not always be able to sell a property when we desire to do so
at a favorable price.
    
    The risk of changes in tax, zoning or other laws could make properties less
attractive or less profitable.
  8




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Uncertainties relating to lease renewals and re-letting of space.
 Some potential losses are not covered by insurance.
 Potential liability for environmental contamination could result in substantial costs.
 
    
    As owner we may have to pay for property damage and for investigation and clean-up
costs incurred in connection with the contamination.
    
    The law may impose clean-up responsibility and liability regardless of whether the
owner or operator knew of or caused the contamination.
    
    Even if more than one person is responsible for the
contamination, each person who shares legal liability under environmental laws may be held responsible for all of the
clean-up costs.
    
    Governmental entities and third parties may sue the owner or operator of a
contaminated site for damages and costs.
   9




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Tax Risks
   
    
    We would not be allowed a deduction for dividends paid to stockholders in computing
our taxable income and would be subject to federal income tax at regular corporate
rates.
    
    We could be subject to the federal alternative minimum tax and possibly increased
state and local taxes.
    
    Unless we are entitled to relief under statutory provisions, we could not elect to
be treated as a REIT for four taxable years following the year in which we were
disqualified.
  Excessive non-real estate asset values may jeopardize our REIT status.
  We may have to borrow funds or sell assets to meet our distribution requirements.
 10




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We may be subject to other tax liabilities.
 Changes in tax laws may prevent us from qualifying as a REIT.
 
 ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
 None
 
 ITEM 2.
    
    PROPERTIES
   Development and Acquisition Summary
    Major Tenants
  11




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Annualized Base
    
    
    Percent of TotalNumber
    
    
    Rent as of
    
    
    Annualized Base Rent asof Leases
    
    
    December 31, 2005
    
    
    of December 31, 2005Borders
    
    
    18
    
    
    $
    9,714,132
    
    
    
    33
    %Walgreen
    
    
    17
    
    
    
    6,320,599
    
    
    
    21Kmart
    
    
    12
    
    
    
    3,847,911
    
    
    
    13Total
    
    
    47
    
    
    $
    19,882,642
    
    
    
    67
    %
     Location of Properties in the Portfolio
 Number
    
    Total Gross
    
    Percent of GLA Leasedof
    
    Leasable Area
    
    onState
    
    Properties
    
    (Sq. feet)
    
    December 31, 2005California
    
    
    1
    
    
    
    38,015
    
    
    
    100
    %Florida
    
    
    4
    
    
    
    258,793
    
    
    
    100Indiana
    
    
    1
    
    
    
    15,844
    
    
    
    100Illinois
    
    
    1
    
    
    
    20,000
    
    
    
    90Kansas
    
    
    2
    
    
    
    45,000
    
    
    
    100
 12




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Number
    
    Total Grossof
    
    Leasable Area
    
    Percent of GLA Leased onState
    
    Properties
    
    (Sq. feet)
    
    December 31, 2005Kentucky
    
    
    1
    
    
    
    135,009
    
    
    
    75Maryland
    
    
    2
    
    
    
    53,000
    
    
    
    100Michigan
    
    
    33
    
    
    
    2,024,244
    
    
    
    99Nebraska
    
    
    2
    
    
    
    55,000
    
    
    
    100New Jersey
    
    
    1
    
    
    
    10,118
    
    
    
    100New York
    
    
    2
    
    
    
    27,626
    
    
    
    100Ohio
    
    
    1
    
    
    
    21,000
    
    
    
    100Oklahoma
    
    
    4
    
    
    
    99,282
    
    
    
    100Pennsylvania
    
    
    1
    
    
    
    37,004
    
    
    
    100Wisconsin
    
    
    3
    
    
    
    523,036
    
    
    
    100Total/Average
    
    
    59
    
    
    
    3,362,971
    
    
    
    99
    %
 Lease Expirations
  December 31, 2005Gross Leasable Area
    
    
    Annualized Base RentNumberof Leases
    
    
    Square
    
    
    Percent
    
    
    
    
    
    
    PercentExpiration Year
    
    Expiring
    
    
    Footage
    
    
    Of Total
    
    
    Amount
    
    
    Of Total2006
    
    
    20
    
    
    
    75,837
    
    
    
    2.3
    %
    
    $
    532,879
    
    
    
    1.8
    %2007
    
    
    11
    
    
    
    66,200
    
    
    
    2.0
    %
    
    
    577,662
    
    
    
    1.9
    %2008
    
    
    26
    
    
    
    311,205
    
    
    
    9.4
    %
    
    
    1,381,209
    
    
    
    4.6
    %2009
    
    
    14
    
    
    
    176,590
    
    
    
    5.3
    %
    
    
    857,714
    
    
    
    2.9
    %2010
    
    
    17
    
    
    
    303,885
    
    
    
    9.2
    %
    
    
    1,816,095
    
    
    
    6.1
    %2011
    
    
    16
    
    
    
    214,237
    
    
    
    6.5
    %
    
    
    1,442,873
    
    
    
    4.9
    %2012
    
    
    2
    
    
    
    2,760
    
    
    
    .1
    %
    
    
    25,360
    
    
    
    .1
    %2013
    
    
    1
    
    
    
    51,868
    
    
    
    1.6
    %
    
    
    492,746
    
    
    
    1.7
    %2014
    
    
    3
    
    
    
    172,958
    
    
    
    5.2
    %
    
    
    824,206
    
    
    
    2.8
    %2015
    
    
    11
    
    
    
    730,525
    
    
    
    22.0
    %
    
    
    5,072,330
    
    
    
    17.1
    %Thereafter
    
    
    43
    
    
    
    1,210,513
    
    
    
    36.4
    %
    
    
    16,686,425
    
    
    
    56.10
    %Total
    
    
    164
    
    
    
    3,316,578
    
    
    
    100.0
    %
    
    $
    29,709,499
    
    
    
    100.0
    %
  13




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Annualized Base Rent of our Properties
  Percent ofAnnualized
    
    
    AnnualizedType of Tenant
    
    Base Rent
    
    
    Base RentNational(1)
    
    $
    26,390,377
    
    
    
    89
    %Regional(2)
    
    
    2,177,125
    
    
    
    7Local
    
    
    1,141,997
    
    
    
    4Total
    
    $
    29,709,499
    
    
    
    100
    %
 
 (1)
    
    Includes the following national tenants: Borders, Walgreen, Kmart, Wal-Mart, Eckerd
Drugs, Fashion Bug, Rite Aid, JC Penney, Avco Financial, GNC Group, Radio Shack, Sam Goody, Super
Value, Maurices, Payless Shoes, Blockbuster Video, Family Dollar, H&R Block, Sally Beauty, Jo Ann
Fabrics, Staples, Best Buy, Dollar Tree, TGI Fridays, Circuit City and Pier 1 Imports.(2)
    
    Includes the following regional tenants: Roundys Foods, Dunhams Sports, Christopher
Banks, Beals Department Stores and Hollywood Video. Freestanding Properties
   Freestanding Properties
 YearCompleted/
    
    
    
    
    
    Lease Expiration(2)Tenant/Location
    
    Expanded
    
    Total GLA
    
    (Option expiration)Borders,(1) Aventura, FL
    
    
    1996
    
    
    
    30,000
    
    
    Jan 31, 2016 (2036)Borders, Columbus, OH
    
    
    1996
    
    
    
    21,000
    
    
    Jan 23, 2016 (2036)Borders, Monroeville, PA
    
    
    1996
    
    
    
    37,004
    
    
    Nov 8, 2016 (2036)Borders, Norman, OK
    
    
    1996
    
    
    
    24,641
    
    
    Sep 20, 2016 (2036)Borders, Omaha, NE
    
    
    1995
    
    
    
    30,000
    
    
    Nov 3, 2015 (2035)Borders, Santa Barbara, CA
    
    
    1995
    
    
    
    38,015
    
    
    Nov 17, 2015 (2035)Borders, Wichita, KS
    
    
    1995
    
    
    
    25,000
    
    
    Nov 10, 2015 (2035)Borders,(1) Lawrence, KS
    
    
    1997
    
    
    
    20,000
    
    
    Oct 16, 2022 (2042)Borders, Tulsa, OK
    
    
    1998
    
    
    
    25,000
    
    
    Sep 30, 2018 (2038)Borders, Oklahoma City, OK
    
    
    2002
    
    
    
    24,641
    
    
    Nov 17, 2017 (2037)
 14




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##### Table of Contents



YearCompleted/
    
    
    
    
    
    Lease Expiration(2)Tenant/Location
    
    Expanded
    
    Total GLA
    
    (Option expiration)Borders, Omaha, NE
    
    
    2002
    
    
    
    25,000
    
    
    Nov 17, 2017 (2037)Borders, Indianapolis, IN
    
    
    2002
    
    
    
    15,844
    
    
    Nov 17, 2017 (2037)Borders, Columbia, MD
    
    
    1999
    
    
    
    28,000
    
    
    Oct 16, 2022 (2042)Borders, Germantown, MD
    
    
    2000
    
    
    
    25,000
    
    
    Oct 16, 2022 (2042)Borders Headquarters, Ann Arbor, MI
    
    
    1996/1998
    
    
    
    458,729
    
    
    Jan 29, 2023 (2043)Borders, Tulsa, OK
    
    
    1996
    
    
    
    25,000
    
    
    Sep 30, 2018 (2038)Borders, Boynton Beach, FL
    
    
    1996
    
    
    
    25,000
    
    
    July 20, 2024 (2044)Borders, Ann Arbor, MI
    
    
    1996
    
    
    
    110,000
    
    
    July 20, 2024 (2044)Circuit City, Boynton Beach, FL
    
    
    1996
    
    
    
    32,459
    
    
    Dec 15, 2016 (2036)Citizens Bank, Flint, MI
    
    
    2003
    
    
    
    4,426
    
    
    Apr 15, 2023Eckerd Drugs, Webster, NY
    
    
    2004
    
    
    
    13,813
    
    
    Feb 24, 2024 (2044)Eckerd Drugs, Albion, NY
    
    
    2004
    
    
    
    13,813
    
    
    Oct 12, 2024 (2044)Fajita Factory, Lansing, MI
    
    
    2004
    
    
    
    (3
    )
    
    Aug 31,2014 (2032)Kmart, Grayling, MI
    
    
    1984
    
    
    
    52,320
    
    
    Sep 30, 2009 (2059)Kmart, Oscoda, MI
    
    
    1984/1990
    
    
    
    90,470
    
    
    Sep 30, 2009 (2059)Rite Aid, Canton Twp, MI
    
    
    2003
    
    
    
    11,180
    
    
    Oct 31, 2019 (2049)Rite Aid, Roseville, MI
    
    
    2005
    
    
    
    11,060
    
    
    June 30, 2025 (2050)Rite Aid, Mt Pleasant, MI
    
    
    2005
    
    
    
    11,095
    
    
    Nov 30, 2025 (2065)Rite Aid, N
Cape May, NJ
    
    
    2005
    
    
    
    10,118
    
    
    Nov 30, 2025 (2065)Sams Club, Roseville, MI
    
    
    2002
    
    
    
    (4
    )
    
    Aug 4, 2022 (2082)Walgreen, Waterford, MI
    
    
    1997
    
    
    
    13,905
    
    
    Feb 28, 2018 (2058)Walgreen, Chesterfield, MI
    
    
    1998
    
    
    
    13,686
    
    
    July 31, 2018 (2058)Walgreen, Pontiac, MI
    
    
    1998
    
    
    
    13,905
    
    
    Oct 31, 2018 (2058)Walgreen, Grand Blanc, MI
    
    
    1998
    
    
    
    13,905
    
    
    Feb 28, 2019 (2059)Walgreen, Rochester, MI
    
    
    1998
    
    
    
    13,905
    
    
    June 30, 2019 (2059)Walgreen, Ypsilanti, MI
    
    
    1999
    
    
    
    15,120
    
    
    Dec 31, 2019 (2059)Walgreen,(1) Petoskey, MI
    
    
    2000
    
    
    
    13,905
    
    
    Apr 30, 2020 (2060)Walgreen, Flint, MI
    
    
    2000
    
    
    
    14,490
    
    
    Dec 31, 2020 (2060)Walgreen, Flint, MI
    
    
    2001
    
    
    
    15,120
    
    
    Feb 28, 2021 (2061)Walgreen, N Baltimore, MI
    
    
    2001
    
    
    
    14,490
    
    
    Aug 31, 2021 (2061)Walgreen, Flint, MI
    
    
    2002
    
    
    
    14,490
    
    
    Apr 30, 2027 (2077)Walgreen, Big Rapids, MI
    
    
    2003
    
    
    
    13,560
    
    
    Apr 30, 2028 (2078)Walgreen, Flint, MI
    
    
    2004
    
    
    
    14,560
    
    
    Feb 28, 2029 (2079)Walgreen, Flint, MI
    
    
    2004
    
    
    
    13,650
    
    
    Oct 31, 2029 (2079)Walgreen, Midland, MI
    
    
    2005
    
    
    
    14,820
    
    
    July 31, 2030 (2080)Walgreen, Grand Rapids, MI
    
    
    2005
    
    
    
    14,820
    
    
    Aug 30, 2030 (2080)Walgreen, Delta Township, MI
    
    
    2005
    
    
    
    14,559
    
    
    Nov 30, 2030 (2080)Total
    
    
    
    
    
    
    1,481,518
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##### Table of Contents



(1)
    
    These properties are subject to long-term ground leases where a third party owns the
underlying land and has leased the land to us to construct or operate freestanding properties.
We pay rent for the use of the land and we are generally responsible for all costs and
expenses associated with the building and improvements. At the end of the lease terms, as
extended (Aventura, FL 2036, Lawrence, KS 2027 and Petoskey, MI 2049), the land together with
all improvements revert to the land owner. We have an option to purchase the Lawrence property
during the period October 1, 2006 to September 30, 2016 and to purchase the Petoskey property
after August 7, 2019.(2)
    
    At the expiration of tenants initial lease term, each tenant has an option, subject to
certain requirements, to extend its lease for an additional period of time.(3)
    
    This 2.03 acre property is leased from us by Fajita Factory, LLC pursuant to a ground lease.(4)
    
    This 12.68 acre property is leased from us by Wal-Mart pursuant to a ground lease. Community Shopping Centers
   Gross
    
    
    
    
    
    
    Average
    
    
    Percent
    
    
    PercentYear
    
    
    Leasable
    
    
    
    
    
    
    Base
    
    
    Occupied at
    
    
    Leased at
    
    
    Anchor Tenants (LeaseCompleted/
    
    
    Area
    
    
    Annualized
    
    
    Rent per
    
    
    December 31,
    
    
    December 31,
    
    
    expiration/Option periodProperty Location
    
    Expanded
    
    
    Sq. Ft.
    
    
    Base Rent (2)
    
    
    Sq. Ft.(3)
    
    
    2005
    
    
    2005 (4)
    
    
    expiration) (5)Capital Plaza,(1)
    
    
    1978/ 1991
    
    
    
    135,009
    
    
    $
    232,917
    
    
    $
    2.30
    
    
    
    75
    %
    
    
    75
    %
    
    Kmart(2008/2053)Frankfort, KY
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fashion Bug (2008/2025)Charlevoix Commons
    
    
    1991
    
    
    
    137,375
    
    
    
    681,495
    
    
    
    4.96
    
    
    
    74
    %
    
    
    100
    %
    
    Kmart (2015/2065)Charlevoix, MI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Roundys (2011-2031)Chippewa Commons
    
    
    1991
    
    
    
    168,311
    
    
    
    957,516
    
    
    
    5.69
    
    
    
    100
    %
    
    
    100
    %
    
    Kmart (2014/2064)Chippewa Falls, WI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Roundys (2011/2031)Fashion Bug (2011/2021)Ironwood Commons
    
    
    1991
    
    
    
    185,535
    
    
    
    914,973
    
    
    
    5.05
    
    
    
    98
    %
    
    
    98
    %
    
    Kmart (2015/2065)Ironwood, MI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Super Value (2011/2036)Fashion Bug (2007/2022)Marshall Plaza
    
    
    1990
    
    
    
    119,279
    
    
    
    674,331
    
    
    
    5.64
    
    
    
    100
    %
    
    
    100
    %
    
    Kmart (2015/2065)Marshall, MIMt. Pleasant Shopping
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Kmart (2008/2048)Center
    
    
    1973/1997
    
    
    
    241,458
    
    
    
    1,067,856
    
    
    
    4.46
    
    
    
    99
    %
    
    
    99
    %
    
    J.C. Penney Co. (2005/2020)Mt. Pleasant, MI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Staples, Inc. (2010/2025)Fashion Bug (2006/2026)North Lakeland Plaza
    
    
    1987
    
    
    
    171,334
    
    
    
    1,277,101
    
    
    
    7.45
    
    
    
    100
    %
    
    
    100
    %
    
    Best Buy (2013/2028)
 16




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##### Table of Contents



Percent
    
    
    PercentGross
    
    
    
    
    
    
    Average
    
    
    Occupied
    
    
    Leased atYear
    
    
    Leasable
    
    
    
    
    
    
    Base
    
    
    at
    
    
    December
    
    
    Anchor Tenants (LeaseCompleted/
    
    
    Area
    
    
    Annualized
    
    
    Rent per
    
    
    December 31,
    
    
    31,
    
    
    expiration/Option periodProperty Location
    
    Expanded
    
    
    Sq. Ft.
    
    
    Base Rent (2)
    
    
    Sq. Ft.(3)
    
    
    2005
    
    
    2005 (4)
    
    
    expiration) (5)Lakeland, FL
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

Bealls (2015/2025)Petoskey Town Center
    
    
    1990
    
    
    
    174,870
    
    
    
    1,083,503
    
    
    
    6.20
    
    
    
    100
    %
    
    
    100
    %
    
    Kmart (2015/2065)Petoskey, MI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Roundys (2010/2030)Fashion Bug (2007/2022)Plymouth Commons
    
    
    1990
    
    
    
    162,031
    
    
    
    973,765
    
    
    
    6.01
    
    
    
    100
    %
    
    
    100
    %
    
    Kmart (2015/2065)Plymouth, WI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Roundys (2010/2030)Fashion Bug (2008/2021)Rapids Associates
    
    
    1990
    
    
    
    173,557
    
    
    
    927,899
    
    
    
    5.47
    
    
    
    72
    %
    
    
    98
    %
    
    Kmart (2015/2065)Big Rapids, MI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Roundys (2010/2030)Fashion Bug (2006/2021)Shawano Plaza
    
    
    1990
    
    
    
    192,694
    
    
    
    961,336
    
    
    
    5.03
    
    
    
    99
    %
    
    
    99
    %
    
    Kmart (2014/2064)Shawano, WI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Roundys (2010/2030)J.C. Penney Co. (2005/2025)Fashion Bug (2006/2021)West Frankfort Plaza
    
    
    1982
    
    
    
    20,000
    
    
    
    119,667
    
    
    
    6.65
    
    
    
    90
    %
    
    
    90
    %
    
    Fashion Bug (2007)West Frankfort, ILTotal/Average
    
    
    
    
    
    
    1,881,453
    
    
    $
    9,872,359
    
    
    $
    5.38
    
    
    
    93
    %
    
    
    99
    %
 
 (1)
    
    All community shopping centers except Capital Plaza (which is subject to a long-term ground
lease expiring in 2053 from a third party) are wholly-owned by us.(2)
    
    Total annualized base rents of the Company as of December 31, 2005.(3)
    
    Calculated as total annualized base rents, divided by gross leaseable area actually leased as
of December 31, 2005.(4)
    
    Roundys leases but does not currently occupy, the 35,896 square feet it leases at Charlevoix
Commons at a rate of $5.97 per square foot and the 44,478 square feet it leases at Rapids
Associates at a rate of $6.00 per square foot. The Charlevoix lease expires in 2011 and the
Rapids Associates lease expires in 2010 (assuming they are not extended by Roundys).(5)
    
    The option to extend the lease beyond its initial term is only at the option of the tenant. 
 ITEM
3.  LEGAL PROCEEDINGS
  
 ITEM
4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  17




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##### Table of Contents



Part II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
  Market Information
 Dividends PerHigh
    
    Low
    
    Common ShareQuarter EndedMarch 31, 2005
    
    $
    31.31
    
    
    $
    26.63
    
    
    $
    0.490June 30, 2005
    
    $
    30.37
    
    
    $
    26.54
    
    
    $
    0.490September 30, 2005
    
    $
    31.00
    
    
    $
    27.72
    
    
    $
    0.490December 31, 2005
    
    $
    29.67
    
    
    $
    26.16
    
    
    $
    0.490March 31, 2004
    
    $
    32.75
    
    
    $
    27.67
    
    
    $
    0.485June 30, 2004
    
    $
    32.55
    
    
    $
    22.78
    
    
    $
    0.485September 30, 2004
    
    $
    29.05
    
    
    $
    24.50
    
    
    $
    0.490December 31, 2004
    
    $
    31.88
    
    
    $
    27.60
    
    
    $
    0.490
    
 ITEM 6. SELECTED FINANCIAL DATA
  18




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##### Table of Contents



Selected Financial Data
 Year Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    Year EndedDec 31,
    
    
    Dec 31,
    
    
    Dec 31,
    
    
    Dec31,
    
    
    Dec 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Operating DataTotal Revenue
    
    $
    31,579
    
    
    $
    28,940
    
    
    $
    26,224
    
    
    $
    23,061
    
    
    $
    22,191ExpensesProperty expense (1)
    
    
    4,545
    
    
    
    4,220
    
    
    
    4,161
    
    
    
    3,806
    
    
    
    3,427General and administrative
    
    
    4,191
    
    
    
    2,849
    
    
    
    2,275
    
    
    
    2,012
    
    
    
    1,807Interest
    
    
    4,159
    
    
    
    4,507
    
    
    
    5,684
    
    
    
    6,196
    
    
    
    6,720Early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    961
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    4,637
    
    
    
    4,249
    
    
    
    3,836
    
    
    
    3,466
    
    
    
    3,377Total Expenses
    
    
    17,532
    
    
    
    15,825
    
    
    
    16,917
    
    
    
    15,480
    
    
    
    15,331Other Income (2)
    
    
    6
    
    
    
    217
    
    
    
    438
    
    
    
    674
    
    
    
    913Income
before Minority Interest and Discontinued Operations
    
    
    14,053
    
    
    
    13,332
    
    
    
    9,745
    
    
    
    8,255
    
    
    
    7,773Minority Interest
    
    
    1,145
    
    
    
    1,257
    
    
    
    1,103
    
    
    
    1,085
    
    
    
    1,028Income before Discontinued Operations
    
    
    12,908
    
    
    
    12,075
    
    
    
    8,642
    
    
    
    7,170
    
    
    
    6,745Gain on Sale of Asset From Discontinued
Operations
    
    
    2,654
    
    
    
    523
    
    
    
    740
    
    
    
    
    
    
    
    Income From Discontinued Operations
    
    
    486
    
    
    
    525
    
    
    
    1,090
    
    
    
    1,602
    
    
    
    1,321Net Income
    
    $
    16,048
    
    
    $
    13,123
    
    
    $
    10,472
    
    
    $
    8,772
    
    
    $
    8,066Number of Properties
    
    
    59
    
    
    
    54
    
    
    
    50
    
    
    
    48
    
    
    
    47Number of Square Feet
    
    
    3,363
    
    
    
    3,463
    
    
    
    3,495
    
    
    
    3,699
    
    
    
    3,556Percentage Leased
    
    
    99
    %
    
    
    99
    %
    
    
    97
    %
    
    
    99
    %
    
    
    99
    %Per Share Data  DilutiveIncome before discontinued operations
    
    $
    1.72
    
    
    $
    1.87
    
    
    $
    1.64
    
    
    $
    1.61
    
    
    $
    1.53Discontinued operations
    
    
    .42
    
    
    
    .16
    
    
    
    .35
    
    
    
    .36
    
    
    
    .30Net income
    
    $
    2.14
    
    
    $
    2.03
    
    
    $
    1.99
    
    
    $
    1.97
    
    
    $
    1.83Weighted average of common shares
outstanding  Dilutive
    
    
    8,164
    
    
    
    7,149
    
    
    
    5,949
    
    
    
    5,121
    
    
    
    5,091Cash dividends
    
    $
    1.96
    
    
    $
    1.95
    
    
    $
    1.94
    
    
    $
    1.84
    
    
    $
    1.84Balance Sheet DataReal Estate (before accumulated depreciation)
    
    $
    258,332
    
    
    $
    252,427
    
    
    $
    220,334
    
    
    $
    210,986
    
    
    $
    196,486Total Assets
    
    $
    223,460
    
    
    $
    214,837
    
    
    $
    190,795
    
    
    $
    178,162
    
    
    $
    167,511Total debt, including accrued interest
    
    $
    68,504
    
    
    $
    92,441
    
    
    $
    83,313
    
    
    $
    115,534
    
    
    $
    105,946
 
 (1)
    
    Property expense includes real estate taxes, property maintenance, insurance, utilities
and land lease expense.(2)
    
    Other income is composed of development fee income, gain on land sales, and equity in net
income of unconsolidated entities.(3)
    
    Net income per share has been computed by dividing the net income by the weighted average
number of shares of Common Stock outstanding. The per share amounts are presented in
accordance with SFAS No. 128 Earnings per share. 19




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##### Table of Contents



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
    Recent Accounting Pronouncements
     20




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##### Table of Contents



Critical Accounting Policies
       Comparison of Year Ended December 31, 2005 to Year Ended December 31, 2004
    21




---



##### Table of Contents



Comparison of Year Ended December 31, 2004 to Year Ended December 31, 2003
    22




---



##### Table of Contents



Discontinued Operations
  23




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##### Table of Contents



Liquidity and Capital Resources
       Total
    
    Yr 1
    
    2-3 Yrs
    
    4-5 Yrs
    
    Over 5 YrsMortgages Payable
    
    $
    50,722
    
    
    $
    2,369
    
    
    $
    5,342
    
    
    $
    6,075
    
    
    $
    36,936Notes Payable
    
    
    17,500
    
    
    
    614
    
    
    
    912
    
    
    
    15,974
    
    
    
    Land Lease Obligations
    
    
    13,639
    
    
    
    768
    
    
    
    1,535
    
    
    
    1,547
    
    
    
    9,789Other Long-Term Liabilities
    
    
    
    
    
    
    
    
    
    
    Interest
Payments on Mortgages and Notes Payable
    
    
    30,865
    
    
    
    4,262
    
    
    
    8,120
    
    
    
    6,288
    
    
    
    12,195Total
    
    $
    112,726
    
    
    $
    8,013
    
    
    $
    15,909
    
    
    $
    29,884
    
    
    $
    58,920
  24




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##### Table of Contents



Inflation
  Funds from Operations
   25




---



##### Table of Contents



Year ended December 31,2005
    
    
    2004
    
    
    2003Net income
    
    $
    16,047,576
    
    
    $
    13,123,020
    
    
    $
    10,471,746Depreciation of real estate assets
    
    
    4,683,807
    
    
    
    4,379,912
    
    
    
    4,164,691Amortization of leasing costs
    
    
    48,357
    
    
    
    45,178
    
    
    
    55,182Minority interest
    
    
    1,423,932
    
    
    
    1,366,347
    
    
    
    1,338,046Gain on sale of assets
    
    
    (2,895,532
    )
    
    
    (577,168
    )
    
    
    (834,669
    )Funds from Operations
    
    $
    19,308,140
    
    
    $
    18,337,289
    
    
    $
    15,194,996Weighted average shares and
OP Units outstanding
    
    
    8,134,051
    
    
    
    7,141,898
    
    
    
    5,946,070BasicDilutive
    
    
    8,164,288
    
    
    
    7,148,664
    
    
    
    5,949,413
 
 ITEM 7A
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   2006
    
    2007
    
    2008
    
    2009
    
    2010
    
    Thereafter
    
    TotalFixed rate debt
    
    $
    2,369
    
    
    $
    2,592
    
    
    $
    2,750
    
    
    $
    2,937
    
    
    $
    3,138
    
    
    $
    36,936
    
    
    $
    50,722Average interest rate
    
    
    6.64
    %
    
    
    6.64
    %
    
    
    6.64
    %
    
    
    6.64
    %
    
    
    6.64
    %
    
    
    6.64
    %
    
    
    Variable rate debt
    
    $
    614
    
    
    $
    456
    
    
    $
    456
    
    
    $
    15,974
    
    
    
    
    
    
    
    
    
    
    $
    17,500Average interest rate
    
    
    6.36
    %
    
    
    6.35
    %
    
    
    6.35
    %
    
    
    6.35
    %
    
    
    
    
    
    
    
    
    
    
    
     26




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##### Table of Contents



ITEM 8
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A
    
    CONTROLS AND PROCEDURES
     Report of Management on Agree Realty Corporations Internal Control Over Financial Reporting
  27




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##### Table of Contents




    
    We lack segregation of duties in the period-end financial reporting process.
Our Chief Financial Officer (CFO) is the only employee with any significant
knowledge of generally accepted accounting principles. The CFO is also the sole
employee in charge of the general ledger (including the preparation of routine and
non-routine journal entries and journal entries involving accounting estimates),
the preparation of accounting reconciliations, the selection of accounting
principles, and the preparation of interim and annual financial statements
(including report combinations, consolidation entries and footnote disclosures) in
accordance with generally accepted accounting principles.
    
    We lack the expertise and resources to ensure complete application of generally
accepted accounting principles to non-routine transactions. As a result of this
material weakness, we recorded adjustments prior to the issuance of our
consolidated financial statements. These adjustments affected other assets,
unearned compensation, equity and general and administrative expenses.
   Report of Independent Registered Public Accounting Firm
    28




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##### Table of Contents




    
    The Company lacks segregation of duties in the period-end financial reporting process.
The Chief Financial Officer (CFO) is the only employee with any significant knowledge of
generally accepted accounting principles. The CFO is also the sole employee in charge of
the general ledger (including the preparation of routine and non-routine journal entries
and journal entries involving accounting estimates), the preparation of accounting
reconciliations, the selection of accounting principles, and the preparation of interim and
annual financial statements (including report combinations, consolidation entries and
footnote disclosures) in accordance with generally accepted accounting principles.
    
    The Company lacks the expertise and resources to ensure complete application of
generally accepted accounting principles to non-routine transactions. As a result of this
material weakness, the Company recorded adjustments prior to the issuance of its
consolidated financial statements. These adjustments affected other assets, unearned
compensation, equity and general and administrative expenses.The material weaknesses related to the period-end financial reporting process and the
application of generally accepted accounting principles to non-routine transactions affect
all of the Companys significant accounts and could result in a material misstatement to the
Companys annual or interim consolidated financial statements that would not be prevented or
detected.
   29




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##### Table of Contents



Changes in Internal Control over Financial Reporting
  
 ITEM 9B
    
    OTHER MATTERS
  
 PART III
 
 ITEM 10.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  
 ITEM 11.
    
    EXECUTIVE COMPENSATION
   Number of securities to be
    
    Weighted average exerciseissued upon exercise of
    
    price of outstanding
    
    Number of securitiesoutstanding options,
    
    options, warrants and
    
    remaining available forPlan category
    
    warrants and rights
    
    rights
    
    future issuanceEquity compensation
plans approved by
security holders
    
    
    4,900
    
    
    $
    19.50
    
    
    
    957,100Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    4,900
    
    
    $
    19.50
    
    
    
    957,100
 30




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##### Table of Contents



ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  
 ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
  
 PART IV
 
 ITEM 15.
    
    EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES
 (a)
    
    The following documents are filed as part of this Report
 (1)(2) The financial statements indicated by Part II, Item 8,
Financial Statements and Supplementary Data.
 (b)
    
    Exhibits
 3.1
    
    
    
    Articles of Incorporation and Articles of Amendment of the Company (incorporated by reference
to Exhibit 3.1 to the Companys Registration Statement on Form S-11 (Registration Statement
No. 33-73858, as amended (Agree S-11))3.2
    
    
    
    Bylaws of the Company (incorporated by reference to Exhibit 3.3 to Agree S-11)4.1
    
    
    
    Rights Agreement by and between Agree Realty Corporation and BankBoston, N.A. as Rights Agent
dated as of December 7, 1998 (incorporated by reference to Exhibit 4.1 to the Companys Form
8-K filed on December 7, 1998)10.1
    
    
    
    First Amended and Restated Agreement of Limited Partnership of Agree Limited Partnership,
dated as of April 22, 1994, by and among the Company, Richard Agree, Edward Rosenberg and Joel
Weiner (incorporated by reference to Exhibit 10.6 to the 1996 Form 10-K)
 31




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##### Table of Contents



10.2
    
    
    
    Amended and Restated Registration Rights Agreement, dated July 8, 1994 by and among the
Company, Richard Agree, Edward Rosenberg and Joel Weiner (incorporated by reference to Exhibit
10.2 to the Companys Annual Report on Form 10-K for the year ended December 31, 1994)10.3
    
    
    
    Contribution Agreement, dated as of April 21, 1994, by and among the Company, Richard Agree,
Edward Rosenberg and the co-partnerships named therein (incorporated by reference to Exhibit
10.10 to the 1996 Form 10-K)10.4
    
    +
    
    Agree Realty Corporation Profit Sharing Plan (incorporated by reference to Exhibit 10.13 to
the 1996 Form 10-K)10.5
    
    
    
    Line of Credit Agreement by and among Agree Limited Partnership, the Company, the lenders
parties thereto, and Michigan National Bank as Agent (incorporated by reference to Exhibit
10.10 to the 1995 Form 10-K)10.6
    
    
    
    First amendment to $5 million business loan agreement dated September 21, 1997 between Agree
Limited Partnership and Michigan National Bank (incorporated by reference to Exhibit 10.2 to
the September 1997 Form 10-Q)10.7
    
    
    
    Second amendment to amended and restated $5 million business Loan agreement dated October 19,
1998 between Agree Limited Partnership and Michigan National Bank (incorporated by reference
to Exhibit 10.17 to the Companys Annual Report on Form 10-K for the year ended December 31,
1998)10.8
    
    +
    
    Employment Agreement, dated July 1, 2004, by and between the
Company and Richard Agree (incorporated by reference to
exhibit 10.1 to the Companys Quarterly Report on Form 10-Q
for the period ending June 30, 2004 (June 2004 Form 10-Q))10.9
    
    +
    
    Employment Agreement, dated July 1, 2004, by and between the
Company, and Kenneth R. Howe (incorporated by reference to
exhibit 10.2 to the June 2004 Form 10-Q)10.10
    
    
    
    Third amendment to amended and restated $5 million business Loan agreement dated December
19, 1999 between Agree Limited Partnership and Michigan National Bank (incorporated by
reference to exhibit 10.17 to the 1999 Form 10-K)10.11
    
    
    
    Trust Mortgage dated as of June 27, 1999 from Agree Facility No. 1, L.L.C. as Grantor to
Manufacturers and Traders Trust Company (incorporated by reference to exhibit 10.4 to the June
1999 Form 10-Q)10.12
    
    +
    
    Employment Agreement, dated January 10, 2000, by and between the Company, and David J.
Prueter (incorporated by reference to exhibit 10.1 to the Companys Quarterly Report on Form
10-Q for the period ended March 31, 200010.13
    
    
    
    Fourth amendment to amended and restated $5 million business Loan agreement dated February
19, 2001 between Agree Limited Partnership and Michigan National Bank (incorporated by
reference to exhibit 10.23 to the Companys Annual Report on Form 10-K for the year ended
December 31, 2000 (the 2000 Form 10-K))10.14
    
    
    
    Mortgage dated as of December 20, 2001, by Agree Limited Partnership to and in favor of
Nationwide Life Insurance Company (incorporated by reference to exhibit 10.25 to the Companys
Annual Report on Form 10-K for the year ended December 31, 2001 (the 2001 from 10-K))
 32




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##### Table of Contents



10.15
    
    
    
    Fifth amendment to amended and restated $5 million business Loan agreement dated April
30, 2002 between Agree Limited Partnership and Standard Federal Bank (incorporated by
reference to exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the period ended
June 30, 2002 (the June 2002 Form 10-Q))10.16
    
    
    
    Project Loan Agreement dated as of April 30, 2002 between Royal Identify Company (together
with its successors and assigns) and Lawrence Store No. 203 L.L.C. (together with its
permitted successors and assigns) (incorporated by reference to exhibit 10.2 to the June 2002
Form 10-Q)10.17
    
    
    
    Project Loan Agreement dated as of November 25, 2002 between Wilmington Trust Company, not
in its individual capacity, but solely as Owner Trustee, and
Indianapolis Store No. 16 L.L.C. (incorporated by reference to
exhibit 10.28 to the Companys Annual Report on Form 10-K for
the year ended December 31, 2002 (the 2002 Form 10-K))10.18
    
    
    
    Project Loan Agreement dated as of January 30, 2003 between Modern Woodman of America and
Phoenix Drive L.L.C. (incorporated by reference to exhibit 10.1 to the March 31, 2003 Form
10-Q)10.19
    
    
    
    Sixth amendment to amended and restated $5 million business loan agreement dated April 30,
2003, between Agree Limited Partnership and Standard Federal Bank (incorporated by reference
to exhibit 10.1 to the June 30, 2003 Form 10-Q)10.20
    
    
    
    Amended and Restated $50 million Line of Credit agreement dated November 5, 2003, among
Agree Realty Corporation, Standard Federal Bank and Bank One. (incorporated by reference to
exhibit 10.1 to the Sep 30, 2003 Form 10-Q)10.21
    
    
    
    Indemnity Deed of Trust and
Security Agreement dated October 31, 2003, by Agree  Columbia
Crossing Project, L.L.C., and Nationwide Life Insurance Company (incorporated by reference to
exhibit 10.33 to the December 31, 2003 Form 10-K)10.22
    
    
    
    Indemnity Deed of Trust and Security Agreement dated October 31, 2003, by Agree-Milestone
Center Project, L.L.C., and Nationwide Life Insurance Company (incorporated by reference to
exhibit 10.34 to the December 31, 2003 Form 10-K)10.23
    
    
    
    Mortgage and Security Agreement dated October 31, 2003, by Oklahoma Store No. 151, L.L.C.
and Nationwide Life Insurance Company (incorporated by reference to exhibit 10.35 to the
December 31, 2003 From 10-K)10.24
    
    
    
    Deed of Trust and Security Agreement dated October 31, 2003, by Omaha Store No. 166, L.L.C.
and Nationwide Life Insurance Company (incorporated by reference to exhibit 10.36 to the
December 31, 2003 Form 10-K)10.25
    
    +
    
    The Companys 2005 Equity Incentive Plan10.26
    
    +
    
    Employment Agreement, dated August 1, 2005, by and between the Company, and Charles
Carter (incorporated by reference to exhibit 10.1 to the September 2005 Form 10-Q)10.27
    
    +
    
    Employment Agreement, dated September 1, 2005, by and between the Company, and Vicky
Umphryes (incorporated by reference to exhibit 10.2 to the September 2005 Form 10-Q)21.1
    
    *
    
    Subsidiaries of Agree Realty Corporation23
    
    *
    
    Consent of BDO Seidman, LLP31.1
    
    *
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, Richard Agree, Chief Executive Officer
 33




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##### Table of Contents



31.2
    
    *
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, Kenneth R. Howe, Chief Financial Officer32.1
    
    *
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, Richard Agree, Chief Executive Officer32.2
    
    *
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, Kenneth R. Howe, Chief Financial Officer*
    
    
    
    Filed herewith+
    
    
    
    Management contract or compensatory plan or arrangement
 34




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##### Table of Contents



SIGNATURES
  AGREE REALTY CORPORATIONBy:
    
    /s/ Richard AgreeName:
    
    Richard AgreePresident and Chairman of theBoard of DirectorsDate:
    
    March 16, 2006
 th
 By:
    
    /s/ Richard Agree
    
    By:
    
    /s/ Farris G. KalilRichard Agree
    
    
    
    Farris G. KalilPresident and Chairman of the
    
    
    
    DirectorBoard of Directors(Principal Executive Officer)By:
    
    /s/ Michael RotchfordMichael RotchfordDirectorBy:
    
    /s/ Kenneth R. Howe
    
    By:
    
    /s/Ellis G. WachsKenneth R. Howe
    
    
    
    Ellis G. WachsVice President, Finance and
    
    
    
    DirectorSecretary(Principal Financial andAccounting Officer)By:
    
    /s/ Gene SilvermanGene SilvermanDirectorBy:
    
    /s/ Leon M. SchurginLeon M. SchurginDirector
 35




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##### Table of Contents



Agree Realty Corporation
 Financial Statements
Years Ended December 31, 2005, 2004 and 2003




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##### Table of Contents



Agree Realty Corporation
 Index
 PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Financial StatementsConsolidated Balance Sheets
    
    
    F-3Consolidated Statements of Income
    
    
    F-5Consolidated Statements of Stockholders Equity
    
    
    F-6Consolidated Statements of Cash Flows
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-9Schedule III Real Estate and Accumulated Depreciation
    
    
    F-25
 F - 1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
       
 F - 2




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##### Table of Contents



Agree Realty Corporation
 
 Consolidated Balance Sheets
 December 31,
    
    2005
    
    
    2004AssetsReal Estate Investments(Notes 3 and 4)Land
    
    $
    73,035,167
    
    
    $
    70,592,068Buildings
    
    
    185,032,185
    
    
    
    179,730,241Property under development
    
    
    264,913
    
    
    
    2,104,553258,332,265
    
    
    
    252,426,862Less accumulated depreciation
    
    
    (43,771,581
    )
    
    
    (41,727,987
    )Net Real Estate Investments
    
    
    214,560,684
    
    
    
    210,698,875Cash and Cash Equivalents
    
    
    5,714,540
    
    
    
    587,524Accounts
Receivable  Tenants,net of allowance of $20,000 for possible losses for 2005 and 2004
    
    
    730,606
    
    
    
    627,298Unamortized Deferred ExpensesFinancing costs, net of accumulated amortization of $4,344,244
and $4,193,111 for 2005 and 2004
    
    
    852,036
    
    
    
    1,003,169Leasing costs, net of accumulated amortization of $621,388
and $577,308 for 2005 and 2004
    
    
    389,354
    
    
    
    258,316Other Assets
    
    
    1,212,387
    
    
    
    1,661,504$
    223,459,607
    
    
    $
    214,836,686
 See accompanying notes to consolidated financial statements.
 F - 3




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##### Table of Contents



Agree Realty Corporation
 Consolidated Balance Sheets
 December 31,
    
    2005
    
    
    2004Liabilities and Stockholders EquityMortgages Payable(Note 3)
    
    $
    50,721,920
    
    
    $
    52,943,015Notes Payable(Note 4)
    
    
    17,500,000
    
    
    
    39,200,000Dividends and Distributions Payable(Note 5)
    
    
    4,089,243
    
    
    
    3,509,083Deferred Revenue(Note 13)
    
    
    12,793,504
    
    
    
    13,483,054Accrued Interest Payable
    
    
    282,080
    
    
    
    298,115Accounts PayableCapital expenditures
    
    
    112,687
    
    
    
    393,711Operating
    
    
    1,300,416
    
    
    
    1,441,877Tenant Deposits
    
    
    54,062
    
    
    
    60,989Total Liabilities
    
    
    86,853,912
    
    
    
    111,329,844Minority Interest(Note 6)
    
    
    5,978,635
    
    
    
    5,874,855Stockholders Equity(Note 5)Common stock, $.0001 par value; 20,000,000
shares authorized; 7,706,846 and 6,487,846
shares issued and outstanding
    
    
    772
    
    
    
    649Additional paid-in capital
    
    
    143,138,497
    
    
    
    109,599,965Deficit
    
    
    (9,717,471
    )
    
    
    (10,726,663
    )133,421,798
    
    
    
    98,873,951Less: unearned compensation  restricted stock (Note 8)
    
    
    (2,794,738
    )
    
    
    (1,241,964
    )Total Stockholders Equity
    
    
    130,627,060
    
    
    
    97,631,987$
    223,459,607
    
    
    $
    214,836,686
 See accompanying notes to consolidated financial statements.
 F - 4




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##### Table of Contents



Agree Realty Corporation
 
 Consolidated Statements of Income
 Year Ended December 31,
    
    2005
    
    
    2004
    
    
    2003RevenuesMinimum rents
    
    $
    28,386,580
    
    
    $
    25,966,256
    
    
    $
    23,269,395Percentage rents
    
    
    68,071
    
    
    
    55,995
    
    
    
    175,969Operating cost reimbursement
    
    
    3,082,831
    
    
    
    2,885,132
    
    
    
    2,775,585Other income
    
    
    41,415
    
    
    
    32,716
    
    
    
    2,885Total Revenues
    
    
    31,578,897
    
    
    
    28,940,099
    
    
    
    26,223,834Operating ExpensesReal estate taxes
    
    
    1,749,005
    
    
    
    1,692,176
    
    
    
    1,662,448Property operating expenses
    
    
    2,011,688
    
    
    
    1,790,773
    
    
    
    1,760,903Land lease payments
    
    
    784,027
    
    
    
    737,460
    
    
    
    736,793General and administrative
    
    
    4,191,279
    
    
    
    2,848,414
    
    
    
    2,275,177Depreciation and amortization
    
    
    4,637,325
    
    
    
    4,249,361
    
    
    
    3,836,203Total Operating Expenses
    
    
    13,373,324
    
    
    
    11,318,184
    
    
    
    10,271,524Income From Continuing Operations
    
    
    18,205,573
    
    
    
    17,621,915
    
    
    
    15,952,310Other Income (Expense)Interest expense, net
    
    
    (4,158,887
    )
    
    
    (4,506,712
    )
    
    
    (5,684,200
    )Gain on sale of asset
    
    
    6,397
    
    
    
    
    
    
    
    Early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (961,334
    )Equity in net income of unconsolidated entities
    
    
    
    
    
    
    216,837
    
    
    
    438,489Total Other Expense
    
    
    (4,152,490
    )
    
    
    (4,289,875
    )
    
    
    (6,207,045
    )Income Before Minority Interest and Discontinued Operations
    
    
    14,053,083
    
    
    
    13,332,040
    
    
    
    9,745,265Minority Interest
    
    
    1,145,330
    
    
    
    1,257,212
    
    
    
    1,102,825Income Before Discontinued Operations
    
    
    12,907,753
    
    
    
    12,074,828
    
    
    
    8,642,440Gain on Sale of Asset From Discontinued Operations,net of minority interest of $235,465, $54,427 and  $94,575
    
    
    2,653,670
    
    
    
    522,741
    
    
    
    740,094Income From Discontinued Operations,net of minorityinterest
of $43,137, $54,708 and $140,646
    
    
    486,153
    
    
    
    525,451
    
    
    
    1,089,212Net Income
    
    $
    16,047,576
    
    
    $
    13,123,020
    
    
    $
    10,471,746Basic Earnings Per Share(Note 2)Income before discontinued operations
    
    $
    1.73
    
    
    $
    1.87
    
    
    $
    1.64Discontinued operations
    
    
    .42
    
    
    
    .16
    
    
    
    .35Basic Earnings Per Share
    
    $
    2.15
    
    
    $
    2.03
    
    
    $
    1.99Dilutive Earnings Per Share(Note 2)Income before discontinued operations
    
    $
    1.72
    
    
    $
    1.87
    
    
    $
    1.64Discontinued operations
    
    
    .42
    
    
    
    .16
    
    
    
    .35Dilutive Earnings Per Share
    
    $
    2.14
    
    
    $
    2.03
    
    
    $
    1.99
 See accompanying notes to consolidated financial statements.
 F - 5




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##### Table of Contents



Agree Realty Corporation
 
 Consolidated Statements of Stockholders Equity
 Additional
    
    
    
    
    
    
    UnearnedCommon Stock
    
    
    Paid-In
    
    
    
    
    
    
    Compensation -Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Restricted StockBalance,January 1, 2003
    
    
    4,448,531
    
    
    $
    445
    
    
    $
    64,506,772
    
    
    $
    (11,135,499
    )
    
    $
    (748,994
    )Issuance of common stock, net of
issuance costs
    
    
    1,955,000
    
    
    
    195
    
    
    
    43,224,291
    
    
    
    
    
    
    
    Issuance of shares under the Stock
Incentive Plan
    
    
    36,814
    
    
    
    3
    
    
    
    622,150
    
    
    
    
    
    
    
    (456,300
    )Shares redeemed under the Stock
Incentive Plan
    
    
    (6,000
    )
    
    
    
    
    
    
    (101,400
    )
    
    
    
    
    
    
    Vesting of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    367,910Dividends declared, $1.94 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,563,883
    )
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,471,746
    
    
    
    Balance,December 31, 2003
    
    
    6,434,345
    
    
    
    643
    
    
    
    108,251,813
    
    
    
    (11,227,636
    )
    
    
    (837,384
    )Issuance of shares under the Stock
Incentive Plan
    
    
    59,501
    
    
    
    6
    
    
    
    1,517,832
    
    
    
    
    
    
    
    (950,925
    )Shares redeemed under the Stock
Incentive Plan
    
    
    (6,000
    )
    
    
    
    
    
    
    (169,680
    )
    
    
    
    
    
    
    Vesting of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    546,345Dividends declared, $1.95 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,622,047
    )
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,123,020
    
    
    
    Balance,December 31, 2004
    
    
    6,487,846
    
    
    
    649
    
    
    
    109,599,965
    
    
    
    (10,726,663
    )
    
    
    (1,241,964
    )Issuance of common stock, net of
issuance costs
    
    
    1,150,000
    
    
    
    115
    
    
    
    31,456,414
    
    
    
    
    
    
    
    Issuance of shares under the Stock
Incentive Plan
    
    
    73,000
    
    
    
    8
    
    
    
    2,208,878
    
    
    
    
    
    
    
    (2,208,886
    )Shares redeemed under the Stock
Incentive Plan
    
    
    (4,000
    )
    
    
    
    
    
    
    (126,760
    )
    
    
    
    
    
    
    Vesting of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    656,112Dividends declared, $1.96 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,038,384
    )
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,047,576
    
    
    
    Balance,December 31, 2005
    
    
    7,706,846
    
    
    $
    772
    
    
    $
    143,138,497
    
    
    $
    (9,717,471
    )
    
    $
    (2,794,738
    )
 See accompanying notes to consolidated financial statements.
 F - 6




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##### Table of Contents



Agree Realty Corporation
 
 Consolidated Statements of Cash Flows
 Year Ended December 31,
    
    2005
    
    
    2004
    
    
    2003Cash Flows From Operating ActivitiesNet income
    
    $
    16,047,576
    
    
    $
    13,123,020
    
    
    $
    10,471,746Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation
    
    
    4,738,405
    
    
    
    4,418,177
    
    
    
    4,188,655Amortization
    
    
    207,040
    
    
    
    204,986
    
    
    
    633,922Stock-based compensation
    
    
    656,112
    
    
    
    546,345
    
    
    
    367,910Gain on sale of assets
    
    
    (2,895,532
    )
    
    
    (577,168
    )
    
    
    (834,669
    )Equity in net income of unconsolidated entities
    
    
    
    
    
    
    (216,837
    )
    
    
    (438,489
    )Minority interests
    
    
    1,423,932
    
    
    
    1,366,347
    
    
    
    1,338,046Decrease (increase) in accounts receivable
    
    
    (103,308
    )
    
    
    (4,961
    )
    
    
    162,300Decrease (increase) in other assets
    
    
    420,581
    
    
    
    (431,446
    )
    
    
    (336,483
    )Increase (decrease) in accounts payable
    
    
    (141,459
    )
    
    
    33,605
    
    
    
    228,999Decrease in deferred revenue
    
    
    (689,550
    )
    
    
    (307,936
    )
    
    
    Increase (decrease) in accrued interest
    
    
    (16,035
    )
    
    
    131,016
    
    
    
    (82,607
    )Increase (decrease) in tenant deposits
    
    
    (6,927
    )
    
    
    13,890
    
    
    
    (46,039
    )Net Cash Provided By Operating Activities
    
    
    19,640,835
    
    
    
    18,299,038
    
    
    
    15,653,291Cash Flows From Investing ActivitiesAcquisition of real estate investments (including
capitalized interest of $437,000 in 2005, $305,000
in 2004 and $213,000 in 2003)
    
    
    (15,121,825
    )
    
    
    (21,711,356
    )
    
    
    (20,116,584
    )Distributions from unconsolidated entities
    
    
    
    
    
    
    216,837
    
    
    
    438,489Decrease in restricted cash
    
    
    
    
    
    
    4,309,914
    
    
    
    Net proceeds from sale of assets, less
amounts held in escrow
    
    
    9,576,974
    
    
    
    2,046,493
    
    
    
    3,887,338Net Cash Used In Investing Activities
    
    
    (5,544,851
    )
    
    
    (15,138,112
    )
    
    
    (15,790,757
    )
 See accompanying notes to consolidated financial statements.
 F - 7




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##### Table of Contents



Agree Realty Corporation
 Consolidated Statements of Cash Flows
 Year Ended December 31,
    
    2005
    
    
    2004
    
    
    2003Cash Flows From Financing ActivitiesLine-of-credit net borrowings (payments)
    
    
    (21,700,000
    )
    
    
    12,700,000
    
    
    
    (11,583,232
    )Dividends and limited partners distributions paid
    
    
    (15,778,376
    )
    
    
    (13,873,516
    )
    
    
    (10,776,024
    )Payment on construction loans
    
    
    
    
    
    
    
    
    
    
    (4,043,313
    )Payments of mortgages payable
    
    
    (2,247,255
    )
    
    
    (2,158,689
    )
    
    
    (38,320,636
    )Mortgage proceeds
    
    
    
    
    
    
    
    
    
    
    22,699,151Payments of payables for capital expenditures
    
    
    (393,711
    )
    
    
    (361,769
    )
    
    
    (423,910
    )Redemption of restricted stock
    
    
    (126,760
    )
    
    
    (169,680
    )
    
    
    (101,400
    )Payments for financing costs
    
    
    
    
    
    
    
    
    
    
    (609,367
    )Payments of leasing costs
    
    
    (179,395
    )
    
    
    (72,150
    )
    
    
    (19,811
    )Exercise of stock options
    
    
    
    
    
    
    358,312
    
    
    
    Net proceeds from the issuance of common stock
    
    
    31,456,529
    
    
    
    
    
    
    
    43,224,488Net Cash Provided By (Used In) Financing Activities
    
    
    (8,968,968
    )
    
    
    (3,577,492
    )
    
    
    45,946Net Increase (Decrease) In Cash and Cash Equivalents
    
    
    5,127,016
    
    
    
    (416,566
    )
    
    
    (91,520
    )Cash and Cash Equivalents,beginning of year
    
    
    587,524
    
    
    
    1,004,090
    
    
    
    1,095,610Cash and Cash Equivalents,end of year
    
    $
    5,714,540
    
    
    $
    587,524
    
    
    $
    1,004,090Supplemental Disclosure of Cash Flow InformationCash paid for interest (net of amounts capitalized)
    
    $
    3,984,010
    
    
    $
    4,243,983
    
    
    $
    5,619,551Supplemental Disclosure of Non-Cash TransactionsDividends and limited partners distributions
declared and unpaid
    
    $
    4,089,243
    
    
    $
    3,509,083
    
    
    $
    3,447,328Shares issued under Stock Incentive Plan
    
    $
    2,208,886
    
    
    $
    1,159,518
    
    
    $
    622,153Real estate investments financed with accounts
Payable
    
    $
    112,687
    
    
    $
    393,711
    
    
    $
    570,363Real estate investments acquired from joint ventures
    
    $
    
    
    
    $
    13,790,990
    
    
    $
    
 See accompanying notes to consolidated financial statements.
 F - 8




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##### Table of Contents



Agree Realty Corporation
 
 Notes to Consolidated Financial Statements
 1. The Company
    
    Agree Realty Corporation (the Company) is
a self-administered, self-managed real
estate investment trust, which develops,
acquires, owns and operates properties,
which are primarily leased to national
and regional retail companies under net
leases. At December 31, 2005 the
Companys properties are comprised of
forty-seven single tenant retail
facilities and twelve shopping centers
located in fifteen states. At December
31, 2005, approximately 96% of the
Companys annual base rental revenues
will be received from national and
regional tenants under long-term leases,
including approximately 33% from Borders,
Inc., 21% from Walgreen Co., and 13% from
Kmart Corporation, a wholly owned
subsidiary of Sears Holdings Corporation2. Summary of Significant
Accounting Policies
    
    Principles of ConsolidationThe 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, 91.96% and 90.59% of the
Operating Partnership as of December 31,
2005 and 2004, respectively. All material
intercompany accounts and transactions
are eliminated.Use of EstimatesThe preparation of financial statements
in conformity with generally accepted
accounting principles, 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.Fair Values of Financial InstrumentsThe carrying amounts of the Companys
financial instruments, which consist of
cash, cash equivalents, receivables,
notes payable, accounts payable and
long-term debt, approximate their fair
values.
 F - 9




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##### Table of Contents



Agree Realty Corporation
 Notes to Consolidated Financial Statements
 Valuation of Long-Lived AssetsLong-lived assets such as real estate investments are evaluated
for impairment when events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable
through the 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. No impairment loss
recognition has been required through December 31, 2005.Real Estate InvestmentsReal 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.Subsequent to completion of construction, expenditures for
property maintenance are charged to operations as incurred, while
significant renovations are capitalized. Depreciation of the
buildings is recorded on the straight-line method using an
estimated useful life of forty years.Cash and Cash EquivalentsCash and cash equivalents include cash and money market accounts.
 F - 10




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##### Table of Contents



Agree Realty Corporation
 Notes to Consolidated Financial Statements
 Accounts Receivable  TenantsAccounts receivable from tenants reflect primarily reimbursement
of specified common area expenses. 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
only when receipt is remote.Unamortized Deferred ExpensesDeferred 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 being amortized using
the interest method over the term of the related loan, and (2)
leasing costs, which are amortized on a straight-line basis over
the term of the related lease.Other AssetsThe Company records prepaid expenses, deposits, vehicles,
furniture and fixtures, leasehold improvements, acquisition
advances and miscellaneous receivables as other assets in the
accompanying balance sheets.Accounts Payable  Capital ExpendituresIncluded in accounts payable are amounts related to the
construction of buildings. Due to the nature of these
expenditures, they are reflected in the statements of cash flows
as a financing activity.
 F - 11




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##### Table of Contents



Agree Realty Corporation
 Notes to Consolidated Financial Statements
 Minority Interest
  Revenue Recognition
  Operating Cost Reimbursement
  Income Taxes
  Stock Options
  F - 12




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##### Table of Contents



Agree Realty Corporation
 Notes to Consolidated Financial Statements
 Dividends
  December 31,
    
    2005
    
    
    2004
    
    
    2003Ordinary income
    
    $
    1.76
    
    
    $
    1.95
    
    
    $
    1.78Return of capital
    
    
    .20
    
    
    
    
    
    
    
    .16Total
    
    $
    1.96
    
    
    $
    1.95
    
    
    $
    1.94
  Discontinued Operations
   F - 13




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##### Table of Contents



Agree Realty Corporation
 Notes to Consolidated Financial Statements
 Early Extinguishment of Debt
  Earnings Per Share
   Year Ended December 31,
    
    2005
    
    
    2004
    
    
    2003NumeratorNet income
    
    $
    16,047,576
    
    
    $
    13,123,020
    
    
    $
    10,471,746Income allocated to minority interests
    
    
    1,423,932
    
    
    
    1,366,347
    
    
    
    1,338,046Numerator for Basic and Diluted
Earnings Per Share  Income Available
to Shareholders After Assumed
Conversions
    
    $
    17,471,508
    
    
    $
    14,489,367
    
    
    $
    11,809,792
 F - 14




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##### Table of Contents



Agree Realty Corporation
 Notes to Consolidated Financial Statements
 Year Ended December 31,
    
    2005
    
    
    2004
    
    
    2003DenominatorWeighted average shares outstanding
    
    
    7,460,504
    
    
    
    6,468,351
    
    
    
    5,272,523Weighted average OP Units outstanding,Assuming conversion
    
    
    673,547
    
    
    
    673,547
    
    
    
    673,547Denominator for Basic Earnings PerShare  Adjusted Weighted AverageShares
and Assumed Conversions
    
    
    8,134,051
    
    
    
    7,141,898
    
    
    
    5,946,070Non-vested restricted stock
    
    
    29,842
    
    
    
    
    
    
    
    Employee Stock Options
    
    
    395
    
    
    
    6,766
    
    
    
    3,343Denominator for Diluted Earnings Per
Share
    
    
    8,164,288
    
    
    
    7,148,664
    
    
    
    5,949,413
 Recent Accounting Pronouncements
   F - 15




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##### Table of Contents



Agree Realty Corporation
 Notes to Consolidated Financial Statements
    F - 16




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##### Table of Contents



Agree Realty Corporation
 Notes to Consolidated Financial Statements
 3. Mortgages Payable
    
    Mortgages payable consisted of the following:
 December 31,
    
    2005
    
    
    2004Note 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
    
    $
    16,601,748
    
    
    $
    17,222,287Note payable in
monthly
installments of
$128,205 including
interest at 6.20%
per annum, with a
final monthly
payment due
November 2018;
collateralized by
related real estate
and tenants leases
    
    
    13,592,901
    
    
    
    14,265,790Note 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
    
    
    9,411,438
    
    
    
    9,962,642Note payable in
monthly
installments of
$57,403 including
interest at 6.50%
per annum, with the
final monthly
payment due
February 2023;
collateralized by
related real estate
and tenant lease
    
    
    7,114,801
    
    
    
    7,333,400
 F - 17




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##### Table of Contents



Agree Realty Corporation
 Notes to Consolidated Financial Statements
 December 31,
    
    2005
    
    
    2004Note payable in monthly
installments of $25,631
including interest at 7.50% per
annum, with the final monthly
payment due May 2022;
collateralized by related real
estate and tenant lease
    
    
    2,899,217
    
    
    
    2,985,794Note payable in monthly
installments of $12,453
including interest at 6.95% per
annum, with the final monthly
payment due December 2017;
collateralized by related real
estate and tenant lease
    
    
    1,101,815
    
    
    
    1,173,102Total
    
    $
    50,721,920
    
    
    $
    52,943,015
  F - 18




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##### Table of Contents



Agree Realty Corporation
 Notes to Consolidated Financial Statements
 4. Notes Payable
    
    The Operating Partnership has in
place a $50 million line-of-credit
agreement, which is guaranteed by
the Company. The agreement expires
in November 2006 and can be
extended, solely at the option of
the Operating Partnership, for an
additional three years. Advances
under the Credit Facility bear
interest within a range of one-month
to six-month LIBOR plus 150 basis
points to 213 basis points or the
banks prime rate, at the option of
the Company, based on certain
factors such as debt to property
value and debt service coverage. Our
borrowing under the agreement is
limited to a percentage of our
borrowing base value. In addition,
we must maintain certain leverage
and debt service coverage ratios,
maintain our adjusted net worth at a
minimum level, maintain our tax
status as a REIT, and distribute no
more than 95% of our adjusted funds
from operations. The Credit Facility
is used to fund property
acquisitions and development
activities and is secured by most of
the Companys Properties which are
not otherwise encumbered and
properties to be acquired or
developed. At December 31, 2005 and
2004, $17,000,000 and $39,000,000,
respectively, was outstanding under
this facility with a weighted
average interest rate of 6.35% and
3.77%, respectively.In addition, the Company maintains a
$5,000,000 line-of-credit agreement
with a bank. Monthly interest
payments are required, either at the
banks prime rate less 50 basis
points, or 175 basis points in
excess of the one-month LIBOR rate,
at the option of the Company. The
line-of-credit is secured by Second
Leasehold Mortgages, Assignments of
Leases and Rents, Security
Agreements and Fixture Financing
Statements of the properties
securing the $50 million Credit
Facility, At December 31, 2005 and
2004, $500,000 and $200,000,
respectively, was outstanding under
this agreement with a weighted
average interest rate of 6.75% and
4.75%, respectively.5. Dividends and Distributions
Payable
    
    On December 5, 2005 the Company
declared a dividend of $.49 per
share for the quarter ended December
31, 2005. The holders of OP Units
were entitled to an equal
distribution per OP Unit held as of
December 31, 2005. The dividends and
distributions payable are recorded
as liabilities in the Companys
balance sheet at December 31, 2005.
The dividend has been reflected as a
reduction of stockholders equity
and the distribution has been
reflected as a reduction of the
limited partners minority interest.
These amounts were paid on January
5, 2006.
 F - 19




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##### Table of Contents



Agree Realty Corporation
 Notes to Consolidated Financial Statements
 6. Minority Interest
    
    The following summarizes the changes in minority interest since
January 1, 2003:
 Minority Interest at January 1, 2003
    
    $
    5,787,007Minority interests share of income for the year
    
    
    1,338,046Distributions for the year
    
    
    (1,303,314
    )Minority Interest at December 31, 2003
    
    
    5,821,739Minority interests share of income for the year
    
    
    1,366,347Distributions for the year
    
    
    (1,313,231
    )Minority Interest at December 31, 2004
    
    
    5,874,855Minority interests share of income for the year
    
    
    1,423,932Distributions for the year
    
    
    (1,320,152
    )Minority Interest at December 31, 2005
    
    $
    5,978,635
 7.
Stock Incentive Plan
    
    The Company established a stock incentive plan in 1994 (the 1994
Plan) under which options were granted. The options,
which have an exercise price equal to the initial public offering
price ($19.50/share), can be exercised in increments of 25% on
each anniversary of the date of the grant, and expire upon
employment termination. There were 4,900, 4,900 and 23,275 options
outstanding and exercisable at December 31, 2005, 2004 and 2003,
respectively. There were 18,375 options exercised in 2004. No
options were granted during 2005, 2004 or 2003. In 2005, our stockholders
approved the 2005 Equity Incentive Plan (the 2005 Plan) which
replaced the 1994 Plan. The 2005 Plan authorizes the issuance of
a maximum of one million shares of common stock.
 F - 20




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##### Table of Contents



Agree Realty Corporation
 Notes to Consolidated Financial Statements
 8. Unearned Compensation
-Restricted Stock
    
    As part of the Companys 2005
Equity Incentive Plan, restricted
common shares are granted to
certain employees. On the date of
the award, the Company increases
unearned compensation  restricted
stock on the balance sheet by the
stock price multiplied by the
number of shares awarded. The
Company issued 73,000, 41,126 and
36,814 shares of restricted stock
and an average price of $30.26,
$25.51 and $16.90 per share for the
years ended December 31, 2005, 2004
and 2003 respectively. The Company
redeemed 4,000, 6,000 and 6,000
shares of restricted stock during
the years ended December 31, 2005,
2004 and 2003 respectively. No
awards were forfeited during 2005,
2004 or 2003. The restricted
shares vest and are charged to
expense in increments of 20% per
year for five years. The Company
incurred compensation expense
related to restricted shares of
$656,112, $546,345 and $367,910 for
the years ended December 31, 2005,
2004 and 2003 respectively. At
December 31, 2005 there were
922,100 shares available to be
issued under the 2005 Equity
Incentive Plan. Plan participants
are entitled to receive the
quarterly dividends on their
respective restricted shares.9. Profit-Sharing Plan
    
    The Company has a discretionary
profit-sharing plan whereby it
contributes to the plan such
amounts as the Board of Directors
of the Company determines. The
participants in the plan cannot
make any contributions to the plan.
Contributions to the plan are
allocated to the employees based on
their percentage of compensation to
the total compensation of all
employees for the plan year.
Participants in the plan become
fully vested after six years of
service. No contributions were made
to the plan in 2005, 2004 or 2003.10. Rental Income
    
    The Company leases premises in its
properties to tenants pursuant to
lease agreements, which provide for
terms ranging generally from 5 to
25 years. The majority of leases
provide for additional rents based
on tenants sales volume.
 F - 21




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##### Table of Contents



Agree Realty Corporation
 Notes to Consolidated Financial Statements
 As of December 31, 2005, the future minimum rentals for
the next five years from rental property under the terms
of all noncancellable tenant leases, assuming no new or
renegotiated leases are executed for such premises, are
as follows (in thousands):
 2006
    
    $
    29,3632007
    
    
    28,8722008
    
    
    27,9332009
    
    
    26,9902010
    
    
    26,175Thereafter
    
    
    213,643Total
    
    $
    352,976
 Of these future minimum rentals, approximately 37% of
the total is attributable to Borders, Inc.,
approximately 32% of the total is attributable to
Walgreen and approximately 10% is attributable to Kmart
Corporation a wholly owned subsidiary of Sears Holdings
Corporation. Borders is a major operator of book
superstores in the United States, Walgreen operates in
the national drugstore chain industry and Kmarts
principal business is general merchandise retailing
through a chain of discount department stores. The loss
of any of these anchor tenants or the inability of any
of them to pay rent could have an adverse effect on the
Companys business.11. Lease
Commitments
    
    The Company has entered into certain land lease
agreements for four of its properties. As of December
31, 2005, future annual lease commitments under these
agreements are as follows:
 For the Year ending December 31,2006
    
    $
    768,3432007
    
    
    774,6192008
    
    
    760,4242009
    
    
    751,7572010
    
    
    794,932Thereafter
    
    
    9,788,452Total
    
    $
    13,638,527
 F - 22




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##### Table of Contents



Agree Realty Corporation
 Notes to Consolidated Financial Statements
 12.
Interim Results (Unaudited)
    
    The following summary represents the unaudited results of operations of the Company, expressed in thousands
except per share amounts, for the periods from January 1, 2004 through December 31, 2005. Certain amounts have
been reclassified to conform to the current presentation of discontinued operations:
 Three Months Ended2005
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,Revenues
    
    $
    7,824
    
    
    $
    7,737
    
    
    $
    7,690
    
    
    $
    8,328Income before discontinued operations
    
    $
    3,164
    
    
    $
    3,379
    
    
    $
    3,316
    
    
    $
    3,449Write-off of acquisition advances
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    400Discontinued operations,
net of minority interest
    
    
    138
    
    
    
    140
    
    
    
    138
    
    
    
    2,724Net Income
    
    $
    3,302
    
    
    $
    3,519
    
    
    $
    3,454
    
    
    $
    5,773Earnings
Per Share  Diluted
    
    $
    .45
    
    
    $
    .46
    
    
    $
    .45
    
    
    $
    .78
 Three Months Ended2004
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,Revenues
    
    $
    6,936
    
    
    $
    6,960
    
    
    $
    7,358
    
    
    $
    7,686Income before discontinued operations
    
    $
    2,753
    
    
    $
    2,909
    
    
    $
    3,263
    
    
    $
    3,150Discontinued operations,
net of minority interest
    
    
    143
    
    
    
    148
    
    
    
    632
    
    
    
    125Net Income
    
    $
    2,896
    
    
    $
    3,057
    
    
    $
    3,895
    
    
    $
    3,275Earnings Per Share  Diluted
    
    $
    .45
    
    
    $
    .47
    
    
    $
    .60
    
    
    $
    .51
 F - 23




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##### Table of Contents



Agree Realty Corporation
 Notes to Consolidated Financial Statements
 13.
Deferred Revenue
    
    In July 2004, our tenant in two joint
venture properties located in Ann Arbor,
MI and Boynton Beach, FL repaid $13.8
million that had been contributed by our
joint venture partner. As a result of this
repayment the Company became the sole
member of the limited liability companies
holding the properties. Total assets of
the two properties were approximately
$13.8 million. We have treated the $13.8
million repayment of the capital
contribution as deferred revenue and
accordingly, will recognize rental income
over the term of the related leases.
 F - 24




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##### Table of Contents



Agree Realty Corporation
 
 Schedule III  Real Estate and Accumulated Depreciation
December 31, 2004
 Column A
    
    Column B
    
    
    Column C
    
    
    Column D
    
    
    Column E
    
    
    Column F
    
    
    Column G
    
    
    Column HLife on WhichCosts
    
    
    Gross Amount at Which Carried
    
    
    
    
    
    
    
    
    
    
    Depreciation inInitial Cost
    
    
    Capitalized
    
    
    At Close of Period
    
    
    
    
    
    
    
    
    
    
    Latest IncomeBuildings and
    
    
    Subsequent to
    
    
    
    
    
    
    Buildings and
    
    
    
    
    
    
    Accumulated
    
    
    Date of
    
    
    StatementDescription
    
    Encumbrance
    
    
    Land
    
    
    Improvements
    
    
    Acquisition
    
    
    Land
    
    
    Improvements
    
    
    Total
    
    
    Depreciation
    
    
    Construction
    
    
    is ComputedCompleted Retail FacilitiesSams Club, MI
    
    $
    743,889
    
    
    $
    550,000
    
    
    $
    562,404
    
    
    $
    1,087,596
    
    
    $
    550,000
    
    
    $
    1,650,000
    
    
    $
    2,200,000
    
    
    $
    1,246,778
    
    
    
    1977
    
    
    40 YearsCapital Plaza, KY
    
    
    969,768
    
    
    
    7,379
    
    
    
    2,240,607
    
    
    
    620,038
    
    
    
    7,379
    
    
    
    2,860,645
    
    
    
    2,868,024
    
    
    
    1,689,037
    
    
    
    1978
    
    
    40 YearsCharlevoix Common, MI
    
    
    
    
    
    
    305,000
    
    
    
    5,152,992
    
    
    
    106,718
    
    
    
    305,000
    
    
    
    5,259,710
    
    
    
    5,564,710
    
    
    
    1,978,282
    
    
    
    1991
    
    
    40 YearsChippewa Commons, WI
    
    
    
    
    
    
    1,197,150
    
    
    
    6,367,560
    
    
    
    439,818
    
    
    
    1,197,150
    
    
    
    6,807,378
    
    
    
    8,004,528
    
    
    
    2,544,863
    
    
    
    1990
    
    
    40 YearsGrayling Plaza, MI
    
    
    669,046
    
    
    
    200,000
    
    
    
    1,778,657
    
    
    
    
    
    
    
    200,000
    
    
    
    1,778,657
    
    
    
    1,978,657
    
    
    
    974,100
    
    
    
    1984
    
    
    40 YearsIronwood Commons, MI
    
    
    2,908,083
    
    
    
    167,500
    
    
    
    8,181,306
    
    
    
    251,653
    
    
    
    167,500
    
    
    
    8,432,959
    
    
    
    8,600,459
    
    
    
    3,052,384
    
    
    
    1991
    
    
    40 YearsMarshall Plaza Two, MI
    
    
    
    
    
    
    
    
    
    
    4,662,230
    
    
    
    115,294
    
    
    
    
    
    
    
    4,777,524
    
    
    
    4,777,524
    
    
    
    1,744,631
    
    
    
    1990
    
    
    40 YearsNorth Lakeland Plaza, FL
    
    
    
    
    
    
    1,641,879
    
    
    
    6,364,379
    
    
    
    1,525,238
    
    
    
    1,641,879
    
    
    
    7,889,617
    
    
    
    9,531,496
    
    
    
    3,245,393
    
    
    
    1987
    
    
    40 YearsOscoda Plaza, MI
    
    
    695,248
    
    
    
    183,295
    
    
    
    1,872,854
    
    
    
    
    
    
    
    183,295
    
    
    
    1,872,854
    
    
    
    2,056,149
    
    
    
    1,020,949
    
    
    
    1984
    
    
    40 YearsPetoskey Town Center, MI
    
    
    
    
    
    
    875,000
    
    
    
    8,895,289
    
    
    
    223,581
    
    
    
    875,000
    
    
    
    9,118,870
    
    
    
    9,993,870
    
    
    
    3,355,776
    
    
    
    1990
    
    
    40 YearsPlymouth Commons, WI
    
    
    
    
    
    
    535,460
    
    
    
    5,667,504
    
    
    
    279,073
    
    
    
    535,460
    
    
    
    5,946,577
    
    
    
    6,482,037
    
    
    
    2,228,392
    
    
    
    1990
    
    
    40 YearsRapids Associates, MI
    
    
    
    
    
    
    705,000
    
    
    
    6,854,790
    
    
    
    27,767
    
    
    
    705,000
    
    
    
    6,882,557
    
    
    
    7,587,557
    
    
    
    2,615,712
    
    
    
    1990
    
    
    40 YearsShawano Plaza, WI
    
    
    
    
    
    
    190,000
    
    
    
    9,133,934
    
    
    
    101,471
    
    
    
    190,000
    
    
    
    9,235,405
    
    
    
    9,425,405
    
    
    
    3,587,317
    
    
    
    1990
    
    
    40 YearsWest Frankfort Plaza, IL
    
    
    316,267
    
    
    
    8,002
    
    
    
    784,077
    
    
    
    143,258
    
    
    
    8,002
    
    
    
    927,335
    
    
    
    935,337
    
    
    
    488,299
    
    
    
    1982
    
    
    40 YearsOmaha, NE
    
    
    1,271,842
    
    
    
    1,705,619
    
    
    
    2,053,615
    
    
    
    2,152
    
    
    
    1,705,619
    
    
    
    2,055,767
    
    
    
    3,761,386
    
    
    
    520,358
    
    
    
    1995
    
    
    40 YearsWichita, KS
    
    
    931,384
    
    
    
    1,039,195
    
    
    
    1,690,644
    
    
    
    24,666
    
    
    
    1,039,195
    
    
    
    1,715,310
    
    
    
    2,754,505
    
    
    
    434,113
    
    
    
    1995
    
    
    40 YearsSanta Barbara, CA
    
    
    1,893,071
    
    
    
    2,355,423
    
    
    
    3,240,557
    
    
    
    2,650
    
    
    
    2,355,423
    
    
    
    3,243,207
    
    
    
    5,598,630
    
    
    
    820,927
    
    
    
    1995
    
    
    40 YearsMonroeville, PA
    
    
    2,901,802
    
    
    
    6,332,158
    
    
    
    2,249,724
    
    
    
    
    
    
    
    6,332,158
    
    
    
    2,249,724
    
    
    
    8,581,882
    
    
    
    512,965
    
    
    
    1996
    
    
    40 YearsNorman, OK
    
    
    847,378
    
    
    
    879,562
    
    
    
    1,626,501
    
    
    
    
    
    
    
    879,562
    
    
    
    1,626,501
    
    
    
    2,506,063
    
    
    
    375,938
    
    
    
    1996
    
    
    40 YearsColumbus, OH
    
    
    1,069,438
    
    
    
    826,000
    
    
    
    2,336,791
    
    
    
    
    
    
    
    826,000
    
    
    
    2,336,791
    
    
    
    3,162,791
    
    
    
    579,327
    
    
    
    1996
    
    
    40 YearsAventura, FL
    
    
    1,072,931
    
    
    
    
    
    
    
    3,173,121
    
    
    
    
    
    
    
    
    
    
    
    3,173,121
    
    
    
    3,173,121
    
    
    
    770,143
    
    
    
    1996
    
    
    40 YearsBoyton Beach, FL
    
    
    1,209,855
    
    
    
    1,534,942
    
    
    
    2,043,122
    
    
    
    
    
    
    
    1,534,942
    
    
    
    2,043,122
    
    
    
    3,578,064
    
    
    
    463,771
    
    
    
    1996
    
    
    40 YearsLawrence, KS
    
    
    2,899,217
    
    
    
    
    
    
    
    3,000,000
    
    
    
    155,407
    
    
    
    
    
    
    
    3,155,407
    
    
    
    3,155,407
    
    
    
    650,616
    
    
    
    1997
    
    
    40 YearsWaterford, MI
    
    
    2,266,273
    
    
    
    971,009
    
    
    
    1,562,869
    
    
    
    135,390
    
    
    
    971,009
    
    
    
    1,698,259
    
    
    
    2,669,268
    
    
    
    338,618
    
    
    
    1997
    
    
    40 YearsChesterfield Township, MI
    
    
    2,488,384
    
    
    
    1,350,590
    
    
    
    1,757,830
    
    
    
    (46,164
    )
    
    
    1,350,590
    
    
    
    1,711,666
    
    
    
    3,062,256
    
    
    
    321,517
    
    
    
    1998
    
    
    40 YearsGrand Blanc, MI
    
    
    2,377,329
    
    
    
    1,104,285
    
    
    
    1,998,919
    
    
    
    13,968
    
    
    
    1,104,285
    
    
    
    2,012,887
    
    
    
    3,117,172
    
    
    
    352,601
    
    
    
    1998
    
    
    40 YearsPontiac, MI
    
    
    2,279,450
    
    
    
    1,144,190
    
    
    
    1,808,955
    
    
    
    (113,506
    )
    
    
    1,144,190
    
    
    
    1,695,449
    
    
    
    2,839,639
    
    
    
    309,008
    
    
    
    1998
    
    
    40 YearsMt. Pleasant Shopping
Center, MI
    
    
    
    
    
    
    907,600
    
    
    
    8,081,968
    
    
    
    403,100
    
    
    
    907,600
    
    
    
    8,485,068
    
    
    
    9,392,668
    
    
    
    2,027,688
    
    
    
    1973
    
    
    40 YearsTulsa, OK
    
    
    
    
    
    
    1,100,000
    
    
    
    2,394,512
    
    
    
    
    
    
    
    1,100,000
    
    
    
    2,394,512
    
    
    
    3,494,512
    
    
    
    452,824
    
    
    
    1998
    
    
    40 YearsColumbia, MD
    
    
    3,190,253
    
    
    
    1,545,509
    
    
    
    2,093,700
    
    
    
    286,589
    
    
    
    1,545,509
    
    
    
    2,380,289
    
    
    
    3,925,798
    
    
    
    378,919
    
    
    
    1999
    
    
    40 YearsRochester, MI
    
    
    3,326,990
    
    
    
    2,438,740
    
    
    
    2,188,050
    
    
    
    1,949
    
    
    
    2,438,740
    
    
    
    2,189,999
    
    
    
    4,628,739
    
    
    
    355,851
    
    
    
    1999
    
    
    40 Years
 F-25




---



##### Table of Contents



Agree Realty Corporation
 Schedule III  Real Estate and Accumulated Depreciation
December 31, 2004
 Column A
    
    Column B
    
    
    Column C
    
    
    Column D
    
    
    Column E
    
    
    Column F
    
    
    Column G
    
    
    Column HLife on WhichCosts
    
    
    Gross Amount at Which Carried
    
    
    
    
    
    
    
    
    
    
    Depreciation inInitial Cost
    
    
    Capitalized
    
    
    at Close of Period
    
    
    
    
    
    
    
    
    
    
    Latest IncomeBuildings and
    
    
    Subsequent to
    
    
    
    
    
    
    Buildings and
    
    
    
    
    
    
    Accumulated
    
    
    Date of
    
    
    StatementDescription
    
    Encumbrance
    
    
    Land
    
    
    Improvements
    
    
    Acquisition
    
    
    Land
    
    
    Improvements
    
    
    Total
    
    
    Depreciation
    
    
    Construction
    
    
    is ComputedYpsilanti, MI
    
    
    3,004,916
    
    
    
    2,050,000
    
    
    
    2,222,097
    
    
    
    29,624
    
    
    
    2,050,000
    
    
    
    2,251,721
    
    
    
    4,301,721
    
    
    
    337,802
    
    
    
    1999
    
    
    40 YearsGermantown, MD
    
    
    2,999,953
    
    
    
    1,400,000
    
    
    
    2,288,890
    
    
    
    45,000
    
    
    
    1,400,000
    
    
    
    2,333,890
    
    
    
    3,733,890
    
    
    
    351,647
    
    
    
    2000
    
    
    40 YearsPetoskey, MI
    
    
    2,090,160
    
    
    
    
    
    
    
    2,332,473
    
    
    
    (1,721
    )
    
    
    
    
    
    
    2,330,752
    
    
    
    2,330,752
    
    
    
    330,989
    
    
    
    2000
    
    
    40 YearsFlint, MI
    
    
    3,152,672
    
    
    
    2,026,625
    
    
    
    1,879,700
    
    
    
    (1,201
    )
    
    
    2,026,625
    
    
    
    1,878,499
    
    
    
    3,905,124
    
    
    
    234,815
    
    
    
    2000
    
    
    40 YearsFlint, MI
    
    
    2,712,726
    
    
    
    1,477,680
    
    
    
    2,241,293
    
    
    
    
    
    
    
    1,477,680
    
    
    
    2,241,293
    
    
    
    3,718,973
    
    
    
    273,156
    
    
    
    2001
    
    
    40 YearsNew Baltimore, MI
    
    
    2,314,284
    
    
    
    1,250,000
    
    
    
    2,285,781
    
    
    
    (16,502
    )
    
    
    1,250,000
    
    
    
    2,269,279
    
    
    
    3,519,279
    
    
    
    248,377
    
    
    
    2001
    
    
    40 YearsFlint, MI
    
    
    
    
    
    
    1,729,851
    
    
    
    1,798,091
    
    
    
    660
    
    
    
    1,729,851
    
    
    
    1,798,751
    
    
    
    3,528,602
    
    
    
    166,721
    
    
    
    2002
    
    
    40 YearsOklahoma City, OK
    
    
    3,860,384
    
    
    
    1,914,859
    
    
    
    2,057,034
    
    
    
    
    
    
    
    1,914,859
    
    
    
    2,057,034
    
    
    
    3,971,893
    
    
    
    165,429
    
    
    
    2002
    
    
    40 YearsOmaha, NE
    
    
    3,542,310
    
    
    
    1,530,000
    
    
    
    2,237,702
    
    
    
    
    
    
    
    1,530,000
    
    
    
    2,237,702
    
    
    
    3,767,702
    
    
    
    179,936
    
    
    
    2002
    
    
    40 YearsIndianapolis, IN
    
    
    1,101,815
    
    
    
    180,000
    
    
    
    1,117,617
    
    
    
    
    
    
    
    180,000
    
    
    
    1,117,617
    
    
    
    1,297,617
    
    
    
    89,926
    
    
    
    2002
    
    
    40 YearsBig Rapids, MI
    
    
    
    
    
    
    1,201,675
    
    
    
    2,014,107
    
    
    
    (2,000
    )
    
    
    1,201,675
    
    
    
    2,012,107
    
    
    
    3,213,782
    
    
    
    138,371
    
    
    
    2003
    
    
    40 YearsFlint, MI
    
    
    
    
    
    
    
    
    
    
    471,272
    
    
    
    (45,210
    )
    
    
    
    
    
    
    426,062
    
    
    
    426,062
    
    
    
    156,597
    
    
    
    2003
    
    
    20 YearsAnn Arbor, MI
    
    
    7,114,802
    
    
    
    1,727,590
    
    
    
    6,009,488
    
    
    
    
    
    
    
    1,727,590
    
    
    
    6,009,488
    
    
    
    7,737,078
    
    
    
    456,059
    
    
    
    2003
    
    
    40 YearsTulsa, OK
    
    
    
    
    
    
    2,000,000
    
    
    
    2,740,507
    
    
    
    
    
    
    
    2,000,000
    
    
    
    2,740,507
    
    
    
    4,740,507
    
    
    
    161,060
    
    
    
    2003
    
    
    40 YearsCanton Twp., MI
    
    
    
    
    
    
    1,550,000
    
    
    
    2,132,096
    
    
    
    23,020
    
    
    
    1,550,000
    
    
    
    2,155,116
    
    
    
    3,705,116
    
    
    
    112,196
    
    
    
    2003
    
    
    40 YearsFlint, MI
    
    
    
    
    
    
    1,537,400
    
    
    
    1,961,674
    
    
    
    
    
    
    
    1,537,400
    
    
    
    1,961,674
    
    
    
    3,499,074
    
    
    
    89,993
    
    
    
    2004
    
    
    40 YearsWebster, NY
    
    
    
    
    
    
    1,600,000
    
    
    
    2,438,781
    
    
    
    
    
    
    
    1,600,000
    
    
    
    2,438,781
    
    
    
    4,038,781
    
    
    
    109,238
    
    
    
    2004
    
    
    40 YearsAlbion, NY
    
    
    
    
    
    
    1,900,000
    
    
    
    3,037,864
    
    
    
    
    
    
    
    1,900,000
    
    
    
    3,037,864
    
    
    
    4,937,864
    
    
    
    85,440
    
    
    
    2004
    
    
    40 YearsFlint, MI
    
    
    
    
    
    
    1,029,000
    
    
    
    2,165,463
    
    
    
    (6,666
    )
    
    
    1,029,000
    
    
    
    2,158,797
    
    
    
    3,187,797
    
    
    
    60,675
    
    
    
    2004
    
    
    40 YearsLansing, MI
    
    
    
    
    
    
    785,000
    
    
    
    348,501
    
    
    
    3,045
    
    
    
    785,000
    
    
    
    351,546
    
    
    
    1,136,546
    
    
    
    13,145
    
    
    
    2004
    
    
    40 YearsBoynton Beach, FL
    
    
    
    
    
    
    1,569,000
    
    
    
    2,363,524
    
    
    
    108,651
    
    
    
    1,569,000
    
    
    
    2,472,175
    
    
    
    4,041,175
    
    
    
    88,420
    
    
    
    2004
    
    
    40 YearsAnn Arbor, MI
    
    
    
    
    
    
    1,700,000
    
    
    
    8,308,854
    
    
    
    150,000
    
    
    
    1,700,000
    
    
    
    8,458,854
    
    
    
    10,158,854
    
    
    
    412,044
    
    
    
    2004
    
    
    40 YearsMidland, MI
    
    
    
    
    
    
    2,350,000
    
    
    
    2,313,413
    
    
    
    
    
    
    
    2,350,000
    
    
    
    2,313,413
    
    
    
    4,663,413
    
    
    
    26,508
    
    
    
    2005
    
    
    40 YearsGrand Rapids, MI
    
    
    
    
    
    
    1,450,000
    
    
    
    2,646,591
    
    
    
    
    
    
    
    1,450,000
    
    
    
    2,646,591
    
    
    
    4,096,591
    
    
    
    22,055
    
    
    
    2005
    
    
    40 YearsDelta Twp., MI
    
    
    
    
    
    
    2,075,000
    
    
    
    2,535,971
    
    
    
    
    
    
    
    2,075,000
    
    
    
    2,535,971
    
    
    
    4,610,971
    
    
    
    10,650
    
    
    
    2005
    
    
    40 YearsRoseville., MI
    
    
    
    
    
    
    1,771,000
    
    
    
    2,327,052
    
    
    
    
    
    
    
    1,771,000
    
    
    
    2,327,052
    
    
    
    4,098,052
    
    
    
    7,272
    
    
    
    2005
    
    
    40 YearsMt Pleasant., MI
    
    
    
    
    
    
    1,075,000
    
    
    
    1,432,390
    
    
    
    
    
    
    
    1,075,000
    
    
    
    1,432,390
    
    
    
    2,507,390
    
    
    
    2,984
    
    
    
    2005
    
    
    40 YearsN Cape May, NJ.,
    
    
    
    
    
    
    1,075,000
    
    
    
    1,430,092
    
    
    
    
    
    
    
    1,075,000
    
    
    
    1,430,092
    
    
    
    2,505,092
    
    
    
    2,979
    
    
    
    2005
    
    
    40 Years
SubTotal
    
    
    68,221,920
    
    
    
    71,755,167
    
    
    
    178,957,779
    
    
    
    6,074,406
    
    
    
    71,755,167
    
    
    
    185,032,185
    
    
    
    256,787,352
    
    
    
    43,771,581Retail Facilities
Under DevelopmentLivonia, MI
    
    
    
    
    
    
    1,200,000
    
    
    
    203,843
    
    
    
    
    
    
    
    1,200,000
    
    
    
    203,843
    
    
    
    1,403,843
    
    
    
    
    
    
    
    N/A
    
    
    
    N/AOther
    
    
    
    
    
    
    80,000
    
    
    
    61,070
    
    
    
    
    
    
    
    80,000
    
    
    
    61,070
    
    
    
    141,070
    
    
    
    
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    1,280,000
    
    
    
    264,913
    
    
    
    
    
    
    
    1,280,000
    
    
    
    264,913
    
    
    
    1,544,913
    
    
    
    Total
    
    $
    68,221,920
    
    
    $
    73,035,167
    
    
    $
    179,222,692
    
    
    $
    6,074,406
    
    
    $
    73,035,167
    
    
    $
    185,297,098
    
    
    $
    258,332,265
    
    
    $
    43,771,581
 F-26




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##### Table of Contents



1)
    
    Reconciliation of Real Estate PropertiesThe following table reconciles the Real Estate Properties from January 1, 2003 to December 31,
2005:
 2005
    
    
    2004
    
    
    2003Balance at January 1
    
    $
    252,426,862
    
    
    $
    220,358,955
    
    
    $
    210,985,666Construction and acquisition costs
    
    
    15,260,671
    
    
    
    34,736,096
    
    
    
    19,821,273Sale of real estate asset
    
    
    (9,355,268
    )
    
    
    (2,668,189
    )
    
    
    (10,447,984
    )Balance at December 31
    
    $
    258,332,265
    
    
    $
    252,426,862
    
    
    $
    220,358,955
 2)
    
    Reconciliation of Accumulated DepreciationThe following table reconciles the accumulated depreciation from January 1, 2003 to December
31, 2005:
 2005
    
    
    2004
    
    
    2003Balance at January 1
    
    $
    41,727,987
    
    
    $
    38,475,767
    
    
    $
    37,456,301Current year depreciation expense
    
    
    4,676,257
    
    
    
    4,372,362
    
    
    
    4,145,898Sale of real estate asset
    
    
    (2,632,663
    )
    
    
    (1,120,142
    )
    
    
    (3,126,432
    )Balance at December 31
    
    $
    43,771,581
    
    
    $
    41,727,987
    
    
    $
    38,475,767
 3)
    
    Tax Basis of Buildings and ImprovementsThe aggregate cost of Building and Improvements for federal income tax purposes is
approximately $22,816,000 less than the cost basis used for financial statement purpose.
 F-27




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##### Table of Contents



Exhibit Index
 Exhibit No.
    
    Description3.1
    
    Articles of Incorporation and Articles of Amendment of the Company (incorporated by
reference to Exhibit 3.1 to the Companys Registration Statement on Form S-11 (Registration
Statement No. 33-73858, as amended (Agree S-11))3.2
    
    Bylaws of the Company (incorporated by reference to Exhibit 3.3 to Agree S-11)4.1
    
    Rights Agreement by and between Agree Realty Corporation and BankBoston, N.A. as Rights Agent
dated as of December 7, 1998 (incorporated by reference to Exhibit 4.1 to the Companys Form
8-K filed on December 7, 1998)10.1
    
    First Amended and Restated Agreement of Limited Partnership of Agree Limited Partnership,
dated as of April 22, 1994, by and among the Company, Richard Agree, Edward Rosenberg and Joel
Weiner (incorporated by reference to Exhibit 10.6 to the 1996 Form 10-K)10.2
    
    Amended and Restated Registration Rights Agreement, dated July 8, 1994 by and among the
Company, Richard Agree, Edward Rosenberg and Joel Weiner (incorporated by reference to Exhibit
10.2 to the Companys Annual Report on Form 10-K for the year ended December 31, 1994)10.3
    
    Contribution Agreement, dated as of April 21, 1994, by and among the Company, Richard Agree,
Edward Rosenberg and the co-partnerships named therein (incorporated by reference to Exhibit
10.10 to the 1996 Form 10-K)10.4 +
    
    Agree Realty Corporation Profit Sharing Plan (incorporated by reference to Exhibit 10.13 to
the 1996 Form 10-K)10.5
    
    Line of Credit Agreement by and among Agree Limited Partnership, the Company, the lenders
parties thereto, and Michigan National Bank as Agent (incorporated by reference to Exhibit
10.10 to the 1995 Form 10-K)10.6
    
    First amendment to $5 million business loan agreement dated September 21, 1997 between Agree
Limited Partnership and Michigan National Bank (incorporated by reference to Exhibit 10.2 to
the September 1997 Form 10-Q)10.7
    
    Second amendment to amended and restated $5 million business Loan agreement dated October 19,
1998 between Agree Limited Partnership and Michigan National Bank (incorporated by reference
to Exhibit 10.17 to the Companys Annual Report on Form 10-K for the year ended December 31,
1998)10.8 +
    
    Employment Agreement, dated July 1, 2004, by and between the
Company and Richard Agree (incorporated by reference to
exhibit 10.1 to the Companys Quarterly Report on Form 10-Q
for the period ending June 30, 2004 (June 2004 Form 10-Q))10.9 +
    
    Employment Agreement, dated July 1, 2004, by and between the
Company, and Kenneth R. Howe (incorporated by reference to
exhibit 10.2 to the June 2004 Form 10-Q)10.10
    
    Third amendment to amended and restated $5 million business Loan agreement dated December
19, 1999 between Agree Limited Partnership and Michigan National Bank (incorporated by
reference to exhibit 10.17 to the 1999 Form 10-K)10.11
    
    Trust Mortgage dated as of June 27, 1999 from Agree Facility No. 1, L.L.C. as Grantor to
Manufacturers and Traders Trust Company (incorporated by reference to exhibit 10.4 to the June
1999 Form 10-Q)10.12 +
    
    Employment Agreement, dated January 10, 2000, by and between the Company, and David J.
Prueter (incorporated by reference to exhibit 10.1 to the Companys Quarterly Report on Form
10-Q for the period ended March 31, 200010.13
    
    Fourth amendment to amended and restated $5 million business Loan agreement dated February
19, 2001 between Agree Limited Partnership and Michigan National Bank (incorporated by
reference to exhibit 10.23 to the Companys Annual Report on Form 10-K for the year ended
December 31, 2000 (the 2000 Form 10-K))10.14
    
    Mortgage dated as of December 20, 2001, by Agree Limited Partnership to and in favor of
Nationwide Life Insurance Company (incorporated by reference to exhibit 10.25 to the Companys
Annual Report on Form 10-K for the year ended December 31, 2001 (the 2001 from 10-K))




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##### Table of Contents



Exhibit No.
    
    Description10.15
    
    Fifth amendment to amended and restated $5 million business Loan agreement dated April 30,
2002 between Agree Limited Partnership and Standard Federal Bank (incorporated by reference to
exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the period ended June 30, 2002
(the June 2002 Form 10-Q))10.16
    
    Project Loan Agreement dated as of April 30, 2002 between Royal Identify Company (together
with its successors and assigns) and Lawrence Store No. 203 L.L.C. (together with its
permitted successors and assigns) (incorporated by reference to exhibit 10.2 to the June 2002
Form 10-Q)10.17
    
    Project Loan Agreement dated as of November 25, 2002 between Wilmington Trust Company, not
in its individual capacity, but solely as Owner Trustee, and
Indianapolis Store No. 16 L.L.C. (incorporated by reference to
exhibit 10.28 to the Companys Annual Report on Form 10-K for
the year ended December 31, 2002 (the 2002 Form 10-K))10.18
    
    Project Loan Agreement dated as of January 30, 2003 between Modern Woodman of America and
Phoenix Drive L.L.C. (incorporated by reference to exhibit 10.1 to the March 31, 2003 Form
10-Q)10.19
    
    Sixth amendment to amended and restated $5 million business loan agreement dated April 30,
2003, between Agree Limited Partnership and Standard Federal Bank (incorporated by reference
to exhibit 10.1 to the June 30, 2003 Form 10-Q)10.20
    
    Amended and Restated $50 million Line of Credit agreement dated November 5, 2003, among
Agree Realty Corporation, Standard Federal Bank and Bank One. (incorporated by reference to
exhibit 10.1 to the Sep 30, 2003 Form 10-Q)10.21
    
    Indemnity Deed of Trust and Security Agreement dated October 31, 2003, by Agree  Columbia
Crossing Project, L.L.C., and Nationwide Life Insurance Company (incorporated by reference to
exhibit 10.33 to the December 31, 2003 Form 10-K)10.22
    
    Indemnity Deed of Trust and Security Agreement dated October 31, 2003, by Agree-Milestone
Center Project, L.L.C., and Nationwide Life Insurance Company (incorporated by reference to
exhibit 10.34 to the December 31, 2003 Form 10-K)10.23
    
    Mortgage and Security Agreement dated October 31, 2003, by Oklahoma Store No. 151, L.L.C.
and Nationwide Life Insurance Company (incorporated by reference to exhibit 10.35 to the
December 31, 2003 From 10-K)10.24
    
    Deed of Trust and Security Agreement dated October 31, 2003, by Omaha Store No. 166, L.L.C.
and Nationwide Life Insurance Company (incorporated by reference to exhibit 10.36 to the
December 31, 2003 Form 10-K)10.25 +
    
    The Companys 2005 Equity Incentive Plan10.26 +
    
    Employment Agreement, dated August 1, 2005, by and between the Company, and Charles
Carter (incorporated by reference to exhibit 10.1 to the September 2005 Form 10-Q)10.27 +
    
    Employment Agreement, dated September 1, 2005, by and between the Company, and Vicky
Umphryes (incorporated by reference to exhibit 10.2 to the September 2005 Form 10-Q)21.1 *
    
    Subsidiaries of Agree Realty Corporation23 *
    
    Consent of BDO Seidman, LLP31.1 *
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, Richard Agree, Chief Executive Officer31.2 *
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, Kenneth R. Howe, Chief Financial Officer32.1 *
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, Richard Agree, Chief Executive Officer32.2 *
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, Kenneth R. Howe, Chief Financial Officer
 
 *
    
    Filed herewith+
    
    Management contract or compensatory plan or arrangement