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, 2009
 
 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
                
                48334Farmington
      Hills, Michigan
                
                (Zip
      code)(Address
      of principal executive offices)
 
 (248)
737-4190
 (Registrant’s
telephone number, including area code)
 
 Securities
Registered Pursuant to Section 12(b) of the Act:
 
 Title of each class
                
                Name of each exchangeon which registeredCommon
      Stock, $.0001 par value
                
                New
      York Stock Exchange
 
 Securities Registered Pursuant to
Section 12(g) of the Act:None
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes  ̈ No x
  Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.     Yes  ̈ No x
  Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes x No  ̈
  Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).  Yes  ̈  No  ̈
  Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.   ̈
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.  (Check one):
  Large
      accelerated filer  ̈
                    
                    Accelerated
      filer x
                    
                    Non-accelerated
      filer  ̈
                    
                    Smaller
      reporting company  ̈(Do not check if a smaller
      reporting company)
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).    Yes  ̈ No x
  The
aggregate market value of the Registrant’s shares of common stock held by
non-affiliates was approximately $150,151,551 as of June 30, 2009, based on the
closing price of $18.33 on the New York Stock Exchange on that
date.
  At
February 26, 2010, there were 8,271,464 shares of common stock, $.0001 par value
per share, outstanding.
  DOCUMENTS
INCORPORATED BY REFERENCE
  Portions
of the registrant’s definitive proxy statement for the annual stockholder
meeting to be held in 2010 are incorporated by reference into Part III of this
Form 10-K as noted herein.
  
  TABLE
OF CONTENTS
  Part
      IItem 1.
                        
                        Business
                        
                        1Item 1A.
                        
                        Risk Factors
                        
                        4Item 1B.
                        
                        Unresolved Staff Comments
                        
                        17Item 2.
                        
                        Properties
                        
                        17Item 3.
                        
                        Legal Proceedings
                        
                        24Item 4.
                        
                        Reserved
                        
                        24Part
      IIItem 5.
                        
                        Market for Registrant’s Common
      Equity,  Related Stockholder Matters and Issuer Purchases
      ofEquity Securities
                        
                        24Item 6.
                        
                        Selected
      Financial Data
                        
                        26Item 7.
                        
                        Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
                        
                        27Item 7A
                        
                        Quantitative and Qualitative Disclosures about
      Market Risk
                        
                        32Item 8
                        
                        Financial Statements and Supplementary
      Data
                        
                        33Item 9
                        
                        Changes in and Disagreements With Accountants on
      Accounting and Financial Disclosure
                        
                        33Item 9A
                        
                        Controls and Procedures
                        
                        33Item 9B
                        
                        Other Information
                        
                        34Part
      IIIItem 10.
                        
                        Directors, Executive Officers and Corporate
      Governance
                        
                        34Item 11.
                        
                        Executive Compensation
                        
                        34Item 12.
                        
                        Security Ownership of Certain Beneficial Owners
      and Management and Related StockholderMatters
                        
                        34Item 13.
                        
                        Certain Relationships and Related Transactions,
      and Director Independence
                        
                        35Item 14.
                        
                        Principal Accountant Fees and
      Services
                        
                        35Part IVItem 15.
                        
                        Exhibits and Financial Statement
      Schedules
                        
                        36Signatures
                        
                        39
  
  PART
I
  FORWARD
LOOKING STATEMENTS
  Management
has included herein certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities and Exchange Act of 1934, as amended (the “Securities Exchange
Act”). These forward-looking statements represent our expectations, plans or
beliefs concerning future events and may be identified by terminology such as
“anticipate,” “estimate,” “should,” “expect,” “believe,” “intend” and similar
expressions. Although the forward-looking statements made in this report are
based on good faith beliefs, reasonable assumptions and our best judgment
reflecting current information, certain factors could cause actual results to
differ materially from such forward–looking statements, including but not
limited to: the ongoing U.S. recession, the existing global credit and
financial crisis and other changes in general economic, financial and real
estate market conditions; risks that our acquisition and development projects
will fail to perform as expected; financing risks, such as the inability to
obtain debt or equity financing on favorable terms or at all; the level and
volatility of interest rates; loss or bankruptcy of one or more of our major
retail tenants; a failure of our properties to generate additional income to
offset increases in operating expenses; and other factors discussed in Item
1A. “Risk Factors” and elsewhere in this report and in subsequent filings with
the Securities and Exchange Commission (“SEC”).  Given these
uncertainties, you should not place undue reliance on our forward-looking
statements.  Except as required by law, we assume no obligation to
update these forward–looking statements, even if new information becomes
available in the future.
  Item
      1.
              BUSINESS
  General
  Agree
Realty Corporation, a Maryland corporation, is a fully-integrated,
self-administered and self-managed real estate investment trust
(“REIT”).  The terms “Registrant”, “Company”, “we”, “our” or “us”
refer to Agree Realty Corporation and/or its majority owned operating
partnership, Agree Limited Partnership (“Operating Partnership”), and/or its
majority owned and controlled subsidiaries, including its qualified taxable REIT
subsidiaries (“TRS”), as the context may require.  Our assets are held
by and all of our operations are conducted through, directly or indirectly, the
Operating Partnership, of which we are the sole general partner and in which we
held a 95.93% interest as of December 31, 2009.  Under the partnership
agreement of the Operating Partnership, we, as the sole general partner, have
exclusive responsibility and discretion in the management and control of the
Operating Partnership.
  We are
focused primarily on the ownership, development, acquisition and management of
retail properties net leased to national tenants.  We were
incorporated in December 1993 to continue and expand the business founded in
1971 by our current Chief Executive Officer and Chairman, Richard
Agree.  We specialize in developing retail properties for national
tenants who have executed long-term net leases prior to the commencement of
construction.  As of December 31, 2009, approximately 89% of our
annualized base rent was derived from national tenants.  As of
December 31, 2009, approximately 70% of our annualized base rent was derived
from our top three tenants:  Walgreen Co. (“Walgreen”) – 30%; Borders
Group, Inc. (“Borders”) – 29%; and Kmart Corporation (“Kmart”) - 11%.
  At
December 31, 2009, our portfolio consisted of 73 properties, located in 16
states containing an aggregate of approximately 3.5 million square feet of gross
leasable area (“GLA”).  As of December 31, 2009, our portfolio
included 61 freestanding net leased properties and 12 community shopping centers
that were 98.1% leased with a weighted average lease term of approximately 10.3
years remaining.  All of our freestanding property tenants and the
majority of our community shopping center tenants have triple-net leases, which
require the tenant to be responsible for property operating expenses including
property taxes, insurance and maintenance.  We believe this strategy
provides a generally consistent source of income and cash for
distributions.  See Item 2. “Properties” for a summary of our
developments and acquisitions in 2009, as well as other information regarding
our tenants, leases and properties as of December 31, 2009.
  
  We expect
to continue to grow our asset base primarily through the development of retail
properties that are pre-leased on a long-term basis to national
tenants.  We focus on development because we believe, based on our
historical returns we have been able to achieve, it generally provides us a
higher return on investment than the acquisition of similarly located properties
and does not entail the risk associated with speculative development. Since our
initial public offering in 1994, we have developed 60 of our 73 properties,
including 48 of our 61 freestanding properties and all 12 of our community
shopping centers.  As of December 31, 2009, the properties that we
developed accounted for approximately 84% of our annualized base
rent.  We expect to continue to expand our tenant relationships and
diversify our tenant base to include other quality national
tenants.
  Growth
Strategy
  Development.  Our
growth strategy is to develop retail properties pre-leased on a long-term
basis to national tenants.  We believe that this strategy produces
superior risk adjusted returns.  Our development process commences
with the identification of a land parcel we believe is situated in an attractive
retail location. The location must be in a concentrated retail corridor and have
high traffic counts, good visibility and demographics compatible with the needs
of a particular retail tenant.  After assessing the feasibility of
development, we propose to the tenants that we execute long-term net leases for
the finished development on that site.
  Upon the
execution of the leases, we purchase the land and pursue all the necessary
approvals to begin development.  We direct all aspects of the
development, including construction, design, leasing and
management.  Property management and the majority of the leasing
activities are handled directly by our personnel.  We believe that
this approach enhances our ability to maximize the long-term value of our
properties and results in an efficient use of our capital
resources.
  Acquisitions.  We
selectively acquire single tenant properties when we have determined that a
potential acquisition meets our return on investment criteria and such
acquisition will diversify our rental income.
  Financing
Strategy
  The
majority of our mortgage indebtedness is fixed rate, non-recourse and long-term
in nature.  Whenever feasible, we enter into long-term financing for
our properties to match the underlying long-term leases.  We intend to
limit our floating rate debt to borrowings under our credit facilities, which
are primarily used to finance new development and acquisitions.  Once
development of a project is completed, we typically consider refinancing this
floating rate debt with fixed rate, non-recourse debt.  As of December
31, 2009, our total mortgage debt was approximately $75.6 million with a
weighted average maturity of 8.8 years.  Of this total mortgage
indebtedness, approximately $51.4 million is fixed rate, self–amortizing debt
with a weighted average interest rate of 6.56% and a weighted average maturity
of 11.3 years.  The remaining mortgage debt of approximately $24.2
million bears interest at 150 basis points over LIBOR or 1.74% as of December
31, 2009 and has a maturity date of July 14, 2013, which can be extended at our
option for two additional years.  In January 2009, we entered into an
interest rate swap agreement that fixes the interest rate during the initial
term of the variable interest mortgage at 3.744%.   In addition
to our mortgage debt, we had $29.0 million outstanding under our credit
facilities as of December 31, 2009 with a weighted average interest rate of
1.26%.  We intend to maintain a ratio of total indebtedness (including
construction and acquisition financing) to market capitalization of 65% or
less.  At December 31, 2009, our ratio of indebtedness to market
capitalization assuming the conversion of our operating partnership units, was
approximately 52.5%.  The decrease in our ratio of indebtedness to
market capitalization from 2008 to 2009 was primarily the result of an increase
in the market price of our common stock.
  We are
evaluating our borrowing policies on an on-going basis in light of current
economic conditions, relative costs of debt and equity capital, market value of
properties, growth and acquisition opportunities and other
factors.  There is no contractual limit or any limit in our
organizational documents on our ratio of total indebtedness to total market
capitalization, and accordingly, we may modify our borrowing policy and may
increase or decrease our ratio of debt to market capitalization without
stockholder approval.
  2
  Property
Management
  We
maintain a proactive leasing and capital improvement program that, combined with
the quality and locations of our properties, has made our properties attractive
to tenants.  We intend to continue to hold our properties for
long-term investment and, accordingly, place a strong emphasis on quality
construction and an on-going program of regular maintenance.  Our
properties are designed and built to require minimal capital improvements other
than renovations or expansions paid for by tenants.  At our 12
community shopping centers properties, we sub-contract on-site functions such as
maintenance, landscaping, snow removal and sweeping and the cost of these
functions is generally reimbursed by our tenants.  Personnel from our
corporate headquarters conduct regular inspections of each property and maintain
regular contact with major tenants.
  We have a
management information system designed to provide management with the operating
data necessary to make informed business decisions on a timely
basis.  This computer system provides us rapid access to store
availability, lease data, tenants’ sales history, cash flow budgets and
forecasts, and enables us to maximize cash flow from operations and closely
monitor corporate expenses.
  Major
Tenants
  As of
December 31, 2009, approximately 69% of our GLA was leased to Walgreen, Borders,
and Kmart and approximately 70% of our total annualized base rents were
attributable to these tenants.  At December 31, 2009, Walgreen
occupied approximately 12% of our GLA and accounted for approximately 30% of the
annualized base rent.  At December 31, 2009, Borders occupied
approximately 28% of our GLA and accounted for approximately 29% of the
annualized base rent.  At December 31, 2009, Kmart occupied
approximately 29% of our GLA and accounted for approximately 11% of the
annualized base rent.  No other tenant accounted for more than 10% of
gross leasable area or annualized base rent in 2009.  The loss of any
of these anchor tenants or a significant number of their stores, or the
inability of any of them to pay rent, would have a material adverse effect on
our business.
  Tax
Status
  We have
operated and intend to operate in a manner to qualify as a REIT under Sections
856 through 860 of the Internal Revenue Code of 1986, as amended (the “Internal
Revenue Code”).  In order to maintain qualification as a REIT, we
must, among other things, distribute at least 90% of our REIT taxable income and
meet certain asset and income tests.  Additionally, our charter limits
ownership of our Company, directly or constructively, by any single person to
9.8% of the value of our outstanding common stock and preferred stock, subject
to certain exceptions.  As a REIT, we are not subject to federal
income tax with respect to that portion of our income that meets certain
criteria and is distributed annually to the stockholders.
  We
established TRS entities pursuant to the provisions of the REIT Modernization
Act.  Our TRS entities are able to engage in activities resulting in
income that previously would have been disqualified from being eligible REIT
income under the federal income tax regulations.  As a result, certain
activities of our Company which occur within our TRS entities are subject to
federal and state income taxes.
  Competition
  The U.S.
commercial real estate investment market continues to be highly
competitive.  We actively compete with many other entities engaged in
the development, acquisition and operation of commercial
properties.  As such, we compete for a limited supply of properties
and financing for these properties.  Investors include large
institutional investors, insurance companies, credit companies, pension funds,
private individuals, investment companies and other REITs, many of which have
greater financial and other resources than we do.  There can be no
assurance that we will be able to compete successfully with such entities in our
development, acquisition and leasing activities in the future.
  3
  Potential
Environmental Risks
  Investments
in real property create a potential for environmental liability on the part of
the owner or operator of such real property.  If hazardous substances
are discovered on or emanating from a property, the owner or operator of the
property may be held strictly liable for all costs and liabilities relating to
such hazardous substances.  We have obtained a Phase I environmental
study (which involves inspection without soil sampling or ground water analysis)
conducted by independent environmental consultants on each of our
properties.  Furthermore, we have adopted a policy of conducting a
Phase I environmental study on each property we acquire and if necessary
conducting additional investigation as warranted.
  We
conducted Phase I environmental studies on the five properties we developed in
2009. The results of the Phase I studies indicated that in three of our
developments no further action was required, including no further soil sampling
or ground water analysis.  On the remaining two developments, in
addition to the Phase I environmental study, we conducted additional
investigation including in one instance a Phase II environmental assessment and
in two instances base line environmental assessments were
performed.  In addition, we have no knowledge of any hazardous
substances existing on any of our properties in violation of any applicable
laws; however, no assurance can be given that such substances are not located on
any of the properties.  We carry no insurance coverage for the types
of environmental risks described above.
  We
believe that we are in compliance, in all material respects, with all federal,
state and local ordinances and regulations regarding hazardous or toxic
substances.  Furthermore, we have not been notified by any
governmental authority of any noncompliance, liability or other claim in
connection with any of the properties.
  Employees
  As of
February 26, 2010, we employed 10 persons.  Employee responsibilities
include accounting, construction, leasing, property coordination and
administrative functions for the properties.  Our employees are not
covered by a collective bargaining agreement, and we consider our employee
relations to be satisfactory.
  Financial
Information About Industry Segments
  We are in
the business of development, acquisition and management of freestanding net
leased properties and community shopping centers.  We consider our
activities to consist of a single industry segment.  See the
Consolidated Financial Statements and Notes thereto included in this Annual
Report on Form 10-K.
  Available
Information
  Our
headquarters are located at 31850 Northwestern Highway, Farmington Hills,
MI  48334 and our telephone number is (248) 737-4190.  Our
web site address is www.agreerealty.com.  Our
reports electronically filed with or furnished to the SEC pursuant to Section
13(a) or 15(d) of the Securities Exchange Act can be accessed through this site,
free of charge, as soon as reasonably practicable after we electronically file
or furnish such reports.  These filings are also available on the
SEC’s website at www.sec.gov.
  ITEM
      1A.
                RISK
      FACTORS
  Risks
Related to Our Business and Operations
  The
recent global economic and financial market crisis has had and may continue to
have a negative effect on our business and operations.
  The
recent global economic and financial market crisis has caused, among other
things, a general tightening in the credit markets, lower levels of liquidity,
increases in the rates of default and bankruptcy, lower consumer and business
spending, and lower consumer confidence and net worth, all of which has had and
may continue to have a negative effect on our business, results of operations,
financial condition and liquidity.  Many of our tenants have been affected
by the current economic turmoil.  Current or potential tenants may delay or
postpone entering into long-term net leases with us which could continue to lead
to reduced demand for commercial real estate.  We are also limited in
our ability to reduce costs to offset the results of a prolonged or severe
economic downturn given certain fixed costs and commitments associated with our
operations.
  4
  The
timing and nature of any recovery in the credit and financial markets remains
uncertain, and there can be no assurance that market conditions will improve in
the near future or that our results will not continue to be materially and
adversely affected.  Such conditions make it very difficult to forecast
operating results, make business decisions and identify and address material
business risks.  The foregoing conditions may also impact the valuation of
certain long-lived or intangible assets that are subject to impairment testing,
potentially resulting in impairment charges which may be material to our
financial condition or results of operations.
  Capital
markets are currently experiencing a period of dislocation and instability,
which has had and could continue to have a negative impact on the availability
and cost of capital.
  The
general disruption in the U.S. capital markets has impacted the broader
worldwide financial and credit markets and reduced the availability of debt and
equity capital for the market as a whole.  These conditions could persist
for a prolonged period of time or worsen in the future.  Our ability to
access the capital markets may be restricted at a time when we would like, or
need, to access those markets, which could have an impact on our flexibility to
react to changing economic and business conditions.  The resulting lack of
available credit, lack of confidence in the financial sector, increased
volatility in the financial markets and reduced business activity could
materially and adversely affect our business, financial condition, results of
operations and our ability to obtain and manage our liquidity.  In
addition, the cost of debt financing and the proceeds of equity financing may be
materially adversely impacted by these market conditions.
  Single tenant leases involve
significant risks of tenant default.
  We focus
our development and investment activities on ownership of real properties that
are leased to a single tenant.  Therefore, the financial failure of,
or other default in payment by, a single tenant under its lease is likely to
cause a significant reduction in our operating cash flows from that property and
a significant reduction in the value of the property, and could cause a
significant reduction in our revenues and a significant impairment
loss.  We may also experience difficulty or a significant delay in
re-leasing such property.  The current economic conditions and the
credit crisis may put financial pressure on and increase the likelihood of the
financial failure of, or other default in payment by, one or more of the tenants
to whom we have exposure.
  Failure
by any major tenant with leases in multiple locations to make rental payments to
us, because of a deterioration of its financial condition or otherwise, would
have a material adverse effect on us.
  We derive
substantially all of our revenue from tenants who lease space from us at our
properties.  Therefore, our ability to generate cash from operations
is dependent on the rents that we are able to charge and collect from our
tenants.  At any time, our tenants may experience a downturn in their
business that may significantly weaken their financial condition, particularly
during periods of economic uncertainty.  As a result, our tenants may delay
lease commencements, decline to extend or renew leases upon expiration, fail to
make rental payments when due, close a number of stores or declare
bankruptcy.  Any of these actions could result in the termination of
the tenant’s leases and the loss of rental income attributable to the terminated
leases.  In addition, lease terminations by a major tenant or a
failure by that major tenant to occupy the premises could result in lease
terminations or reductions in rent by other tenants in the same shopping centers
under the terms of some leases.  In that event, we may be unable to
re-lease the vacated space at attractive rents or at all.  The
occurrence of any of the situations described above would have a material
adverse effect on our results of operations and our financial
condition.
  We rely significantly on three major
tenants, and therefore,
are subject to tenant credit concentrations that make us more susceptible to
adverse events with respect to those tenants.
  As of
December 31, 2009, we derived approximately 70% of our annualized base rent from
three major tenants:
  5
  ·
              approximately
      30% of our annualized base rent was from
  Walgreen;
  ·
              approximately
      29% of our annualized base rent was from Borders;
  and
  ·
              approximately
      11%, of our annualized base rent was from
Kmart.
  In
addition, a significant portion of our 2008 and 2009 development projects were
for Walgreen Co.  In the event of a default by any of these tenants
under their leases, we may experience delays in enforcing our rights as lessor
and may incur substantial costs in protecting our investment.  Any
bankruptcy, insolvency or failure to make rental payments by, or any adverse
change in the financial condition of, one or more of these tenants, or any other
tenant to whom we may have a significant credit concentration now or in the
future, would likely result in a material reduction of our cash flows or
material losses to our company.
  As
discussed in more detail below under Item 2. “Properties—Development and
Acquisition Summary,” Borders reported its annual net (loss) for its 2008 fiscal
year ended January 31, 2009 was approximately ($187 million).
  Bankruptcy
laws will limit our remedies if a tenant becomes bankrupt and rejects the
lease.
  If a
tenant becomes bankrupt or insolvent, that could diminish the income we receive
from that tenant’s leases.  We may not be able to evict a tenant
solely because of its bankruptcy.  On the other hand, a bankruptcy
court might authorize the tenant to terminate its leases with us.  If
that happens, our claim against the bankrupt tenant for unpaid future rent would
be an unsecured prepetition claim subject to statutory limitations, and
therefore such amounts received in bankruptcy are likely to be substantially
less than the remaining rent we otherwise were owed under the
leases.  In addition, any claim we have for unpaid past rent could be
substantially less than the amount owed.  Circuit City, a tenant who
occupied one location in our portfolio filed for bankruptcy protection in
December 2008 and is in the process of liquidation.
  Certain of our tenants at our
community shopping centers have the right to terminate their leases if other
tenants cease to occupy a property.
  In the
event that certain tenants cease to occupy a property, although under most
circumstances such a tenant would remain liable for its lease payments, such an
action may result in certain other tenants at our community shopping centers
having the right to terminate their leases at the affected property, which could
adversely affect the future income from that property.  As of December
31, 2009, each of our 12 community shopping centers had tenants with those
provisions in their leases.
  Our portfolio has limited geographic
diversification, which
makes us more susceptible to adverse events in these areas.
  Our
properties are located primarily in the Midwestern United States and in
particular, the State of Michigan (with 42 properties).  An economic
downturn or other adverse events or conditions such as terrorist attacks or
natural disasters in these areas, or any other area where we may have
significant concentration now or in the future, could result in a material
reduction of our cash flows or material losses to our company.
  Risks associated with our
development and acquisition activities.
  We intend
to continue development of new properties and to consider possible acquisitions
of existing properties.  We anticipate that our new developments will
be financed under lines of credit or other forms of construction financing that
will result in a risk that permanent financing on newly developed projects might
not be available or would be available only on disadvantageous
terms.  In addition, new project development is subject to a number of
risks, including risks of construction delays or cost overruns that may increase
project costs, risks that the properties will not achieve anticipated occupancy
levels or sustain anticipated rent levels, and new project commencement risks
such as receipt of zoning, occupancy and other required governmental permits and
authorizations and the incurrence of development costs in connection with
projects that are not pursued to completion.  If permanent debt or
equity financing is not available on acceptable terms to refinance new
development or acquisitions undertaken without permanent financing, further
development activities or acquisitions might be curtailed or cash available for
distribution might be adversely affected.  Acquisitions entail risks
that investments will fail to perform in accordance with expectations and that
judgments with respect to the costs of improvements to bring an acquired
property up to standards established for the market position intended for that
property will prove inaccurate, as well as general investment risks associated
with any new real estate investment.
  6
  Properties
that we acquire or develop may be located in new markets where we may face risks
associated with investing in an unfamiliar market.
  We may
acquire or develop properties in markets that are new to us.  When we
acquire or develop properties located in these markets, we may face risks
associated with a lack of market knowledge or understanding of the local
economy, forging new business relationships in the area and unfamiliarity with
local government and permitting procedures.
  We
own several of our properties subject to ground leases that expose us to the
loss of such properties upon breach or termination of the ground leases and may
limit our ability to sell these properties.
  We own
several of our properties through leasehold interests in the land underlying the
buildings and we may acquire additional buildings in the future that are subject
to similar ground leases.  As lessee under a ground lease, we are
exposed to the possibility of losing the property upon termination, or an
earlier breach by us, of the ground lease, which may have a material adverse
effect on our business, financial condition and results of operations, our
ability to make distributions to our stockholders and the trading price of our
common stock.
  Our
ground leases contain certain provisions that may limit our ability to sell
certain of our properties.  In order to assign or transfer our rights
and obligations under certain of our ground leases, we generally must obtain the
consent of the landlord which, in turn, could adversely impact the price
realized from any such sale.
  Joint
venture investments will expose us to certain risks.
  We may
from time to time enter into joint venture transactions for portions of our
existing or future real estate assets.  Investing in this manner
subjects us to certain risks, among them the following:
  ·
              We
      will not exercise sole decision-making authority regarding the joint
      venture’s business and assets and, thus, we may not be able to take
      actions that we believe are in our company’s best
    interests.
  ·
              We
      may be required to accept liability for obligations of the joint venture
      (such as recourse carve-outs on mortgage loans) beyond our economic
      interest.
  ·
              Our
      returns on joint venture assets may be adversely affected if the assets
      are not held for the long-term.
  The
availability and timing of cash distributions is uncertain.
  We expect
to continue to pay quarterly distributions to our
stockholders.  However, we bear all expenses incurred by our
operations, and our funds generated by operations, after deducting these
expenses, may not be sufficient to cover desired levels of distributions to our
stockholders.  In addition, our board of directors, in its discretion,
may retain any portion of such cash for working capital.  We cannot
assure our stockholders that sufficient funds will be available to pay
distributions.
  7
  We depend on ourkey
personnel.
  Our
success depends to a significant degree upon the continued contributions of
certain key personnel including, but not limited to, our executive officers,
each of whom would be difficult to replace.  If any of our key
personnel were to cease employment with us, our operating results could suffer.
Our ability to retain our executive officers or to attract suitable replacements
should any members of the management group leave is dependent on the competitive
nature of the employment market.  The loss of services from key
members of the management group or a limitation in their availability could
adversely impact our future development or acquisition operations, our financial
condition and cash flows.  Further, such a loss could be negatively
perceived in the capital markets.  We have not obtained and do not
expect to obtain key man life insurance on any of our key
personnel.
  We face significant competition.
  We face
competition in seeking properties for acquisition and tenants who will lease
space in these properties from insurance companies, credit companies, pension or
private equity funds, private individuals, investment companies, other REITs and
other industry participants, many of which have greater financial and other
resources than we do.  There can be no assurance that we will be able
to successfully compete with such entities in our development, acquisition and
leasing activities in the future.
  General
Real Estate Risk
  Our
performance and value are subject to general economic conditions and risks
associated with our real estate assets.
  There are
risks associated with owning and leasing real estate.  Although many
of our leases contain terms that obligate the tenants to bear substantially all
of the costs of operating our properties, investing in real estate involves a
number of risks.  Income from and the value of our properties may be
adversely affected by:
  ·
              changes
      in general or local economic
conditions;
  ·
              the
      attractiveness of our properties to potential
  tenants;
  ·
              changes
      in supply of or demand for similar or competing properties in an
      area;
  ·
              bankruptcies,
      financial difficulties or lease defaults by our
  tenants;
  ·
              changes
      in operating costs and expense and our ability to control
      rents;
  ·
              our
      ability to lease properties at favorable rental
  rates;
  ·
              our
      ability to sell a property when we desire to do so at a favorable
      price;
  ·
              unanticipated
      changes in costs associated with known adverse environmental conditions or
      retained liabilities for such
conditions;
  ·
              changes
      in or increased costs of compliance with governmental rules, regulations
      and fiscal policies, including changes in tax, real estate, environmental
      and zoning laws, and our potential liability thereunder;
    and
  ·
              unanticipated
      expenditures to comply with the Americans with Disabilities Act and other
      similar regulations.
  The
global economic and financial market crisis has exacerbated many of the
foregoing risks.  If a tenant fails to perform on its lease covenants,
that would not excuse us from meeting any mortgage debt obligation secured by
the property and could require us to fund reserves in favor of our mortgage
lenders, thereby reducing funds available for payment of cash dividends on our
shares of common stock.
  8


The fact that real estate investments are
relatively illiquidmay
reduce economic returns to investors.




We may
desire to sell a property in the future because of changes in market conditions
or poor tenant performance or to avail ourselves of other
opportunities.  We may also be required to sell a property in the
future to meet secured debt obligations or to avoid a secured debt loan
default.  Real estate properties cannot always be sold quickly, and we
cannot assure you that we could always obtain a favorable price, especially in
light of the current global economic and financial market crisis.  We
may be required to invest in the restoration or modification of a property
before we can sell it.  This lack of liquidity may limit our ability
to vary our portfolio promptly in response to changes in economic or other
conditions and, as a result, could adversely affect our financial condition,
results of operations, cash flows and our ability to pay distributions on our
common stock.




Our ability to renew leases or
re-lease space on favorable terms as leases expire significantly affects our
business.




We are
subject to the risks that, upon expiration of leases for space located in our
properties, the premises may not be re-let or the terms of re-letting (including
the cost of concessions to tenants) may be less favorable than current lease
terms.  If a tenant does not renew its lease or if a tenant defaults
on its lease obligations, there is no assurance we could obtain a substitute
tenant on acceptable terms.  If we cannot obtain another tenant with
comparable structural needs, we may be required to modify the property for a
different use, which may involve a significant capital expenditure and a delay
in re-leasing the property.  Further, if we are unable to re-let promptly
all or a substantial portion of our retail space or if the rental rates upon
such re-letting were significantly lower than expected rates, our net income and
ability to make expected distributions to stockholders would be adversely
affected.  There can be no assurance that we will be able to retain
tenants in any of our properties upon the expiration of their
leases.




A
property that incurs a vacancy could be difficult to sell or
re-lease.




A
property may incur a vacancy either by the continued default of a tenant under
its lease or the expiration of one of our leases.  Certain of our
properties may be specifically suited to the particular needs of a
tenant.  We may have difficulty obtaining a new tenant for any vacant
space we have in our properties.  If the vacancy continues for a long
period of time, we may suffer reduced revenues resulting in less cash available
to be distributed to stockholders.  In addition, the resale value of a
property could be diminished because the market value of a particular property
will depend principally upon the value of the leases of such
property.




Potential liability for
environmental contamination could result in substantial
costs.




Under
federal, state and local environmental laws, we may be required to investigate
and clean up any release of hazardous or toxic substances or petroleum products
at our properties, regardless of our knowledge or actual responsibility, simply
because of our current or past ownership or operation of the real
estate.  If unidentified environmental problems arise, we may have to
make substantial payments, which could adversely affect our cash flow and our
ability to make distributions to our stockholders.  This potential
liability results from the following:




·
            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.




These
costs could be substantial and in extreme cases could exceed the value of the
contaminated property.  The presence of hazardous substances or
petroleum products or the failure to properly remediate contamination may
adversely affect our ability to borrow against, sell or lease an affected
property.  In addition, some environmental laws create liens on
contaminated sites in favor of the government for damages and costs it incurs in
connection with a contamination.


9


A
majority of our leases require our tenants to comply with environmental laws and
to indemnify us against environmental liability arising from the operation of
the properties.However, we could be
subject to strict liability under environmental laws because we own the
properties.  There is also a risk that tenants may not satisfy their
environmental compliance and indemnification obligations under the
leases.  Any of these events could substantially increase our cost of
operations, require us to fund environmental indemnities in favor of our secured
lenders and reduce our ability to service our secured debt and pay dividends to
stockholders and any debt security interest payments.  Environmental
problems at any properties could also put us in default under loans secured by
those properties, as well as loans secured by unaffected
properties.




Uninsured losses relating to real
property mayadversely
affect our returns.




Our
leases require tenants to carry comprehensive liability and extended coverage
insurance on our properties.  However, there are certain losses,
including losses from environmental liabilities, terrorist acts or catastrophic
acts of nature, that are not generally insured against or that are not generally
fully insured against because it is not deemed economically feasible or prudent
to do so.  If there is an uninsured loss or a loss in excess of
insurance limits, we could lose both the revenues generated by the affected
property and the capital we have invested in the property.  In the
event of a substantial unreimbursed loss, we would remain obligated to repay any
mortgage indebtedness or other obligations related to the property.




Risks
Related to Our Debt Financings




Leveraging our portfolio subjects us
to increasedrisk of
loss, including loss of
properties in the event of a foreclosure.




At
December 31, 2009, our ratio of indebtedness to market capitalization (assuming
conversion of Operating Partnership units) was approximately 53%.  The use
of leverage presents an additional element of risk in the event that (1) the
cash flow from lease payments on our properties is insufficient to meet debt
obligations, (2) we are unable to refinance our debt obligations as necessary or
on as favorable terms or (3) there is an increase in interest
rates.  If a property is mortgaged to secure payment of indebtedness
and we are unable to meet mortgage payments, the property could be foreclosed
upon with a consequent loss of income and asset value to us.  Under
the “cross-default” provisions contained in mortgages encumbering some of our
properties, our default under a mortgage with a lender would result in our
default under mortgages held by the same lender on other properties resulting in
multiple foreclosures.




We intend
to maintain a ratio of total indebtedness (including construction or acquisition
financing) to market capitalization of 65% or less.  Nevertheless, we
may operate with debt levels which are in excess of 65% of market capitalization
for extended periods of time.  Our organization documents contain no
limitation on the amount or percentage of indebtedness which we may
incur.  Therefore, our board of directors, without a vote of the
stockholders, could alter the general policy on borrowings at any
time.  If our debt capitalization policy were changed, we could become
more highly leveraged, resulting in an increase in debt service that could
adversely affect our operating cash flow and our ability to make expected
distributions to stockholders, and could result in an increased risk of default
on our obligations.




Covenants
in our credit agreements could limit our flexibility and adversely affect our
financial condition.




The terms
of our credit facilities and other indebtedness require us to comply with a
number of customary financial and other covenants.These covenants
may limit our flexibility in our operations, and breaches of these covenants
could result in defaults under the instruments governing the applicable
indebtedness even if we have satisfied our payment obligations.  Our
credit facility contains certain cross-default provisions which are triggered in
the event that our other indebtedness is in default.  These
cross-default provisions may require us to repay or restructure the credit
facility in addition to any mortgage or other debt that is in default.If our properties were
foreclosed upon, or if we are unable to refinance our indebtedness at maturity
or meet our payment obligations, the amount of our distributable cash flows and
our financial condition would be adversely affected.


10


Credit
market developments may reduce availability under our credit
agreements.




Due to
the current volatile state of the credit markets, there is risk that lenders,
even those with strong balance sheets and sound lending practices, could fail or
refuse to honor their legal commitments and obligations under existing credit
commitments, including but not limited to: extending credit up to the maximum
permitted by a credit facility, allowing access to additional credit features
and/or honoring loan commitments.  If our lender(s) fail to honor their
legal commitments under our credit facilities, it could be difficult in the
current environment to replace our credit facilities on similar
terms.  The failure of any of the lenders under our credit facility
may impact our ability to finance our operating or investing
activities.




Risks
Related to Our Corporate Structure




Our
charter and Maryland law contain provisions that may delay, defer or prevent a
change of control transaction.




Our charter
contains a 9.8% ownership limit.Our charter, subject to
certain exceptions, authorizes our directors to take such actions as are
necessary and desirable to preserve our qualification as a REIT and to limit any
person to actual or constructive ownership of no more than 9.8% of the value of
our outstanding shares of common stock and preferred stock, except that the any
member of the Agree-Rosenberg Group (as defined in our charter) (the
“Agree-Rosenberg Group”) may own up to 24%.  Our board of directors,
in its sole discretion, may exempt, subject to the satisfaction of certain
conditions, any person from the ownership limit. However, our board of directors
may not grant an exemption from the ownership limit to any person whose
ownership, direct or indirect, in excess of 9.8% of the value of our outstanding
shares of common stock and preferred stock could jeopardize our status as a
REIT.  These restrictions on transferability and ownership will not
apply if our board of directors determines that it is no longer in our best
interests to attempt to qualify, or to continue to qualify, as a
REIT.  The ownership limit may delay or impede, and we may use the
ownership limit deliberately to delay or impede, a transaction or a change of
control that might involve a premium price for our common stock or otherwise be
in the best interest of our stockholders.




We have a
staggered board.Our directors are divided into three classes
serving three-year staggered terms.  The staggering of our board of
directors may discourage offers for our company or make an acquisition more
difficult, even when an acquisition is in the best interest of our
stockholders.




We have a
shareholder rights plan. Under the terms of this plan, we can in effect
prevent a person or group from acquiring more than 15% of the outstanding shares
of our common stock because, unless we approve of the acquisition, after the
person acquires more than 15% of our outstanding common stock, all other
stockholders will have the right to purchase securities from us at a price that
is less than their then fair market value.  This would substantially
reduce the value and influence of the stock owned by the acquiring
person.  Our board of directors can prevent the plan from operating by
approving the transaction in advance, which gives us significant power to
approve or disapprove of the efforts of a person or group to acquire a large
interest in our company.




We could issue
stock without stockholder approval.Our board of directors
could, without stockholder approval, issue authorized but unissued shares of our
common stock or preferred stock.  In addition, our board of directors
could, without stockholder approval, classify or reclassify any unissued shares
of our common stock or preferred stock and set the preferences, rights and other
terms of such classified or reclassified shares.  Our board of
directors could establish a series of stock that could, depending on the terms
of such series, delay, defer or prevent a transaction or change of control that
might involve a premium price for our common stock or otherwise be in the best
interest of our stockholders.




Provisions of
Maryland law may limit the ability of a third party to acquire control of our
company.Certain
provisions of Maryland law may have the effect of inhibiting a third party from
making a proposal to acquire us or of impeding a change of control under certain
circumstances that otherwise could provide the holders of shares of our common
stock with the opportunity to realize a premium over the then prevailing market
price of such shares, including:


11


·
            “business
      combination” provisions that, subject to limitations, prohibit certain
      business combinations between us and an “interested stockholder” (defined
      generally as any person who beneficially owns 10% or more of the voting
      power of our shares or an affiliate thereof) for five years after the most
      recent date on which the stockholder becomes an interested stockholder and
      thereafter would require the recommendation of our board of directors and
      impose special appraisal rights and special stockholder voting
      requirements on these combinations;
and




·
            “control
      share” provisions that provide that “control shares” of our company
      (defined as shares which, when aggregated with other shares controlled by
      the stockholder, entitle the stockholder to exercise one of three
      increasing ranges of voting power in electing directors) acquired in a
      “control share acquisition” (defined as the direct or indirect acquisition
      of ownership or control of “control shares”) have no voting rights except
      to the extent approved by our stockholders by the affirmative vote of at
      least two-thirds of all the votes entitled to be cast on the matter,
      excluding all interested shares.




The
business combination statute permits various exemptions from its provisions,
including business combinations that are approved or exempted by the board of
directors before the time that the interested stockholder becomes an interested
stockholder.  Our board of directors has exempted from the business
combination provisions of the MGCL any business combination with Mr. Richard
Agree or any other person acting in concert or as a group with Mr.
Agree.




In
addition, our bylaws contain a provision exempting from the control share
acquisition statute any members of the Agree-Rosenberg Group, our other
officers, our employees, any of the associates or affiliates of the foregoing
and any other person acting in concert of as a group with any of the
foregoing.




Additionally,
Title 3, Subtitle 8 of the Maryland General Corporation Law, or MGCL, permits
our board of directors, without stockholder approval and regardless of what is
currently provided in our charter or our bylaws, to implement takeover
defenses.  These provisions may have the effect of inhibiting a third
party from making an acquisition proposal for our company or of delaying,
deferring or preventing a change in control of our company under circumstances
that otherwise could provide the holders of our common stock with the
opportunity to realize a premium over the then-current market
price.




Our
charter, our bylaws, the limited partnership agreement of our operating
partnership and Maryland law also contain other provisions that may delay, defer
or prevent a transaction or a change of control that might involve a premium
price for our common stock or otherwise be in the best interest of our
stockholders.




Our
board of directors can take many actions without stockholder
approval.




Our board
of directors has overall authority to oversee our operations and determine our
major corporate policies. This authority includes significant
flexibility.  For example, our board of directors can do the
following:




·
            change
      our investment and financing policies and our policies with respect to
      certain other activities, including our growth, debt capitalization,
      distributions, REIT status and investment and operating
      policies;




·
            within
      the limits provided in our charter, prevent the ownership, transfer and/or
      accumulation of shares in order to protect our status as a REIT or for any
      other reason deemed to be in the best interests of us and our
      stockholders;




·
            issue
      additional shares without obtaining stockholder approval, which could
      dilute the ownership of our then-current
  stockholders;




·
            classify
      or reclassify any unissued shares of our common stock or preferred stock
      and set the preferences, rights and other terms of such classified or
      reclassified shares, without obtaining stockholder
    approval;




12


·
            employ
      and compensate affiliates;




·
            direct
      our resources toward investments that do not ultimately appreciate over
      time;




·
            change
      creditworthiness standards with respect to third-party tenants;
      and




·
            determine
      that it is no longer in our best interests to attempt to qualify, or to
      continue to qualify, as a REIT.




Any of
these actions could increase our operating expenses, impact our ability to make
distributions or reduce the value of our assets without giving our stockholders
the right to vote.




Future
offerings of debt and equity may not be available to us or may adversely affect
the market price of our common stock.




We expect
to continue to increase our capital resources by making additional offerings of
equity and debt securities in the future, which would include classes of
preferred stock, common stock and senior or subordinated notes.  Our
ability to raise additional capital may be adversely impacted by market
conditions, and we do not know when market conditions will stabilize or
improve.  All debt securities and other borrowings, as well as all
classes of preferred stock, will be senior to our common stock in a liquidation
of our company.  Additional equity offerings could dilute our
stockholders’ equity, reduce the market price of shares of our common stock, or
be of preferred stock having a distribution preference that may limit our
ability to make distributions on our common stock.  Continued market
dislocations could cause us to seek sources of potentially less attractive
capital.  Our ability to estimate the amount, timing or nature of
additional offerings is limited as these factors will depend upon market
conditions and other factors.




The
market price of our stock may vary substantially.




The
market price of our common stock could be volatile, and investors in our common
stock may experience a decrease in the value of their shares, including
decreases unrelated to our operating performance or prospects.  Among
the market conditions that may affect the market price of our common stock are
the following:




·
            our
      financial condition and operating performance and the performance of other
      similar companies;




·
            actual
      or anticipated variations in our quarterly results of
      operations;




·
            the
      extent of investor interest in our company, real estate generally or
      commercial real estate
specifically;




·
            the
      reputation of REITs generally and the attractiveness of their equity
      securities in comparison to other equity securities, including securities
      issued by other real estate companies, and fixed income
      securities;




·
            changes
      in expectations of future financial performance or changes in estimates of
      securities analysts;




·
            fluctuations
      in stock market prices and volumes;
and




·
            announcements
      by us or our competitors of acquisitions, investments or strategic
      alliances.




Certain
officers and directors may have interests that conflict with the interests of
stockholders.




Certain
of our officers and members of our board of directors own operating partnership
units in our Operating Partnership.  These individuals may have
personal interests that conflict with the interests of our stockholders with
respect to business decisions affecting us and our Operating Partnership, such
as interests in the timing and pricing of property sales or refinancings in
order to obtain favorable tax treatment.  As a result, the effect of
certain transactions on these unit holders may influence our decisions affecting
these properties.


13


Federal
Income Tax Risks




Complying
with REIT requirements may cause us to forgo otherwise attractive
opportunities.




To
qualify as a REIT for federal income tax purposes and to maintain our exemption
from the 1940 Act, we must continually satisfy numerous income, asset and other
tests, thus having to forgo investments we might otherwise make and hindering
our investment performance.




Failure
to qualify as a REIT could adversely affect our operations and our ability to
make distributions.




We will
be subject to increased taxation if we fail to qualify as a REIT for federal
income tax purposes.  Although we believe that we are organized and
operate in such a manner so as to qualify as a REIT under the Internal Revenue
Code, no assurance can be given that we will remain so
qualified.  Qualification as a REIT involves the application of highly
technical and complex Code provisions for which there are only limited judicial
or administrative interpretations.  The complexity of these provisions
and applicable Treasury Regulations is also increased in the context of a REIT
that holds its assets in partnership form.  The determination of
various factual matters and circumstances not entirely within our control may
affect our ability to qualify as a REIT.  A REIT generally is not
taxed at the corporate level on income it distributes to its stockholders, as
long as it distributes annually at least 100% of its taxable income to its
stockholders.  We have not requested and do not plan to request a
ruling from the Internal Revenue Service that we qualify as a REIT.




If we
fail to qualify as a REIT, we will face tax consequences that will substantially
reduce the funds available for payment of cash dividends:




·
            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.




In
addition, if we fail to qualify as a REIT, we will no longer be required to pay
dividends (other than any mandatory dividends on any preferred shares we may
offer).  As a result of these factors, our failure to qualify as a
REIT could adversely effect the market price for our common stock.




Changes in tax laws may prevent us
frommaintaining our
qualificationas a
REIT.




As we
have previously described, we intend to maintain our qualification as a REIT for
federal income tax purposes. However, this intended qualification is based on
the tax laws that are currently in effect. We are unable to predict any future
changes in the tax laws that would adversely affect our status as a REIT. If
there is a change in the tax laws that prevent us from qualifying as a REIT or
that requires REITs generally to pay corporate level income taxes, we may not be
able to make the same level of distributions to our stockholders.




An investment in
our stock has various tax risks that could affect the value of your investment,
including thetreatment of
distributions in excess of earnings and the inability to apply “passive losses”
against distributions.




An
investment in our stock has various tax risks. Distributions in excess of
current and accumulated earnings and profits, to the extent that they exceed the
adjusted basis of an investor’s stock, will be treated as long-term capital gain
(or short-term capital gain if the shares have been held for less than one
year). Any gain or loss realized upon a taxable disposition of shares by a
stockholder who is not a dealer in securities will be treated as a long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise will be treated as short-term capital gain or loss. Distributions that
we properly designate as capital gain distributions will be treated as taxable
to stockholders as gains (to the extent that they do not exceed our actual net
capital gain for the taxable year) from the sale or disposition of a capital
asset held for greater than one year. Distributions we make and gain arising
from the sale or exchange by a stockholder of shares of our stock will not be
treated as passive income, meaning stockholders generally will not be able to
apply any “passive losses” against such income or gain.


14


Excessive non-real estate asset
values may jeopardize our REIT status.




In order
to qualify as a REIT, at least 75% of the value of our assets must consist of
investments in real estate, investments in other REITs, cash and cash
equivalents, and government securities. Therefore, the value of any
properties we own that are not considered real estate assets for federal
income tax purposes must represent in the aggregate less than 25% of our total
assets. In addition, under federal income tax law, we may not own securities in
any one issuer (other than a REIT, a qualified REIT subsidiary or a TRS) which
represent in excess of 10% of the voting securities or 10% of the value of all
securities of any one issuer, or which have, in the aggregate, a value in excess
of 5% of our total assets, and we may not own securities of one or more TRSs
which have, in the aggregate, a value in excess of 25% of our total
assets.  We may invest in securities of another REIT, and our
investment may represent in excess of 10% of the voting securities or 10% of the
value of the securities of the other REIT. If the other REIT were to lose its
REIT status during a taxable year in which our investment represented in excess
of 10% of the voting securities or 10% of the value of the securities of the
other REIT as of the close of a calendar quarter, we may lose our REIT
status.




Compliance
with the asset tests is determined at the end of each calendar quarter. Subject
to certain mitigation provisions, if we fail to meet any such test at the end of
any calendar quarter, we will cease to qualify as a REIT.




We may have to borrow funds or sell
assets to meet our distribution requirements.




Subject
to some adjustments that are unique to REITs, a REIT generally must distribute
90% of its taxable income.  For the purpose of determining taxable income,
we may be required to accrue interest, rent and other items treated as earned
for tax purposes but that we have not yet received. In addition, we may be
required not to accrue as expenses for tax purposes some items which actually
have been paid, including, for example, payments of principal on our debt, or
some of our deductions might be disallowed by the Internal Revenue Service. As a
result, we could have taxable income in excess of cash available for
distribution. If this occurs, we may have to borrow funds or liquidate some of
our assets in order to meet the distribution requirement applicable to a
REIT.




Future
distributions may include a significant portion as a return of
capital.




Our
distributions may exceed the amount of our income as a REIT. If so, the excess
distributions will be treated as a return of capital to the extent of the
stockholder’s basis in our stock, and the stockholder’s basis in our stock will
be reduced by such amount. To the extent distributions exceed a stockholder’s
basis in our stock, the stockholder will recognize capital gain, assuming the
stock is held as a capital asset.




Our ownership of and relationship
with any TRS which werecentlyformedor acquire in the future will be
limited, and a failure to comply with the limits would jeopardize our REIT
status and may result in the application of a 100% excise tax.




A REIT
may own up to 100% of the stock of one or more TRSs. A TRS may earn income that
would not be qualifying income if earned directly by the parent
REIT.  Overall, no more than 25% of the value of a REIT’s assets may
consist of stock or securities of one or more TRSs.  A TRS will
typically pay federal, state and local income tax at regular corporate rates on
any income that it earns.  In addition, the TRS rules impose a 100%
excise tax on certain transactions between a TRS and its parent REIT that are
not conducted on an arm’s-length basis.  The TRS that we recently
formed will pay federal, state and local income tax on its taxable income, and
its after-tax net income will be available for distribution to us but will not
be required to be distributed to us.  There can be no assurance that
we will be able to comply with the 25% limitation discussed above or to avoid
application of the 100% excise tax discussed above.


15


Liquidation
of our assets may jeopardize our REIT qualification.




To
qualify as a REIT, we must comply with requirements regarding our assets and our
sources of income. If we are compelled to liquidate our investments to repay
obligations to our lenders, we may be unable to comply with these requirements,
ultimately jeopardizing our qualification as a REIT, or we may be subject to a
100% tax on any gain if we sell assets in transactions that are considered to be
“prohibited transactions,” which are explained in the risk factor
below.




We
may be subject to other tax liabilities even if we qualify as a
REIT.




Even if
we qualify as a REIT for federal income tax purposes, we will be required to pay
certain federal, state and local taxes on our income and
property.  For example, we will be subject to income tax to the extent
we distribute less than 100% of our REIT taxable income (including capital
gains).  Additionally, we will be subject to a 4% nondeductible excise
tax on the amount, if any, by which dividends paid by us in any calendar year
are less than the sum of 85% of our ordinary income, 95% of our capital gain net
income and 100% of our undistributed income from prior
years.  Moreover, if we have net income from “prohibited
transactions,” that income will be subject to a 100% tax.  In general,
prohibited transactions are sales or other dispositions of property held
primarily for sale to customers in the ordinary course of
business.  The determination as to whether a particular sale is a
prohibited transaction depends on the facts and circumstances related to that
sale.  While we will undertake sales of assets if those assets become
inconsistent with our long-term strategic or return objectives, we do not
believe that those sales should be considered prohibited transactions, but there
can be no assurance that the IRS would not contend otherwise.  The
need to avoid prohibited transactions could cause us to forego or defer sales of
properties that might otherwise be in our best interest to sell.




In
addition, any net taxable income earned directly by our TRS, or through entities
that are disregarded for federal income tax purposes as entities separate from
our TRS, will be subject to federal and possibly state corporate income
tax.  To the extent that we and our affiliates are required to pay
federal, state and local taxes, we will have less cash available for
distributions to our stockholders.




Dividends
payable by REITs do not qualify for the reduced tax rates on dividend income
from regular corporations.




The
maximum tax rate for dividends payable to domestic stockholders that are
individuals, trusts and estates were reduced in recent years to 15% (through
2010). Dividends payable by REITs, however, are generally not eligible for the
reduced rates. Although this legislation does not adversely affect the taxation
of REITs or dividends paid by REITs, the more favorable rates applicable to
regular corporate dividends could cause investors who are individuals, trusts
and estates to perceive investments in REITs to be relatively less attractive
than investments in the stocks of non-REIT corporations that pay dividends,
which could adversely affect the value of the stock of REITs, including our
stock.




Our
ownership limit contained in our charter may be ineffective to preserve our REIT
status.




In order
for us to qualify as a REIT for each taxable year, no more than 50% in value of
our outstanding capital stock may be owned, directly or indirectly, by five or
fewer individuals during the last half of any calendar year (the “5/50
Rule”).  Individuals for this purpose include natural persons, private
foundations, some employee benefit plans and trusts, and some charitable trusts.
 In order to preserve our REIT qualification, our charter generally
prohibits (i) any member of the Agree-Rosenberg Group from directly or
indirectly owning more than 24% of the value of our outstanding stock and (ii)
any other person from directly or indirectly owning more than 9.8% of the value
of our outstanding common stock and preferred stock, subject to certain
exceptions.  Because of the way our ownership limit is written,
including because of the limit on persons other than a member of the
Agree-Rosenberg Group is not less than 9.8%, our charter limitation may be
ineffective to ensure that we do not violate the 5/50 Rule.


16


Complying
with REIT requirements may limit our ability to hedge effectively and may cause
us to incur tax liabilities.




The REIT
provisions of the Internal Revenue Code substantially limit our ability to hedge
our liabilities. Any income from a hedging transaction we enter into to manage
risk of interest rate changes, price changes or currency fluctuations with
respect to borrowings made or to be made to acquire or carry real estate assets
does not constitute qualifying income for purposes of income tests that apply to
us as a REIT.  To the extent that we enter into other types of hedging
transactions, the income from those transactions is likely to be treated as
non-qualifying income for purposes of the income tests.  As a result of
these rules, we may need to limit our use of advantageous hedging techniques or
implement those hedges through a TRS. This could increase the cost of our
hedging activities because our TRS would be subject to tax on gains or expose us
to greater risks associated with changes in interest rates than we would
otherwise want to bear. In addition, losses in our TRSs will generally not
provide any tax benefit, except for being carried forward against future taxable
income in the TRSs.




ITEM
      1B.
            UNRESOLVED
      STAFF COMMENTS




None




ITEM
      2.
            PROPERTIES




Our
properties consist of 61 freestanding net leased properties and 12 community
shopping centers that, as of December 31, 2009, were 98.1% leased, with a
weighted average lease term of 10.3 years.  Approximately 89% of our
annualized base rent was attributable to national retailers.  Among
these retailers are Walgreen, Borders and Kmart which, at December 31, 2009,
collectively represented approximately 70% of our annualized base
rent.  A majority of our properties were built for or are leased to
national tenants who require a high quality location with strong retail
characteristics.  We developed 48 of our 61 freestanding properties
and all 12 of our community shopping centers.  Properties we have
developed (including our community shopping centers) account for approximately
84% of our annualized base rent as of December 31, 2009.  Our 61
freestanding properties are comprised of 60 retail locations and Borders’
corporate headquarters.  See Notes 4 and 5 to the Consolidated
Financial Statements included herein for information regarding mortgage debt and
other debt related to our properties.




A
substantial portion of our income consists of rent received under net
leases.  A majority of our leases provide for the payment of fixed
base rentals monthly in advance and for the payment by tenants of a pro rata
share of the real estate taxes, insurance, utilities and common area maintenance
of the shopping center as well as payment to us of a percentage of the tenant’s
sales.  We received percentage rents of $15,366, $15,396 and $37,111
for the fiscal years 2009, 2008 and 2007, respectively.  Included in
those amounts were percentage rents from Kmart of $-0-, $-0- and $10,221 for
fiscal years 2009, 2008 and 2007, respectively.  Leases with Borders
do not contain percentage rent provisions.  Leases with Walgreen do
contain percentage rent provisions; however, no percentage rent was received
from Walgreen during these periods.  Some of our leases require us to
make roof and structural repairs, as needed.




Development
and Acquisition Summary




During
2009, we completed the following developments and redevelopments:




Tenant(s)
            
            Location
            
            CostWalgreen
      (drug store)
            
            Brighton,
      Michigan
            
            $4.2
      millionWalgreen
      (drug store)
            
            Silver
      Spring Shores, Florida
            
            $4.5
      millionWalgreen
      (drug store)
            
            Port
      St John, Florida
            
            $4.7
      millionWalgreen
      (drug store)
            
            Lowell,
      Michigan
            
            $2.8
      millionChase
      (retail bank)
            
            Southfield,
      Michigan
            
            $1.3
      million




17




During 2009, we commenced the following
developments:




Tenant(s)
            
            Location
            
            Budgeted
      Cost
            
            Anticipated
      CompletionWalgreen
      (drug store)
            
            Ann
      Arbor, Michigan
            
            $3.3
      million
            
            Third
      quarter 2010Walgreen
      (drug store)
            
            St
      Augustine Shores, Florida
            
            $3.5
      million
            
            Fourth
      quarter 2010Walgreen
      (drug store)
            
            Atlantic
      Beach, Florida
            
            $3.5million
            
            Third
      quarter 2010





We did
not complete or commence any acquisitions in 2009.  We did not sell
any properties in 2009.




Major
Tenants




The
following table sets forth certain information with respect to our major
tenants:




Number
                    of Leases
                
                
                Annualized Base
                    Rent as of
                    December 31, 2009
                
                
                Percent of Total
                    Annualized Base Rent as
                    of December 31, 2009Walgreen
                
                
                28
                
                
                $
                10,246,099
                
                
                
                30
                %Borders
                
                
                18
                
                
                
                9,938,796
                
                
                
                29Kmart
                
                
                12
                
                
                
                3,847,911
                
                
                
                11Total
                
                
                58
                
                
                $
                24,032,806
                
                
                
                70
                %




Walgreen
is a leader of the U.S. chain drugstore industry and trades on the New York
Stock Exchange under the symbol “WAG”.  Walgreen operated 7,496
locations in 50 states, the District of Columbia, Puerto Rico and Guam and had
total assets of approximately $25.1 billion as of August 31, 2009.  As
of February 10, 2010, Walgreen’s long-term debt had a Standard and Poor’s rating
of A+ and a Moody’s rating of A2 . For its fiscal year ended August 31, 2009,
Walgreen reported that its annual net sales were $63.3 billion, its annual net
income was $2.0 billion and it had stockholders’ equity of $14.4
billion.




Borders
trades on the New York Stock Exchange under the symbol “BGP”.  Borders
is the second largest operator of book, music and movie superstores and the
largest operator of mall-based bookstores in the world based upon both sales and
number of stores.  At January 31, 2009, Borders operated 518
superstores under the Borders name, including 515 in the United
States.  Borders also operated 386 mall-based and other bookstores,
including stores operated under the Waldenbooks, Borders Express and Borders
Outlet names as well as Borders-branded airport stores.  Borders
employed approximately 25,600 people worldwide as of such
date.  Borders has reported that its annual revenues for its 2008
fiscal year ended January 31, 2009 were approximately $3.3 billion, its annual
net (loss) for 2008 was approximately ($187 million) and its total stockholders’
equity at fiscal year end 2008 was approximately of $263 million.




Kmart is
a mass merchandising company that offers customers quality products through a
portfolio of brands and labels. As of October 31, 2009, Kmart operated
approximately 1,380 stores across 49 states, Guam, Puerto Rico and the U.S.
Virgin Islands.  Kmart is a wholly-owned subsidiary of Sears Holdings
Corporation (“Sears”), which trades on the Nasdaq stock market under the symbol
“SHLD”.  Sears is a broadline retailer with approximately 2,300
full-line and 1,200 specialty retail stores in the United States operating
through Kmart and Sears and approximately 380 full-line and specialty retail
stores in Canada operating through Sears Canada, Inc. (“Sears Canada”), a
70%-owned subsidiary.  As of October 31, 2009, Sears had total assets
of $27.1 billion, total liabilities of $17.8 billion and stockholders equity of
$9.3 billion.  All of our Kmart properties are in the traditional
Kmart format and these Kmart properties average 85,000 square feet per
property.




18


The
financial information set forth above with respect to Walgreen, Borders and
Kmart was derived from the annual reports on Form 10-K filed by Borders and
Walgreen with the SEC with respect to their 2008 fiscal years and the quarterly
report on form 10-Q filed by Sears Holdings Corporation with the SEC with
respect to the third quarter of 2009.  Additional information
regarding Borders, Walgreen or Kmart may be found in their respective public
filings.  These filings can be accessed at www.sec.gov.  We
are unable to confirm, and make no representations with respect to, the accuracy
of these reports and therefore you should not place undue reliance on such
information as it pertains to our operations.
  Location
of Properties in the Portfolio
  State
                    
                    Number
                        of
                        Properties
                    
                    
                    Total Gross
                        Leasable Area
                        (Sq. feet)
                    
                    
                    Percent of GLA Leased
                        on December 31, 2009California
                    
                    
                    1
                    
                    
                    
                    38,015
                    
                    
                    
                    100
                    %Florida
                    
                    
                    7
                    
                    
                    
                    298,458
                    
                    
                    
                    89Georgia
                    
                    
                    1
                    
                    
                    
                    14,820
                    
                    
                    
                    100Illinois
                    
                    
                    1
                    
                    
                    
                    20,000
                    
                    
                    
                    90Indiana
                    
                    
                    2
                    
                    
                    
                    15,844
                    
                    
                    
                    100Kansas
                    
                    
                    2
                    
                    
                    
                    45,000
                    
                    
                    
                    100Kentucky
                    
                    
                    1
                    
                    
                    
                    116,212
                    
                    
                    
                    100Maryland
                    
                    
                    2
                    
                    
                    
                    53,000
                    
                    
                    
                    100Michigan
                    
                    
                    42
                    
                    
                    
                    2,126,184
                    
                    
                    
                    99Nebraska
                    
                    
                    2
                    
                    
                    
                    55,000
                    
                    
                    
                    100New
      Jersey
                    
                    
                    1
                    
                    
                    
                    10,118
                    
                    
                    
                    100New
      York
                    
                    
                    2
                    
                    
                    
                    27,626
                    
                    
                    
                    100Ohio
                    
                    
                    1
                    
                    
                    
                    21,000
                    
                    
                    
                    100Oklahoma
                    
                    
                    4
                    
                    
                    
                    99,282
                    
                    
                    
                    100Pennsylvania
                    
                    
                    1
                    
                    
                    
                    28,604
                    
                    
                    
                    100Wisconsin
                    
                    
                    3
                    
                    
                    
                    523,036
                    
                    
                    
                    98Total/Average
                    
                    
                    73
                    
                    
                    
                    3,492,199
                    
                    
                    
                    98
                    %
  Lease
Expirations
  The
following table shows lease expirations for our community shopping centers and
wholly-owned freestanding properties, assuming that none of the tenants exercise
renewal options.
  December 31, 2009Gross Leasable Area
                    
                    
                    Annualized Base RentExpiration Year
                    
                    Number
                        of Leases
                        Expiring
                    
                    
                    Square
                        Footage
                    
                    
                    Percent
                        of Total
                    
                    
                    Amount
                    
                    
                    Percent
                        of Total2010
                    
                    
                    9
                    
                    
                    
                    182,100
                    
                    
                    
                    5.3
                    %
                    
                    $
                    1,017,912
                    
                    
                    
                    3.0
                    %2011
                    
                    
                    23
                    
                    
                    
                    136,636
                    
                    
                    
                    4.0
                    %
                    
                    
                    1,110,428
                    
                    
                    
                    3.2
                    %2012
                    
                    
                    28
                    
                    
                    
                    267,986
                    
                    
                    
                    7.8
                    %
                    
                    
                    1,375,067
                    
                    
                    
                    4.0
                    %2013
                    
                    
                    20
                    
                    
                    
                    314,713
                    
                    
                    
                    9.2
                    %
                    
                    
                    1,662,241
                    
                    
                    
                    4.8
                    %2014
                    
                    
                    9
                    
                    
                    
                    190,458
                    
                    
                    
                    5.6
                    %
                    
                    
                    985,856
                    
                    
                    
                    2.9
                    %2015
                    
                    
                    18
                    
                    
                    
                    768,841
                    
                    
                    
                    22.4
                    %
                    
                    
                    5,443,351
                    
                    
                    
                    15.8
                    %2016
                    
                    
                    7
                    
                    
                    
                    124,841
                    
                    
                    
                    3.6
                    %
                    
                    
                    1,922,928
                    
                    
                    
                    5.6
                    %
  19
 
 December 31, 2009Gross Leasable Area
                    
                    
                    Annualized Base RentExpiration Year
                    
                    Number
                        of Leases
                        Expiring
                    
                    
                    Square
                        Footage
                    
                    
                    Percent
                        of Total
                    
                    
                    Amount
                    
                    
                    Percent
                        of Total2017
                    
                    
                    4
                    
                    
                    
                    30,844
                    
                    
                    
                    0.9
                    %
                    
                    
                    351,995
                    
                    
                    
                    1.0
                    %2018
                    
                    
                    13
                    
                    
                    
                    249,732
                    
                    
                    
                    7.3
                    %
                    
                    
                    4,396,756
                    
                    
                    
                    12.8
                    %2019
                    
                    
                    6
                    
                    
                    
                    70,170
                    
                    
                    
                    2.0
                    %
                    
                    
                    1,741,879
                    
                    
                    
                    5.1
                    %Thereafter
                    
                    
                    41
                    
                    
                    
                    1,090,336
                    
                    
                    
                    31.9
                    %
                    
                    
                    14,341,431
                    
                    
                    
                    41.8
                    %Total
                    
                    
                    178
                    
                    
                    
                    3,426,657
                    
                    
                    
                    100.0
                    %
                    
                    $
                    34,349,844
                    
                    
                    
                    100.0
                    %
  We have
made preliminary contact with the nine tenants whose leases expire in
2010.  Of those tenants, three tenants, at their option, have the
right to extend their lease term and six tenants have leases expiring in
2010.  We expect two tenants, to terminate their leases in 2010 and
seven tenants to extend their leases or enter into lease
extensions.
  Annualized
Base Rent of our Properties
  The
following is a breakdown of base rents in place at December 31, 2009 for each
type of retail tenant:
  Type of Tenant
                    
                    Annualized
                        Base Rent
                    
                    
                    Percent of
                        Annualized
                        Base RentNational(1)
                    
                    $
                    30,614,320
                    
                    
                    
                    89
                    %Regional(2)
                    
                    
                    2,659,992
                    
                    
                    
                    8Local
                    
                    
                    1,075,532
                    
                    
                    
                    3Total
                    
                    $
                    34,349,844
                    
                    
                    
                    100
                    %
 
 
 (1)
              Includes
      the following national tenants:  Walgreen, Borders, Kmart,
      Wal-Mart, Fashion Bug, Rite Aid, JC Penney, Avco Financial, GNC Group,
      Radio Shack, 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 and Pier 1
  Imports.
  (2)
              Includes
      the following regional tenants: Roundy’s Foods, Meijer, Dunham’s Sports,
      Christopher Banks and Beall’s Department
Stores.
  Freestanding
Properties
  At
December 31, 2009, our 61 of freestanding properties were leased to Walgreen
(27), Borders (18),  Rite Aid (7), Kmart (2), JP Morgan Chase (1),
Fajita Factory (1), Citizens Bank (1), Lake Lansing RA Associates, LLC
(1),  Meijer (1), Wal-Mart (Sam’s Club) (1). Our freestanding
properties provided $24,264,289, or approximately 70.6%, of our annualized base
rent as of December 31, 2009, at an average base rent per square foot of
$14.90.  These properties contain, in the aggregate, 1,629,543 square
feet of GLA or approximately 46.7% of our total GLA as of December 31,
2009.  Our freestanding properties tend to have high traffic counts,
are generally located in densely populated areas and are leased to a single
tenant on a long term basis.  Of our 61 freestanding properties, 48
were developed by us.  As of December 31, 2009, we had one vacant free
standing property.  Our freestanding properties had a weighted average
lease term of 12.6 years as of December 31, 2009.
  Our
freestanding properties range in size from 4,426 to 458,729 square feet of GLA
and are located in the following states: California (1), Florida (6), Georgia
(1), Indiana (2), Kansas (2), Maryland (2), Michigan (36), Nebraska (2), New
Jersey (1), New York (2), Ohio (1), Oklahoma (4) and Pennsylvania
(1).
  20
  Freestanding
Properties
  Tenant
                      
                      Location
                      
                      Year
                          Completed/
                          Expanded
                      
                      Total GLA
                      
                      Lease Expiration(2)
                          (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
                      
                      28,604
                      
                      Nov
      8, 2016 (2036)Borders
                      
                      Norman,
      OK
                      
                      1996
                      
                      24,641
                      
                      Sep
      20, 2016 (2036)Borders
      (8)
                      
                      Omaha,
      NE
                      
                      1995
                      
                      30,000
                      
                      Nov
      3, 2015 (2035)Borders
                      
                      Santa
      Barbara, CA
                      
                      1995
                      
                      38,015
                      
                      Nov
      17, 2015 (2035)Borders
      (8)
                      
                      Wichita,
      KS
                      
                      1995
                      
                      25,000
                      
                      Nov
      10, 2015 (2035)Borders
      (8)
                      
                      Lawrence,
      KS
                      
                      1997
                      
                      20,000
                      
                      Oct
      16, 2022 (2042)Borders
                      
                      Tulsa,
      OK
                      
                      1998
                      
                      25,000
                      
                      Sep
      30, 2018 (2038)Borders
      (8)
                      
                      Oklahoma
      City, OK
                      
                      2002
                      
                      24,641
                      
                      Jan
      31, 2018 (2038)Borders
      (8)
                      
                      Omaha,
      NE
                      
                      2002
                      
                      25,000
                      
                      Jan
      31, 2018 (2038)Borders
      (8)
                      
                      Indianapolis,
      IN
                      
                      2002
                      
                      15,844
                      
                      Dec
      31, 2017 (2038)Borders
      (8)
                      
                      Columbia,
      MD
                      
                      1999
                      
                      28,000
                      
                      Jan
      31, 2018 (2038)Borders
      (8)
                      
                      Germantown,
      MD
                      
                      2000
                      
                      25,000
                      
                      Jan
      31, 2018 (2038)Borders
      Headquarters (8)
                      
                      Ann
      Arbor, MI
                      
                      1996/1998
                      
                      458,729
                      
                      Jan
      29, 2023 (2043)Borders
                      
                      Tulsa,
      OK
                      
                      1996
                      
                      25,000
                      
                      Sep
      30, 2018 (2038)Borders
      (8)
                      
                      Boynton
      Beach, FL
                      
                      1996
                      
                      20,745
                      
                      July
      20, 2024 (2044)Borders
      (8)
                      
                      Ann
      Arbor, MI
                      
                      1996
                      
                      110,000
                      
                      Jan
      31, 2025 (2045)Citizens
      Bank
                      
                      Flint,
      MI
                      
                      2003
                      
                      4,426
                      
                      Apr
      15, 2023Rite
      Aid (8)
                      
                      Webster,
      NY
                      
                      2004
                      
                      13,813
                      
                      Feb
      24, 2024 (2044)Rite
      Aid (8)
                      
                      Albion,
      NY
                      
                      2004
                      
                      13,813
                      
                      Oct
      12, 2024 (2044)Fajita
      Factory
                      
                      Lansing,
      MI
                      
                      2004
                      
                      Note
      (3)
                      
                      Aug
      31, 2014 (2032)Lake
      Lansing RA Associates, LLC
                      
                      East
      Lansing, MI
                      
                      2004
                      
                      Note
      (4)
                      
                      Dec
      31, 2028 (2078)Kmart
                      
                      Grayling,
      MI
                      
                      1984
                      
                      52,320
                      
                      Sep
      30, 2009 (2059)Kmart
                      
                      Oscoda,
      MI
                      
                      1984/1990
                      
                      90,470
                      
                      Sep
      30, 2009 (2059)Meijer
                      
                      Plainfield,
      IN
                      
                      2007
                      
                      Note
      (5)
                      
                      Nov
      5, 2027 (2047)Rite
      Aid (8)
                      
                      Canton
      Twp, MI
                      
                      2003
                      
                      11,180
                      
                      Oct
      31, 2019 (2049)Rite
      Aid (8)
                      
                      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)Rite
      Aid (8)
                      
                      Summit
      Twp, MI
                      
                      2006
                      
                      11,060
                      
                      Oct
      31, 2019 (2039)Sam’s
      Club
                      
                      Roseville,
      MI
                      
                      2002
                      
                      Note
      (6)
                      
                      Aug
      4, 2022 (2082)Walgreen
      (8)
                      
                      Waterford,
      MI
                      
                      1997
                      
                      13,905
                      
                      Feb
      28, 2018 (2058)Walgreen
      (8)
                      
                      Chesterfield,
      MI
                      
                      1998
                      
                      13,686
                      
                      July
      31, 2018 (2058)Walgreen
      (8)
                      
                      Pontiac,
      MI
                      
                      1998
                      
                      13,905
                      
                      Oct
      31, 2018 (2058)Walgreen
      (8)
                      
                      Grand
      Blanc, MI
                      
                      1998
                      
                      13,905
                      
                      Feb
      28, 2019 (2059)Walgreen
      (8)
                      
                      Rochester,
      MI
                      
                      1998
                      
                      13,905
                      
                      June
      30, 2019 (2059)Walgreen
      (8)
                      
                      Ypsilanti,
      MI
                      
                      1999
                      
                      15,120
                      
                      Dec
      31, 2019 (2059)Walgreen (1)
      (8)
                      
                      Petoskey,
      MI
                      
                      2000
                      
                      13,905
                      
                      Apr
      30, 2020 (2060)Walgreen
      (8)
                      
                      Flint,
      MI
                      
                      2000
                      
                      14,490
                      
                      Dec
      31, 2020
(2060)
  21
 
 Tenant
                    
                    Location
                    
                    Year
                        Completed/
                        Expanded
                    
                    Total GLA
                    
                    Lease Expiration(2)
                        (Option expiration)Walgreen
      (8)
                    
                    Flint,
      MI
                    
                    2001
                    
                    15,120
                    
                    Feb
      28, 2021 (2061)Walgreen
      (8)
                    
                    N
      Baltimore, MI
                    
                    2001
                    
                    14,490
                    
                    Aug
      31, 2021 (2061)Walgreen
      (8)
                    
                    Flint,
      MI
                    
                    2002
                    
                    14,490
                    
                    Apr
      30, 2027 (2077)Walgreen
                    
                    Big
      Rapids, MI
                    
                    2003
                    
                    13,560
                    
                    Apr
      30, 2028 (2078)Walgreen
      (8)
                    
                    Flint,
      MI
                    
                    2004
                    
                    14,560
                    
                    Feb
      28, 2029 (2079)Walgreen
      (8)
                    
                    Flint,
      MI
                    
                    2004
                    
                    13,650
                    
                    Oct
      31, 2029 (2079)Walgreen
                    
                    Midland,
      MI
                    
                    2005
                    
                    14,820
                    
                    July
      31, 2030 (2080)Walgreen
      (8)
                    
                    Grand
      Rapids, MI
                    
                    2005
                    
                    14,820
                    
                    Aug
      30, 2030 (2080)Walgreen
      (8)
                    
                    Delta
      Township, MI
                    
                    2005
                    
                    14,559
                    
                    Nov
      30, 2030 (2080)Walgreen
      and Retail space (8)
                    
                    Livonia,
      MI
                    
                    2007
                    
                    19,390
                    
                    June
      30, 2032 (2082)Walgreen
                    
                    Barnesville,
      GA
                    
                    2007
                    
                    14,820
                    
                    Nov
      30, 2032 (2082)Walgreen
      and Chase Bank (8)
                    
                    Macomb
      Township, MI
                    
                    2008
                    
                    14,820
                    
                    Mar
      31, 2033 (2083)Walgreen
                    
                    Ypsilanti,
      MI
                    
                    2008
                    
                    13,650
                    
                    Mar
      31, 2032 (2082)Walgreen
                    
                    Marion
      County, FL
                    
                    2008
                    
                    14,820
                    
                    Apr
      30, 2032 (2082)Walgreen
      (1) (8)
                    
                    Shelby
      Township, MI
                    
                    2008
                    
                    14,820
                    
                    Jul
      31, 2033 (2083)Walgreen
                    
                    Brighton,
      MI
                    
                    2009
                    
                    14,550
                    
                    Jan
      31, 2034 (2084)Walgreen
                    
                    Silver
      Springs Shores, FL
                    
                    2009
                    
                    14,550
                    
                    Dec
      31, 2033 (2083)Walgreen
                    
                    Port
      St John, FL
                    
                    2009
                    
                    14,550
                    
                    Apr
      30, 2034 (2084)Walgreen
                    
                    Lowell,
      MI
                    
                    2009
                    
                    13,650
                    
                    Sep
      30, 2034 (2084)Chase
      Bank
                    
                    Southfield,
      MI
                    
                    2009
                    
                    Note
      (7)
                    
                    Oct
      31, 2029 (2059)Vacant
      space
                    
                    Boynton
      Beach, FL
                    
                    
                    
                    32,459Total
                    
                    
                    
                    
                    
                    1,629,543
 
 
 (1)
              Properties
      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, Petoskey, MI 2074 and Shelby Township, MI 2084), the land together
      with all improvements revert to the land owner. We have an option to
      purchase the Petoskey property after August 7, 2019 and the Shelby
      property after July 5, 2018.
  (2)
              At
      the expiration of tenant’s initial lease term, each tenant (except
      Citizens Bank) 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.  The tenant occupies a 5,448 square foot
      building.
  (4)
              This
      11.3 acre property is leased from us by Lake Lansing RA Associates, LLC
      pursuant to a ground lease.  The land owner has constructed a
      14,564 square foot building.
  (5)
              This
      32.5 acre property is leased from us by Meijer pursuant to a ground
      lease.  Meijer expects to construct an estimated 210,000 square
      foot super center.
  (6)
              This
      12.68 acre property is leased from us by Wal-Mart pursuant to a ground
      lease.  Wal-Mart has constructed a Sam’s Club retail building
      containing approximately 132,332 square
feet.
  (7)
              This
      1.0 acre property is leased from us by JP Morgan Chase Bank pursuant to a
      ground lease.  JP Morgan Chase has constructed a retail bank
      branch containing approximately 4,270 square
  feet.
  (8)
              Properties
      subject to a mortgage/debt or pledged pursuant to our credit
      facilities
  22
  Community
Shopping Centers
  Our 12
community shopping centers range in size from 20,000 to 241,458 square feet of
GLA. The community shopping centers are located in five states as follows:
Florida (1), Illinois (1), Kentucky (1), Michigan (6) and Wisconsin (3). Our
community shopping centers tend to be located in high traffic, market dominant
centers in which customers of our tenants purchase day-to-day necessities. Our
community shopping centers are anchored by national tenants.
  The
location, general character and primary occupancy information with respect to
the community shopping centers as of December 31, 2009 are set forth
below:
  Property Location
                    
                    Location
                    
                    Year
                        Completed/
                        Expanded
                    
                    
                    Gross
                        Leasable
                        Area
                      Sq. Ft.
                    
                    
                    Annualized
                      Base Rent (2)
                    
                    
                    Average
                        Base
                        Rent per
                        Sq. Ft.(3)
                    
                    
                    Percent
                        Occupied
                        at
                        December
                        31,
                        2009
                    
                    
                    Percent
                        Leased at
                      December
                        31,
                      2009 (4)
                    
                    Anchor Tenants (Lease
                        expiration/Option period
                        expiration) (5)Capital
      Plaza,(1)
                    
                    Frankfort,
      KY
                    
                    1978/
      2006
                    
                    
                    
                    116,212
                    
                    
                    $
                    587,000
                    
                    
                    $
                    5.05
                    
                    
                    
                    100
                    %
                    
                    
                    100
                    %
                    Kmart(2013/2053)Walgreen
      (2031/2052)Charlevoix
      Commons
                    
                    Charlevoix,
      MI
                    
                    1991
                    
                    
                    
                    137,375
                    
                    
                    
                    686,495
                    
                    
                    
                    5.00
                    
                    
                    
                    100
                    %
                    
                    
                    100
                    %
                    Kmart
      (2015/2065)Roundy’s
      (2011)
                      Family
      Farm (2016)Chippewa
      Commons (6)
                    
                    Chippewa
      Falls, WI
                    
                    1991
                    
                    
                    
                    168,311
                    
                    
                    
                    979,023
                    
                    
                    
                    5.82
                    
                    
                    
                    100
                    %
                    
                    
                    100
                    %
                    Kmart
      (2014/2064)Roundy’s
      (2010/2030)Fashion
      Bug (2011/2021)Ironwood
      Commons
                    
                    Ironwood,
      MI
                    
                    1991
                    
                    
                    
                    185,535
                    
                    
                    
                    907,793
                    
                    
                    
                    5.01
                    
                    
                    
                    98
                    %
                    
                    
                    98
                    %
                    Kmart
      (2015/2065)Super
      Value (2011/2036)Fashion
      Bug (2011/2021)Marshall
      Plaza
                    
                    Marshall,
      MI
                    
                    1990
                    
                    
                    
                    119,279
                    
                    
                    
                    690,959
                    
                    
                    
                    5.79
                    
                    
                    
                    100
                    %
                    
                    
                    100
                    %
                    Kmart
      (2015/2065)Central
      Michigan Commons
                    
                    Mt.
      Pleasant, MI
                    
                    1973/
      1997
                    
                    
                    
                    241,458
                    
                    
                    
                    988,562
                    
                    
                    
                    5.03
                    
                    
                    
                    96
                    %
                    
                    
                    96
                    %
                    Kmart
      (2008/2048)J.C.
      Penney Co. (2010/2020)Staples,
      Inc. (2010/2025)North
      Lakeland Plaza (6)
                    
                    Lakeland,
      FL
                    
                    1987
                    
                    
                    
                    171,334
                    
                    
                    
                    1,301,574
                    
                    
                    
                    7.68
                    
                    
                    
                    99
                    %
                    
                    
                    99
                    %
                    Best
      Buy (2013/2028)Beall’s
      (2020/2035)Petoskey
      Town Center (6)
                    
                    Petoskey,
      MI
                    
                    1990
                    
                    
                    
                    174,870
                    
                    
                    
                    1,031,073
                    
                    
                    
                    5.95
                    
                    
                    
                    99
                    %
                    
                    
                    99
                    %
                    Kmart
      (2015/2065)Roundy’s
      (2010/2030)Fashion
      Bug (2012/2022)Plymouth
      Commons
                    
                    Plymouth,
      WI
                    
                    1990
                    
                    
                    
                    162,031
                    
                    
                    
                    792,369
                    
                    
                    
                    5.09
                    
                    
                    
                    96
                    %
                    
                    
                    96
                    %
                    Kmart
      (2015/2065)Roundy’s
      (2015/2030)Ferris
      Commons
                    
                    Big
      Rapids, MI
                    
                    1990
                    
                    
                    
                    173,557
                    
                    
                    
                    1,013,336
                    
                    
                    
                    5.98
                    
                    
                    
                    98
                    %
                    
                    
                    98
                    %
                    Kmart
      (2015/2065)MC
      Sports (2018/2033)Peebles
      (2019/2039)Shawano
      Plaza (6)
                    
                    Shawano,
      WI
                    
                    1990
                    
                    
                    
                    192,694
                    
                    
                    
                    983,371
                    
                    
                    
                    5.21
                    
                    
                    
                    98
                    %
                    
                    
                    98
                    %
                    Kmart
      (2014/2064)Roundy’s
      (2015/2030)J.C.
      Penney Co. (2010/2025)Fashion
      Bug (2010/2021)West
      Frankfort Plaza
                    
                    West
      Frankfort, IL
                    
                    1982
                    
                    
                    
                    20,000
                    
                    
                    
                    124,000
                    
                    
                    
                    6.89
                    
                    
                    
                    90
                    %
                    
                    
                    90
                    %
                    Fashion
      Bug (2012)Total/Average
                    
                    
                    
                    
                    
                    
                    
                    1,862,656
                    
                    
                    $
                    10,085,555
                    
                    
                    $
                    5.51
                    
                    
                    
                    98
                    %
                    
                    
                    98
                    %
 23




(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 our Company as of December 31,
    2009.




(3)
            Calculated
      as total annualized base rents, divided by gross leaseable area actually
      leased as of December 31,
2009.




(4)
            Roundy’s
      has sub-leased the space it leases at Charlevoix Commons (35,896 square
      feet, rented at a rate of $5.97 per square foot). The lease with Roundy’s
      will expire on December 31, 2011.  We have entered into a lease
      with Family Farm and Home, Inc (the Roundy’s sub-tenant).  The
      Family Farm lease commences January 1, 2012, has a term of 5 years and a
      rental rate of $2.00 per square
foot.




(5)
            The
      option to extend the lease beyond its initial term is only at the option
      of the tenant.




(6)
            Properties
      subject to a mortgage/debt or pledged pursuant to our credit
      facilities.




ITEM
      3.
            LEGAL
      PROCEEDINGS




From time
to time, we are involved in legal proceedings in the ordinary course of
business.  We are not presently involved in any litigation nor, to our
knowledge, is any other litigation threatened against us, other than routine
litigation arising in the ordinary course of business, which is expected to be
covered by our liability insurance and all of which collectively is not expected
to have a material adverse effect on our liquidity, results of operations or
business or financial condition.




ITEM
      4.
            RESERVED




PART
II




ITEM
      5.
            MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES




Our
common stock is traded on the New York Stock Exchange under the symbol
“ADC”.  The following table sets forth the high and low closing prices
of our common stock, as reported on the New York Stock Exchange, and the
dividends declared per share of common stock by us for each calendar quarter in
the last two fiscal years.  Dividends were paid in the periods
immediately subsequent to the periods in which such dividends were
declared.




Quarter Ended
                    
                    High
                    
                    
                    Low
                    
                    
                    Dividends Declared Per
                      Common ShareMarch
      31, 2009
                    
                    $
                    19.32
                    
                    
                    $
                    9.31
                    
                    
                    $
                    0.50June
      30, 2009
                    
                    $
                    18.66
                    
                    
                    $
                    14.89
                    
                    
                    $
                    0.50September
      30, 2009
                    
                    $
                    24.61
                    
                    
                    $
                    17.10
                    
                    
                    $
                    0.51December
      31, 2009
                    
                    $
                    24.94
                    
                    
                    $
                    21.01
                    
                    
                    $
                    0.51March
      31, 2008
                    
                    $
                    31.02
                    
                    
                    $
                    26.74
                    
                    
                    $
                    0.50June
      30, 2008
                    
                    $
                    29.14
                    
                    
                    $
                    21.48
                    
                    
                    $
                    0.50September
      30, 2008
                    
                    $
                    29.25
                    
                    
                    $
                    23.05
                    
                    
                    $
                    0.50December
      31, 2008
                    
                    $
                    27.49
                    
                    
                    $
                    9.48
                    
                    
                    $
                    0.50




On March
3, 2010, the reported closing sale price per share of common stock on the New
York Stock Exchange was $21.27.




At February 26, 2010, there were
8,271,464 shares of our common stock issued and outstanding which were held by
approximately 200 stockholders of record.  The number of stockholders
of record does not reflect persons or entities who held their shares in nominee
or “street” name.  In addition, at December 31, 2009 there were
347,619 Operating Partnership units outstanding held by limited partners other
than our Company.  The units are exchangeable into shares of common
stock on a one for one basis.


24


For 2009,
we paid $2.02 per share of common stock in dividends. Of the $2.02, 100.0%
represented ordinary income, and 0.0% represented return of capital, for tax
purposes. For 2008, we paid $2.00 per share of common stock in dividends. Of the
$2.00, 98.0% represented ordinary income, and 2.0% represented return of
capital, for tax purposes.




We intend
to continue to declare quarterly dividends to our
stockholders.  However, our distributions are determined by our board
of directors and will depend on a number of factors, including the amount of our
funds from operations, the financial and other condition of our properties, our
capital requirements, restrictions in our debt instruments, our annual
distribution requirements under the provisions of the Internal Revenue Code
applicable to REITs and such other factors as our board of directors deems
relevant.  We have historically paid cash dividends, although we may
choose to pay a portion in stock dividends in the future.  To qualify
as a REIT, we must distribute at least 90% of our REIT taxable income prior to
net capital gains to our stockholders, as well as meet certain other
requirements. We must pay these distributions in the taxable year the income is
recognized, or in the following taxable year if they are declared during the
last three months of the taxable year, payable to stockholders of record on a
specified date during such period and paid during January of the following year.
Such distributions are treated as paid by us and received by our stockholders on
December 31 of the year in which they are declared. In addition, at our
election, a distribution for a taxable year may be declared in the following
taxable year if it is declared before we timely file our tax return for such
year and if paid on or before the first regular dividend payment after such
declaration. These distributions qualify as dividends paid for the 90% REIT
distribution test for the previous year and are taxable to holders of our
capital stock in the year in which paid.




During
the year ended December 31, 2009, we did not sell any unregistered
securities.  During the fourth quarter of 2009, we did not repurchase
any of our equity securities.




For
information about our equity compensation plan, please see Part III, Item 12 of
this report.


25


ITEM
      6.
            SELECTED
      FINANCIAL DATA




The
following table sets forth our selected financial information on a historical
basis and should be read in conjunction with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and all of the
financial statements and notes thereto included elsewhere in this Form
10-K.  Certain amounts have been reclassified to conform to the
current presentation of discontinued operations.  The balance sheet
for the periods ending December 31, 2005 through 2009 and operating data for
each of the periods presented were derived from our audited financial
statements.




Selected
Financial Data


(in
thousands, except per share, number of properties, and percentage leased
information)




Year Ended December 31,2009
              
              
              2008
              
              
              2007
              
              
              2006
              
              
              2005Operating
      DataTotal
      Revenue
              
              $
              37,260
              
              
              $
              35,654
              
              
              $
              34,468
              
              
              $
              32,908
              
              
              $
              31,579ExpensesProperty
      Expense (1)
              
              
              4,363
              
              
              
              4,448
              
              
              
              4,310
              
              
              
              4,219
              
              
              
              4,545General
      and Administrative
              
              
              4,559
              
              
              
              4,361
              
              
              
              4,462
              
              
              
              4,019
              
              
              
              4,191Interest
              
              
              4,635
              
              
              
              5,179
              
              
              
              4,896
              
              
              
              4,625
              
              
              
              4,159Depreciation
      and Amortization
              
              
              5,709
              
              
              
              5,384
              
              
              
              5,017
              
              
              
              4,851
              
              
              
              4,637Total
      Expenses
              
              
              19,266
              
              
              
              19,372
              
              
              
              18,685
              
              
              
              17,714
              
              
              
              17,532Other
      Income (2)
              
              
              -
              
              
              
              -
              
              
              
              1,044
              
              
              
              -
              
              
              
              6Income
      Before Discontinued Operations
              
              
              17,994
              
              
              
              16,282
              
              
              
              16,827
              
              
              
              15,194
              
              
              
              14,053Gain
      on Sale of Asset From Discontinued Operations
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,654Income
      From Discontinued Operations
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              486Net
      Income
              
              
              17,994
              
              
              
              16,282
              
              
              
              16,827
              
              
              
              15,194
              
              
              
              17,193Less
      Net Income Attributable to Non-ControllingInterest
              
              
              950
              
              
              
              1,265
              
              
              
              1,345
              
              
              
              1,220
              
              
              
              1,145Net
      Income Attributable to Agree Realty Corporation
              
              $
              17,044
              
              
              $
              15,017
              
              
              $
              15,482
              
              
              $
              13,974
              
              
              $
              16,048Number
      of Properties
              
              
              73
              
              
              
              68
              
              
              
              64
              
              
              
              60
              
              
              
              59Number
      of Square Feet
              
              
              3,492
              
              
              
              3,439
              
              
              
              3,385
              
              
              
              3,355
              
              
              
              3,363Percentage
      Leased
              
              
              98
              %
              
              
              99
              %
              
              
              99
              %
              
              
              99
              %
              
              
              99
              %Per
      Share Data – DilutedIncome
      Before Discontinued Operations
              
              $
              2.14
              
              
              $
              1.95
              
              
              $
              2.01
              
              
              $
              1.83
              
              
              $
              1.72Discontinued
      Operations
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              
              .42Net
      Income
              
              $
              2.14
              
              
              $
              1.95
              
              
              $
              2.01
              
              
              $
              1.83
              
              
              $
              2.14Weighted
      Average of Common Shares Outstanding – Diluted
              
              
              7,966
              
              
              
              7,718
              
              
              
              7,716
              
              
              
              7,651
              
              
              
              7,491Cash
      Dividends
              
              $
              2.02
              
              
              $
              2.00
              
              
              $
              1.97
              
              
              $
              1.96
              
              
              $
              1.96Balance
      Sheet DataReal
      Estate (before accumulated depreciation)
              
              $
              320,444
              
              
              $
              311,343
              
              
              $
              290,074
              
              
              $
              268,248
              
              
              $
              258,232Total
      Assets
              
              $
              261,789
              
              
              $
              256,897
              
              
              $
              239,348
              
              
              $
              223,515
              
              
              $
              223,460Total
      Debt, including accrued interest
              
              $
              104,814
              
              
              $
              101,069
              
              
              $
              82,889
              
              
              $
              69,031
              
              
              $
              68,504





(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 and the
      effect of dilutive securities
outstanding.




26




ITEM
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS




Overview




We were
established to continue to operate and expand the retail property business of
our predecessor.  We commenced our operations in April
1994.  Our assets are held by and all operations are conducted
through, directly or indirectly, the Operating Partnership, of which we are the
sole general partner and held a 95.93% interest as of December 31,
2009.  We are operating so as to qualify as a REIT for federal income
tax purposes.




The
following should be read in conjunction with the Consolidated Financial
Statements of Agree Realty Corporation, including the respective notes thereto,
which are included elsewhere in this Form 10-K.




Recent
Accounting Pronouncements




In June
2009, the Financial Accounting Standards Board (“FASB”) issued “Accounting
Standards Update 2009-01 Topic 105-Generally Accepted Accounting Principles
amendments based on Statement of Financial Accounting Standards No. 168-The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles” (“ASU 2009-01”), “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles – a
replacement of FASB Statement No. 162” (“SFAS 168”).  ASU
2009-01, or the FASB Accounting Standards Codification (“Codification”), will
become the source of authoritative U.S. generally accepted accounting principles
(“GAAP”) recognized by the FASB to be applied by nongovernmental
entities.  On the effective date of ASU 2009-01, the Codification will
supersede all then-existing non-SEC accounting and reporting
standards.  All other non-grandfathered non-SEC accounting literature
not included in the Codification will become non-authoritative.  ASU
2009-01 is effective for financial statements issued for interim and annual
periods ending after September 15, 2009.  The adoption of the standard
did not have a material impact on our consolidated financial position, results
of operations, or cash flows.





Critical
Accounting Policies




Critical
accounting policies are those that are both significant to the overall
presentation of our financial condition and results of operations and require
management to make difficult, complex or subjective judgments.  For
example, significant estimates and assumptions have been made with respect to
revenue recognition, capitalization of costs related to real estate investments,
potential impairment of real estate investments, operating cost reimbursements,
and taxable income.




Minimum
rental income attributable to leases is recorded when due from
tenants.  Certain leases provide for additional percentage rents based
on tenants’ sales volumes.  These percentage rents are recognized when
determinable by us.  In addition, leases for certain tenants contain
rent escalations and/or free rent during the first several months of the lease
term; however, such amounts are not material.




Real
estate assets are stated at cost less accumulated depreciation.  All
costs related to planning, development and construction of buildings prior to
the date they become operational, including interest and real estate taxes
during the construction period, are capitalized for financial reporting purposes
and recorded as property under development until construction has been
completed.  The viability of all projects under construction or
development are regularly evaluated under applicable accounting requirements,
including requirements relating to abandonment of assets or changes in use. To
the extent a project, or individual components of the project, are no longer
considered to have value, the related capitalized costs are charged against
operations.  Subsequent to 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.


27





We evaluate real estate for impairment
when events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable through 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 and such excess carrying
value is charged to income.  The expected cash flows of a project are
dependent on estimates and other factors subject to change, including (1)
changes in the national, regional, and/or local economic climates, (2)
competition from other shopping centers, stores, clubs, mailings, and the
internet, (3) increases in operating costs, (4) bankruptcy and/or other changes
in the condition of third parties, including tenants, (5) expected holding
period, and (6) availability of credit. These factors could cause our expected
future cash flows from a project to change, and, as a result, an impairment
could be considered to have occurred.





Substantially
all of our leases contain provisions requiring tenants to pay as additional rent
a proportionate share of operating expenses (“operating cost reimbursements”)
such as real estate taxes, repairs and maintenance, insurance,
etc.  The related revenue from tenant billings is recognized in the
same period the expense is recorded.




We have
elected to be taxed as a REIT under the Internal Revenue Code, commencing with
our 1994 tax year.  As a result, we are not subject to federal income
taxes to the extent that we distribute annually at lease 90% of our REIT taxable
income to our stockholders and satisfy certain other requirements defined in the
Internal Revenue Code.




We
established TRS entities pursuant to the provisions of the REIT Modernization
Act.  Our TRS entities are able to engage in activities resulting in
income that previously would have been disqualified from being eligible REIT
income under the federal income tax regulations.  As a result, certain
activities of our Company which occur within our TRS entities are subject to
federal and state income taxes.  As of December 31, 2009 and
2008, we had accrued a deferred income tax amount of
$705,000.  In addition, we have recorded an income tax liability
of  $62,000 as of December 31, 2009.




Comparison
of Year Ended December 31, 2009 to Year Ended December 31, 2008




Minimum
rental income increased $1,307,000, or 4%, to $34,157,000 in 2009, compared to
$32,850,000 in 2008.  The increase was the result of the development
of a Walgreen drug store and a bank land lease in Macomb Township, Michigan in
March 2008, the development of a Walgreen drug store located in Ypsilanti,
Michigan in May 2008, the development of a Walgreen drug store in Ocala, Florida
in June 2008, the development of a Walgreen drug store in Shelby Township,
Michigan in July 2008, the development of a Walgreen drug store in Silver
Springs Shores, Florida in January 2009, the development of a Walgreen drug
store in Brighton, Michigan in February 2009, the development of a Walgreen drug
store in Port St John, Florida in June 2009, the development of a Walgreen drug
store in Lowell, Michigan in September 2009 and the development of a Chase bank
branch land lease in Southfield, Michigan in October 2009. Our revenue increases
from these developments amounted to $1,694,000.  In addition, rental
income from our Big Rapids, Michigan shopping center increased by $182,000 as a
result of redevelopment activities and rental income decreased ($569,000) as a
result of the closing of a Circuit City store in Boynton Beach, Florida and
other rental adjustments.




Operating
cost reimbursements decreased $137,000, or 5%, to $2,647,000 in 2009, compared
to $2,784,000 in 2008.  Operating cost reimbursements decreased due to
the net decrease in property operating expenses as explained below.




We earned
development fee income of $410,000 in 2009 related to a project we have
commenced in Oakland, California.  There was no development fee income
in 2008.  We expect to earn development fee income in
2010.




Other
income increased $26,000 to $30,000 in 2009, compared to $4,000 in
2008.




Real
estate taxes increased $71,000, or 4%, to $1,938,000 in 2009 compared to
$1,867,000 in 2008.  The increase is the result of general assessment
increases on the properties.




Property
operating expenses (shopping center maintenance, snow removal, insurance and
utilities) decreased $247,000, or 14%, to $1,566,000 in 2009 compared to
$1,813,000 in 2008.  The decrease was the result of a decrease in
shopping center maintenance expenses of ($73,000); decreased snow removal costs
of ($175,000); increased utility costs of $29,000; and decreased insurance costs
of ($28,000) in 2009 versus 2008.


28


Land
lease payments increased $92,000, or 12%, to $859,000 in 2009 compared to
$767,000 for 2008.  The increase is the result of our leasing of land
for our Shelby Township, Michigan development.





General
and administrative expenses increased $198,000, or 5%, to $4,559,000 in 2009
compared to $4,361,000 in 2008.  The increase was primarily the result
of increased dead deal costs related to property searches in Michigan and
Florida and compensation related expenses.  General and administrative
expenses as a percentage of rental income remained at 13.3% for 2009 and
2008.





Depreciation
and amortization increased $324,000, or 6%, to $5,709,000 in 2009 compared to
$5,385,000 in 2008.  The increase was the result the development and
acquisition of four properties in 2008 and five properties in 2009.





Interest
expense decreased $544,000, or 11%, to $4,635,000 in 2009, from $5,179,000 in
2008.  The decrease in interest expense resulted from substantial
reductions in interest rates in 2009 as compared to 2008.





Our net
income increased $1,712,000, or 11%, to $17,994,000 in 2009, from $16,282,000 in
2008 as a result of the foregoing factors.





Comparison
of Year Ended December 31, 2008 to Year Ended December 31, 2007





Minimum
rental income increased $1,214,000, or 4%, to $32,850,000 in 2008, compared to
$31,636,000 in 2007.  The increase was the result of the development
of a Walgreen drug store in Livonia, Michigan in June 2007, the development of a
Walgreen drug store in Barnesville, Georgia in October 2007, the development of
a parcel of land located in East Lansing, Michigan in November 2007, the
development of a parcel of land located in Plainfield, Indiana in November 2007,
the development of a Walgreen drug store and a bank land lease in Macomb
Township, Michigan in March 2008, the development of a Walgreen drug store
located in Ypsilanti, Michigan in May 2008, the development of a Walgreen drug
store in Ocala, Florida in June 2008 and the development of a Walgreen drug
store in Shelby Township, Michigan in July 2008.  Our revenue
increases from these developments amounted to $2,010,000.  Our
increase in rental income was partially offset by a lease termination payment
related to our Big Rapids, Michigan shopping center that was received in 2007 of
($608,000), a reduction in rental of income related to our redevelopment of our
Big Rapids, Michigan shopping center of ($143,000) and a reduction of rent at
our only Circuit City store of ($56,000).





Percentage
rents decreased $22,000, or 59%, to $15,000 in 2008, compared to $37,000 in
2007.  The decrease was primarily the result of decreased tenant
sales.





Operating
cost reimbursements increased $25,000, or 1%, to $2,784,000 in 2008, compared to
$2,759,000 in 2007.  Operating cost reimbursements increased due to
the increase in property operating expenses as explained below.





Other
income decreased $31,000 to $4,000 in 2008, compared to $35,000 in
2007.





Real
estate taxes increased $18,000, or 1%, to $1,867,000 in 2008 compared to
$1,849,000 in 2007.  The increase is the result of general assessment
increases on the properties.





Property
operating expenses (shopping center maintenance, snow removal, insurance and
utilities) increased $28,000, or 2%, to $1,813,000 in 2008 compared to
$1,785,000 in 2007.  The increase was the result of a decrease in
shopping center maintenance expenses of ($64,000); increased snow removal costs
of $68,000; increased utility costs of $29,000; and decreased insurance costs of
($5,000) in 2008 versus 2007.





Land
lease payments increased $91,000, or 14%, to $767,000 in 2008 compared to
$676,000 for 2007.  The increase is the result of our leasing of land
for our Shelby Township, Michigan development.


29


General
and administrative expenses decreased $101,000, or 2%, to $4,361,000 in 2008
compared to $4,462,000 in 2007.  The decrease was the result of an
increase in compensation related expenses of $58,000; decreased contracted
services to investigate development opportunities of ($165,000) and increased
property management related expenses of $6,000.  General and
administrative expenses as a percentage of rental income decreased from 14.1%
for 2007 to 13.3% for 2008.





Depreciation
and amortization increased $368,000, or 7%, to $5,385,000 in 2008 compared to
$5,017,000 in 2007.  The increase was the result of the development
and acquisition of four properties in 2008 and four properties in
2007.





Interest
expense increased $283,000, or 6%, to $5,179,000 in 2008, from $4,896,000 in
2007.  The increase in interest expense was the result of increased
borrowings to fund the development and acquisition of four properties in 2008
and four properties in 2007.





In
October 2007, we completed the sale of our interest in two contracts to acquire
a 14.9 acre parcel of land to a national home improvement
superstore.  The transaction resulted in a gain of $1,044,000 net of
deferred income taxes of $705,000.  We established a TRS to facilitate
this transaction.  We elected to defer the recognition of the gain
from the transaction for income tax purposes by making an election under Section
1031 of the Internal Revenue Code.  There were no gains from property
sales in 2008.





Our net
income decreased $545,000, or 3%, to $16,282,000 in 2008, from $16,827,000 in
2007 as a result of the foregoing factors.





Liquidity
and Capital Resources





Our principal demands for liquidity are
operations, distributions to our stockholders, debt repayment, development of
new properties, redevelopment of existing properties and future property
acquisitions.  We intend to meet our short-term liquidity
requirements, including capital expenditures related to the leasing and
improvement of the properties, through cash flow provided by operations and the
Line of Credit and the Credit Facility (as defined below).  We believe
that adequate cash flow will be available to fund our operations and pay
dividends in accordance with REIT requirements for at least the next 12
months.  We may obtain additional funds for future development or
acquisitions through other borrowings or the issuance of additional shares of
common stock, although current market conditions have severely limited the
availability of new sources of financing and capital, which will likely have an
impact on our ability to obtain construction financing for planned new
development projects in the near term.  We believe that these
financing sources will enable us to generate funds sufficient to meet both our
short-term and long-term capital needs.





We intend
to maintain a ratio of total indebtedness (including construction or acquisition
financing) to market capitalization of 65% or less.  Nevertheless, we
may operate with debt levels which are in excess of 65% of market capitalization
for extended periods of time.  At December 31, 2009, our ratio of
indebtedness to market capitalization was approximately 53%.  This
ratio decreased from 65% as of December 31, 2008 as a result of an increase in
the market value of our common stock.





During
the quarter ended December 31, 2009, we declared a quarterly dividend of $.51
per share.  The cash dividend was paid on January 5, 2010 to holders
of record on December 21, 2009.





Our cash
flows from operations increased $1,650,000 to $23,580,000 in 2009, compared to
$21,930,000 in 2008.  Cash used in investing activities decreased
$12,670,000 to $8,749,000 in 2009, compared to $21,419,000 in
2008.  Cash used in financing activities increased $14,424,000 to
$14,811,000 in 2009, compared to $387,000 in 2008.  Our cash and cash
equivalents increased by $20,000 to $689,000 as of December 31, 2009 as a result
of the foregoing factors.





As of
December 31, 2009, we had total mortgage indebtedness of
$75,552,802.  Of this total mortgage indebtedness, $51,398,837 is
fixed rate, self-amortizing debt with a weighted average interest rate of 6.56%
and the remaining mortgage debt of $24,153,965 has a maturity date of July 14,
2013, can be extended at our option for two additional years and bears interest
at 150 basis points over LIBOR (or 1.74% as of December 31,
2009).  The proceeds from this mortgage loan were used to reduce
amounts outstanding under our Credit Facility (as defined below).  In
January 2009, we entered into an interest rate swap agreement that will fix the
interest rate during the initial term of the mortgage at
3.744%.


30





In
addition, the Operating Partnership has in place a $55 million credit facility
(the “Credit Facility”) with Bank of America, as the agent, which is guaranteed
by our Company.  The Credit Facility matures in November
2011.  Advances under the Credit Facility bear interest within a range
of one-month to 12-month LIBOR plus 100 basis points to 150 basis points or the
lender’s prime rate, at our option, based on certain factors such as the ratio
of our indebtedness to the capital value of our properties.  The
Credit Facility generally is used to fund property acquisitions and development
activities.  As of February 15, 2010, $28,500,000 was outstanding
under the Credit Facility bearing a weighted average interest rate of
1.23%.





We also
have in place a $5 million line of credit (the “Line of Credit”), which matures
in November 2011. The Line of Credit bears interest at the lender’s prime rate
less 75 basis points or 150 basis points in excess of the one-month to 12-month
LIBOR rate, at our option.  The purpose of the Line of Credit is to
generally provide working capital and fund land options and start-up costs
associated with new projects.  As of February 15, 2010, $2,791,750 was
outstanding under the Line of Credit bearing a weighted average interest rate of
2.50%.





The
following table outlines our contractual obligations (in thousands) as of
December 31, 2009:





Total
              
              
              Yr 1
              
              
              2-3 Yrs
              
              
              4-5 Yrs
              
              
              Over 5 YrsMortgages
      Payable
              
              $
              75,553
              
              
              $
              4,026
              
              
              $
              8,879
              
              
              $
              31,511
              
              
              $
              31,137Notes
      Payable
              
              
              29,000
              
              
              
              -
              
              
              
              29,000
              
              
              
              -
              
              
              
              -Land
      Lease Obligations
              
              
              13,975
              
              
              
              891
              
              
              
              1,813
              
              
              
              1,813
              
              
              
              9,458Other
      Long-Term Liabilities
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Estimated
      Interest Payments on Mortgages and Notes Payable
              
              
              18,624
              
              
              
              3,830
              
              
              
              6,547
              
              
              
              4,044
              
              
              
              4,203Total
              
              $
              137,152
              
              
              $
              8,747
              
              
              
              46,239
              
              
              $
              37,368
              
              
              $
              44,798





We have
three development projects under construction that will add an additional 42,948
square feet to our portfolio.  The projects are expected to be
completed during the third quarter of 2010.  Additional funding
required to complete the projects is estimated to be $7,493,000, which is not
reflected in the table above, and is expected to be provided by the Credit
Facility.





We plan
to begin construction of additional pre-leased developments and may acquire
additional properties, which will initially be financed by the Credit Facility
and Line of Credit.  We will periodically refinance short-term
construction and acquisition financing with long-term debt, medium term debt
and/or equity.





Off-Balance
Sheet Arrangements





We do not
engage in any off-balance sheet arrangements with unconsolidated entities or
financial partnerships, such as structured finance or special purpose entities,
that have or are reasonably likely to have a material effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditure or capital resources.





Inflation





Our
leases generally contain provisions designed to mitigate the adverse impact of
inflation on net income.  These provisions include clauses enabling us
to pass through to our tenants certain operating costs, including real estate
taxes, common area maintenance, utilities and insurance, thereby reducing our
exposure to cost increases and operating expenses resulting from
inflation.  Certain of our leases contain clauses enabling us to
receive percentage rents based on tenants’ gross sales, which generally increase
as prices rise, and, in certain cases, escalation clauses, which generally
increase rental rates during the term of the leases.  In addition,
expiring tenant leases permit us to seek increased rents upon re-lease at market
rates if rents are below the then existing market rates.


31




Funds
from Operations





Funds
From Operations (“FFO”) is defined by the National Association of Real Estate
Investment Trusts, Inc. (“NAREIT”) to mean net income computed in accordance
with GAAP, excluding gains (or losses) from sales of property, plus real estate
related depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures.  Management uses FFO as a
supplemental measure to conduct and evaluate our business because there are
certain limitations associated with using GAAP net income by itself as the
primary measure of our operating performance.  Historical cost
accounting for real estate assets in accordance with GAAP implicitly assumes
that the value of real estate assets diminishes predictably over
time.  Since real estate values instead have historically risen or
fallen with market conditions, management believes that the presentation of
operating results for real estate companies that use historical cost accounting
is insufficient by itself.





FFO
should not be considered as an alternative to net income as the primary
indicator of our operating performance or as an alternative to cash flow as a
measure of liquidity.  Further, while we adhere to the NAREIT
definition of FFO, our presentation of FFO is not necessarily comparable to
similarly titled measures of other REITs due to the fact that not all REITS use
the same definition.





The
following table provides a reconciliation of FFO and net income for the years
ended December 31, 2009, 2008 and 2007:





Year ended December 31,2009
                
                
                2008
                
                
                2007Net
      income
                
                $
                17,994,036
                
                
                $
                16,282,038
                
                
                $
                16,826,749Depreciation
      of real estate assets
                
                
                5,574,084
                
                
                
                5,257,391
                
                
                
                4,905,361Amortization
      of leasing costs
                
                
                65,977
                
                
                
                58,771
                
                
                
                50,868Gain
      on sale of assets
                
                
                -
                
                
                
                -
                
                
                
                (1,043,675
                )Funds
      from operations
                
                $
                23,634,097
                
                
                $
                21,598,200
                
                
                $
                20,739,303Weighted
      average shares and OP Units outstandingBasic
                
                
                8,396,597
                
                
                
                8,364,366
                
                
                
                8,328,418Diluted
                
                
                8,416,696
                
                
                
                8,376,259
                
                
                
                8,389,426





ITEM
      7A.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





We are
exposed to interest rate risk primarily through our borrowing
activities.  There is inherent roll-over risk for borrowings as they
mature and are renewed at current market rates.  The extent of this
risk is not quantifiable or predictable because of the variability of future
interest rates and our future financing requirements.





Our
interest rate risk is monitored using a variety of techniques.  The
table below presents the principal payments (in thousands) and the weighted
average interest rates on outstanding debt, by year of expected maturity, to
evaluate the expected cash flows and sensitivity to interest rate
changes.





2010
                
                
                2011
                
                
                2012
                
                
                2013
                
                
                2014
                
                
                Thereafter
                
                
                TotalFixed rate debt
                
                $
                3,539
                
                
                $
                3,779
                
                
                $
                4,035
                
                
                $
                4,308
                
                
                $
                4,601
                
                
                $
                31,137
                
                
                $
                51,399Average interest rate
                
                
                6.56
                %
                
                
                6.56
                %
                
                
                6.56
                %
                
                
                6.56
                %
                
                
                6.56
                %
                
                
                6.56
                %
                
                
                -Variable
      rate mortgage
                
                $
                487
                
                
                $
                517
                
                
                $
                548
                
                
                $
                22,602
                
                
                
                -
                
                
                
                -
                
                
                $
                24,154Average
      interest rate
                
                
                3.74
                %
                
                
                3.74
                %
                
                
                3.74
                %
                
                
                3.74
                %
                
                
                -
                
                
                
                -Variable rate debt
                
                
                -
                
                
                $
                29,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                29,000Average interest rate
                
                
                -
                
                
                
                1.26
                %
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -


32





The fair
value (in thousands) is estimated at $48,671, $22,434 and $29,000 for fixed rate
mortgages, variable rate mortgage and other variable rate debt, respectively, as
of December 31, 2009.





The table
above incorporates those exposures that exist as of December 31, 2009; it does
not consider those exposures or positions, which could arise after that
date.  As a result, our ultimate realized gain or loss with respect to
interest rate fluctuations will depend on the exposures that arise during the
period and interest rates.





We
entered into an interest rate swap agreement to hedge interest rates on $24.5
million in variable-rate borrowings outstanding.  Under the terms of
the interest rate swap agreement, we will receive from the counterparty interest
on the notional amount based on 1.50% plus one-month LIBOR and will pay to the
counterparty a fixed rate of 3.744%.  This swap effectively converted
$24.5 million of variable-rate borrowings to fixed-rate
borrowings.  As of December 31, 2009, the interest rate swap was
valued at $74,753.  We do not use derivative instruments for trading
or other speculative purposes and we did not have any other derivative
instruments or hedging activities as of December 31, 2009.





As of
December 31, 2009, a 100 basis point increase in interest rates on the portion
of our debt bearing interest at variable rates would result in an increase in
interest expense of approximately $290,000.





ITEM
      8.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA





The
financial statements and supplementary data are listed in the Index to Financial
Statements and Financial Statement Schedules appearing on Page F-1 of this Form
10-K and are included in this Form 10-K following page F-1.





ITEM
      9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE





Not
applicable.





ITEM
      9A.
            CONTROLS
      AND PROCEDURES





Disclosure
Controls and Procedures





As of the
end of the period covered by this report, we conducted an evaluation, under the
supervision and with the participation of our principal executive officer and
principal financial officer, of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act).  Based on this evaluation, the principal executive officer and
principal financial officer concluded that our disclosure controls and
procedures are effective to ensure that information required to be disclosed by
us in reports that we file or submit under the Securities Exchange Act is
recorded, processed, summarized, and reported within the time periods specified
in SEC rules and forms.





Management’s
Report on Internal Control Over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Rules 13a15-(f) and 15d-15(f)
under the Securities Exchange Act.  Our internal control over
financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with U.S. generally accepted accounting
principles.  Our internal control over financial reporting includes
those policies and procedures that





(i)
            pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of the assets of our
      Company;


33





(ii)
            provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with U.S. generally
      accepted accounting principles, and that our receipts and expenditures are
      being made only in accordance with authorizations of our management and
      directors; and





(iii)
            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use, or disposition of our assets that could
      have a material effect on the financial
  statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.





Under the
supervision of our principal executive officer and our principal financial
officer, we conducted an evaluation of the effectiveness of our internal control
over financial reporting based on the framework in Internal Control – Integrated
Frameworkissued
by the Committee of Sponsoring Organizations of the Treadway
Commission.  Based on our assessment and those criteria, our
management believes that we maintained effective internal control over financial
reporting as of December 31, 2009.





Changes
in Internal Control over Financial Reporting





There was
no change in our internal control over financial reporting during our most
recently completed fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.





Attestation
Report of Independent Registered Public Accounting Firm





The
attestation report required under this item is contained on page F-2 of this
Form 10-K





ITEM
      9B.
            OTHER
      INFORMATION





Not
applicable.





PART
III





ITEM
      10.
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE





Incorporated
herein by reference to our definitive proxy statement with respect to our 2010
Annual Meeting of Stockholders.





ITEM
      11.
            EXECUTIVE
      COMPENSATION





Incorporated
herein by reference to our definitive proxy statement with respect to our 2010
Annual Meeting of Stockholders.





ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS





The
following table summarizes the equity compensation plan under which our common
stock may be issued as of December 31, 2009.


34





Plan category
                
                Number of securities to be
                    issued upon exercise of
                    outstanding options,
                    warrants and rights
                    (a)
                
                
                Weighted average exercise
                    price of outstanding
                    options, warrants and
                    rights
                    (b)
                
                
                Number of securities
                    remaining available for
                    future issuance under
                    equity compensation plans
                    (excluding securities
                    reflected in column (a))
                    (c)Equity
      compensation plans
                  approved
      by security holders
                
                
                –
                
                
                
                –
                
                
                
                731,066
                (1)Equity
      compensation plans
                  not
      approved by security holders
                
                
                –
                
                
                
                –
                
                
                
                –Total
                
                
                –
                
                
                
                –
                
                
                
                731,066





(1)
            Relates
      to various stock-based awards available for issuance under our 2005
      Equity Incentive Plan, including incentive stock options, non-qualified
      stock options, stock appreciation rights, deferred stock awards,
      restricted stock awards, unrestricted stock awards, and dividend
      equivalent rights.





Additional
information is incorporated herein by reference to our definitive proxy
statement with respect to our 2010 Annual Meeting of Stockholders.





ITEM
      13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE





Incorporated
herein by reference to our definitive proxy statement with respect to our 2010
Annual Meeting of Stockholders.





ITEM
      14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES





Incorporated
herein by reference to our definitive proxy statement with respect to our 2010
Annual Meeting of Stockholders.


35





PART
IV





ITEM
      15.
            EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES





15(a)
            The
      following documents are filed as part of this
  Report:





(1)
      (2)
            The
      financial statements and supplementary data are listed in the Index to
      Financial Statements and Financial Statement Schedules appearing on Page
      F-1 of this Form 10-K.




(3)
              Exhibits3.1
              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 (No. 33-73858), as
amended





3.2
            Articles
      Supplementary, establishing the terms of the Series A Preferred Stock
      (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K (No.
      001-12928) filed on December 9,
2008)





3.3
            Articles
      Supplementary, classifying additional shares of Common Stock and Excess
      Stock (incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K
      (No. 001-12928) filed on December 9,
2008)





3.4
            Bylaws
      of the Company (incorporated by reference to Exhibit 3.2 to the Company’s
      Form 10-K (No. 001-12928)  for the year ended December 31,
      2006)





4.1
            Rights
      Agreement, dated as of December 7, 1998, by and between Agree Realty
      Corporation, a Maryland corporation, and Computershare Trust Company,
      N.A., f/k/a EquiServe Trust Company, N.A., a national banking association,
      as successor rights agent to BankBoston, N.A., a national banking
      association (incorporated by reference to Exhibit 4.1 to the Company’s
      Registration Statement on Form S-3 (No. 333-161520) filed on November 13,
      2008)





4.2
            Second
      Amendment to Rights Agreement, dated as of December 8, 2008, by and
      between Agree Realty Corporation, a Maryland corporation, and
      Computershare Trust Company, N.A., f/k/a EquiServe Trust Company, N.A., a
      national banking association, as successor rights agent to BankBoston,
      N.A., a national banking association (incorporated by reference to Exhibit
      4.1 to the Company’s Form 8-K (No. 001-12928) filed on December 9,
      2008)





4.3
            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 Form 10-K (No.
      001-12928) for the year ended December 31,
1994)





4.4
            Form
      of certificate representing shares of common stock (incorporated by
      reference to Exhibit 4.2 to the Company’s Registration Statement on Form
      S-3 (No. 333-161520) filed on August 24,
2009





10.1
            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 Company’s Form 10-Q (No.
      001-12928) for the quarter ended September 30,
  2003)





10.2
            Third
      Amended and Restated Line of Credit Agreement by and between the Company,
      and LaSalle Bank Midwest National Association Individually and as Agent
      for the Lenders and together with Fifth Third Bank (incorporated by
      reference to Exhibit 10.28 to the Company’s Form 10-K (No. 001-12928) for
      the year ended December 31,
2006)


36





10.3
            Amendment
      to the Third Amended and Restated Line of Credit Agreement dated April 25,
      2008, by and between Agree Realty Corporation, Agree Limited Partnership
      and LaSalle Bank Midwest National Association, individually and as agent
      for the lenders and together with Fifth Third
      Bank.  (incorporated by reference to Exhibit 10.1 to the
      Company’s Form 10-Q for the quarter ended September 30,
    2009)





10.4
            Loan
      Agreement dated as of July 14, 2008 by and between Agree Limited
      Partnership, as Borrower, and The Financial Institutions party thereto, as
      Co-Lenders, and LaSalle Bank Midwest National Association, as Agent
      (incorporated by reference to Exhibit 4.1 to the Company’s Form 10-Q (No.
      001-12928) for the quarter ended June 30,
2008)





10.5
            Commercial
      Mortgage dated as of July 14, 2008 executed by Agree Limited Partnership
      to and for the benefit of LaSalle Bank Midwest National Association and
      Raymond James Bank, FSB  (incorporated by reference to Exhibit
      4.2 to the Company’s Form 10-Q (No. 001-12928) for the quarter ended June
      30, 2008)





10.6
            Continuing
      Unconditional Guaranty dated as of July 14, 2008 by Agree Realty
      Corporation for the benefit of La Salle Bank Midwest National Association
      (incorporated by reference to Exhibit 4.3 to the Company’s Form 10-Q (No.
      001-12928) for the quarter ended June 30,
2008)





10.7
            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 Company’s Form 10-K (No. 001-12928) for the year ended
      December 31, 1996)





10.8
            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 Company’s Form
      10-K (No. 001-12928) for the year ended December 31,
  1996)





10.9+
            Agree
      Realty Corporation Profit Sharing Plan (incorporated by reference to
      Exhibit 10.13 to the Company’s Form 10-K (No. 001-12928) for the year
      ended December 31, 1996)





10.10+
            Employment
      Agreement, dated July 14, 2009, by and between the Company and Richard
      Agree (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K
      (No. 001-12928) filed on July 16,
2009)





10.11+
            Employment
      Agreement, dated July 1, 2004, by and between the Company, and Kenneth R.
      Howe (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q
      (No. 001-12928) for the quarter ended June 30,
  2004)





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
      Form 10-Q (No. 001-12928) for the quarter ended March 31,
      2000)





10.13+
            Employment
      Agreement, dated July 14, 2009, by and between the Company and Joey Agree
      (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K (No.
      001-12928) filed on July 16, 2009)





10.14+
            2005
      Equity Incentive Plan (incorporated by reference to Exhibit 10.25 to the
      Company’s Form 10-K (No. 001-12928) for the year ended December 31,
      2004)





10.15+
            Form
      of Restricted Stock Agreement (incorporated by reference to Exhibit 10.9
      to the Company’s Form 10-K (No. 001-12928) for the year ended December 31,
      2007)


37





10.16+
            Summary
      of Director Compensation (incorporated by reference to Exhibit 10.10 to
      the Company’s Form 10-K (No. 001-12928) for the year ended December 31,
      2007)





12.1*
            Statement
      of computation of ratios of earnings to combined fixed charges and
      preferred stock dividends





21*
            Subsidiaries
      of Agree Realty Corporation





23*
            Consent
      of Baker Tilly Virchow Krause, LLP





24
            Power
      of Attorney (included on the signature page of this Annual Report on Form
      10-K)





31.1*
            Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Richard Agree,
      President, Chief Executive Officer and Chairman of the Board of
      Directors





31.2*
            Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Kenneth R.
      Howe, Vice President, Finance





32.1*
            Certification
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Richard Agree,
      President, Chief Executive Officer and Chairman of the Board of
      Directors





32.2*
            Certification
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Kenneth R.
      Howe, Vice President, Finance








*
            Filed
      herewith





+
            Management
      contract or compensatory plan or
arrangement





Pursuant
to Item 601(b)(4)(iii) of Regulation S-K, the registrant has not filed debt
instruments relating to long-term debt that is not registered and for which the
total amount of securities authorized thereunder does not exceed 10% of total
assets of the registrant and its subsidiaries on a consolidated basis as of
December 31, 2009.  The registrant agrees to furnish a copy of such
agreements to the SEC upon request.





15(b)
            The
      Exhibits listed in Item 15(a)(3) are hereby filed with this
      Report.





15(c)
            The
      financial statement schedule listed at Item 15(a)(2) is hereby filed with
      this Report.


38


SIGNATURES





PURSUANT
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.





AGREE
      REALTY CORPORATIONBy:
            /s/ Richard AgreeName:
            Richard
      AgreeChief
      Executive Officer and Chairman of the Boardof
      DirectorsDate:
            March
      12, 2010





KNOW ALL
MEN BY THESE PRESENTS, that we, the undersigned officers and directors of Agree
Realty Corporation, hereby severally constitute Richard Agree, Joel N. Agree and
Kenneth R. Howe, and each of them singly, our true and lawful attorneys with
full power to them, and each of them singly, to sign for us and in our names in
the capacities indicated below, the Form 10-K filed herewith and any and all
amendments to said Form 10-K, and generally to do all such things in our names
and in our capacities as officers and directors to enable Agree Realty
Corporation to comply with the provisions of the Securities Exchange Act of
1934, as amended and all requirements of the Securities and Exchange Commission,
hereby ratifying and confirming our signatures as they may be signed by our said
attorneys, or any of them, to said Form 10-K and any and all amendments
thereto.





PURSUANT
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated on the 12th day of March 2010.





By:
              /s/ Richard Agree
              
              By:
              /s/ Farris G. KalilRichard
      Agree
              
              
              Farris
      G. KalilChief
      Executive Officer and
              
              
              DirectorChairman
      of the Board ofDirectors(Principal
      Executive Officer)By:
              /s/ Michael RotchfordBy:
              /s/ Joel N. Agree
              
              
              Michael
      RotchfordPresident,
      Chief Operating Officer
              
              
              Directorand
      DirectorBy:
              /s/ Kenneth R. Howe
              
              By:
              /s/William S. RubenfaerKenneth
      R. Howe
              
              
              William
      S. RubenfaerVice
      President, Finance and
              
              
              DirectorSecretary(Principal
      Financial andAccounting
      Officer)By:
              /s/ Gene SilvermanGene
      SilvermanDirectorBy:
              /s/ Leon M. SchurginLeon
      M. SchurginDirector


39





PageReports
      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-24


F-1


Report
of Independent Registered Public Accounting Firm





To the
Stockholders, Audit Committee and Board of Directors


Agree
Realty Corporation


Farmington
Hills, MI





We have
audited the accompanying consolidated balance sheets of Agree Realty Corporation
as of December 31, 2009 and 2008, and the related consolidated statements of
income, stockholders' equity, and cash flows for the years ended December 31,
2009, 2008 and 2007.  We also have audited Agree Realty Corporation's
internal control over financial reporting as of December 31, 2009, based on
criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).  The company's management is responsible
for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting.  Our responsibility is to
express an opinion on these consolidated financial statements and an opinion on
the company's internal control over financial reporting based on our
audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in
all material respects.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management as well as
evaluating the overall consolidated financial statement
presentation.  Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk.  Our audits also included performing such other
procedures as we considered necessary in the circumstances.  We
believe that our audits provide a reasonable basis for our opinion.





A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of consolidated financial statements for external purposes
in accordance with generally accepted accounting principles.  A
company's internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of consolidated financial statements
in accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a
material effect on the consolidated financial statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Agree Realty Corporation as
of December 31, 2009 and 2008 and the results of their operations and cash flows
for the years ended December 31, 2009, 2008 and 2007, in conformity with U.S.
generally accepted accounting principles.  Also in our opinion, Agree
Realty Corporation maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2009, based on criteria
established inInternal
Control - Integrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).





/s/ Baker
Tilly Virchow Krause, LLP


Chicago,
Illinois


March 12,
2010




F-2





Agree
Realty Corporation





Consolidated
Balance Sheets





December
      31,
                                    
                                    2009
                                    
                                    
                                    2008AssetsReal Estate Investments
      (Notes 4 and 5)Land
                                    
                                    $
                                    95,047,459
                                    
                                    
                                    $
                                    87,309,289Buildings
                                    
                                    
                                    220,604,734
                                    
                                    
                                    
                                    210,650,491Property
      under development
                                    
                                    
                                    4,791,975
                                    
                                    
                                    
                                    13,383,102320,444,168
                                    
                                    
                                    
                                    311,342,882Less
      accumulated depreciation
                                    
                                    
                                    (64,076,469
                                    )
                                    
                                    
                                    (58,502,384
                                    )Net
      Real Estate Investments
                                    
                                    
                                    256,367,699
                                    
                                    
                                    
                                    252,840,498Cash
      and Cash Equivalents
                                    
                                    
                                    688,675
                                    
                                    
                                    
                                    668,677Accounts Receivable - Tenants,(Note 3) net of allowance of $35,000and $195,000 for possible
      losses at December 31, 2009 and 2008, respectively
                                    
                                    
                                    1,986,836
                                    
                                    
                                    
                                    964,802Unamortized
      Deferred ExpensesFinancing
      costs, net of accumulated amortization of $5,126,333 and $4,838,098 at
      December 31, 2009 and 2008, respectively
                                    
                                    
                                    1,360,514
                                    
                                    
                                    
                                    951,745Leasing
      costs, net of accumulated amortization of $841,427 and $775,450 at
      December 31, 2009 and 2008, respectively
                                    
                                    
                                    537,100
                                    
                                    
                                    
                                    484,781Other
      Assets
                                    
                                    
                                    847,894
                                    
                                    
                                    
                                    986,332Total
      Assets
                                    
                                    $
                                    261,788,718
                                    
                                    
                                    $
                                    256,896,835


See
accompanying notes to consolidated financial statements.


F-3


Agree
Realty Corporation





Consolidated
Balance Sheets





December
      31,
                                      
                                      2009
                                      
                                      
                                      2008LiabilitiesMortgages Payable (Note
      4)
                                      
                                      $
                                      75,552,802
                                      
                                      
                                      $
                                      67,623,697Notes Payable (Note
      5)
                                      
                                      
                                      29,000,000
                                      
                                      
                                      
                                      32,945,000Dividends and Distributions
      Payable (Note 6)
                                      
                                      
                                      4,354,163
                                      
                                      
                                      
                                      4,233,232Deferred Revenue(Note
      15)
                                      
                                      
                                      10,035,304
                                      
                                      
                                      
                                      10,724,854Accrued
      Interest Payable
                                      
                                      
                                      261,012
                                      
                                      
                                      
                                      500,796Accounts
      PayableCapital
      expenditures
                                      
                                      
                                      352,430
                                      
                                      
                                      
                                      850,225Operating
                                      
                                      
                                      1,529,085
                                      
                                      
                                      
                                      1,261,810Interest Rate Swap(Note
      7)
                                      
                                      
                                      74,753
                                      
                                      
                                      
                                      -Deferred Income Taxes(Note 8)
                                      
                                      
                                      705,000
                                      
                                      
                                      
                                      705,000Tenant
      Deposits
                                      
                                      
                                      97,285
                                      
                                      
                                      
                                      70,077Total
      Liabilities
                                      
                                      
                                      121,961,834
                                      
                                      
                                      
                                      118,914,691Stockholders’ Equity
      (Note 6)Common
      stock, $.0001 par value; 13,350,000 shares authorized, 8,196,074 and
      7,863,930 shares issued and outstanding
                                      
                                      
                                      820
                                      
                                      
                                      
                                      786Excess
      stock, $0.0001 par value, 6,500,000 shares authorized, 0 shares issued and
      outstanding
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Series
      A junior participating preferred stock, $0.0001 par value, 150,000 shares
      authorized, 0 shares issued and outstanding
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Additional
      paid-in capital
                                      
                                      
                                      147,466,101
                                      
                                      
                                      
                                      143,892,158Deficit
                                      
                                      
                                      (10,632,798
                                      )
                                      
                                      
                                      (11,257,541
                                      )Accumulated
      other comprehensive income (loss)
                                      
                                      
                                      (70,806
                                      )
                                      
                                      
                                      -Total
      Stockholders’ Equity – Agree Realty Corporation
                                      
                                      
                                      136,763,317
                                      
                                      
                                      
                                      132,635,403Non-controlling
      interest
                                      
                                      
                                      3,063,567
                                      
                                      
                                      
                                      5,346,741Total
      Stockholders’ Equity
                                      
                                      
                                      139,826,884
                                      
                                      
                                      
                                      137,982,144$
                                      261,788,718
                                      
                                      
                                      $
                                      256,896,835


See
accompanying notes to consolidated financial statements.


F-4


Agree
Realty Corporation





Consolidated
Statements of Income





Year
      Ended December 31,
                                                          
                                                          2009
                                                          
                                                          
                                                          2008
                                                          
                                                          
                                                          2007RevenuesMinimum
      rents
                                                          
                                                          $
                                                          34,157,418
                                                          
                                                          
                                                          $
                                                          32,850,345
                                                          
                                                          
                                                          $
                                                          31,636,497Percentage
      rents
                                                          
                                                          
                                                          15,366
                                                          
                                                          
                                                          
                                                          15,396
                                                          
                                                          
                                                          
                                                          37,111Operating
      cost reimbursement
                                                          
                                                          
                                                          2,647,357
                                                          
                                                          
                                                          
                                                          2,783,938
                                                          
                                                          
                                                          
                                                          2,759,365Development
      fee income
                                                          
                                                          
                                                          409,643
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -Other
      income
                                                          
                                                          
                                                          30,462
                                                          
                                                          
                                                          
                                                          3,850
                                                          
                                                          
                                                          
                                                          34,979Total
      Revenues
                                                          
                                                          
                                                          37,260,246
                                                          
                                                          
                                                          
                                                          35,653,529
                                                          
                                                          
                                                          
                                                          34,467,952Operating
      ExpensesReal
      estate taxes
                                                          
                                                          
                                                          1,937,523
                                                          
                                                          
                                                          
                                                          1,866,551
                                                          
                                                          
                                                          
                                                          1,848,949Property
      operating expenses
                                                          
                                                          
                                                          1,566,402
                                                          
                                                          
                                                          
                                                          1,812,522
                                                          
                                                          
                                                          
                                                          1,785,323Land
      lease payments
                                                          
                                                          
                                                          859,200
                                                          
                                                          
                                                          
                                                          766,848
                                                          
                                                          
                                                          
                                                          675,700General
      and administrative
                                                          
                                                          
                                                          4,559,005
                                                          
                                                          
                                                          
                                                          4,361,419
                                                          
                                                          
                                                          
                                                          4,462,423Depreciation
      and amortization
                                                          
                                                          
                                                          5,709,326
                                                          
                                                          
                                                          
                                                          5,384,737
                                                          
                                                          
                                                          
                                                          5,016,718Total
      Operating Expenses
                                                          
                                                          
                                                          14,631,456
                                                          
                                                          
                                                          
                                                          14,192,077
                                                          
                                                          
                                                          
                                                          13,789,113Income
      From Operations
                                                          
                                                          
                                                          22,628,790
                                                          
                                                          
                                                          
                                                          21,461,452
                                                          
                                                          
                                                          
                                                          20,678,839Other
      Income (Expense)Interest
      expense, net
                                                          
                                                          
                                                          (4,634,754
                                                          )
                                                          
                                                          
                                                          (5,179,414
                                                          )
                                                          
                                                          
                                                          (4,895,765
                                                          )Gain
      on sale of asset, net of tax of $705,000
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          1,043,675Total
      Other Income (Expense)
                                                          
                                                          
                                                          (4,634,754
                                                          )
                                                          
                                                          
                                                          (5,179,414
                                                          )
                                                          
                                                          
                                                          (3,852,090
                                                          )Net
      Income
                                                          
                                                          
                                                          17,994,036
                                                          
                                                          
                                                          
                                                          16,282,038
                                                          
                                                          
                                                          
                                                          16,826,749Less
      Net Income Attributable to Non-Controlling Interest
                                                          
                                                          
                                                          950,046
                                                          
                                                          
                                                          
                                                          1,264,611
                                                          
                                                          
                                                          
                                                          1,344,475Net
      Income Attributable to Agree Realty Corporation
                                                          
                                                          $
                                                          17,043,990
                                                          
                                                          
                                                          $
                                                          15,017,427
                                                          
                                                          
                                                          $
                                                          15,482,274Other
      Comprehensive Loss, Net of $(3,947) Attributable to Non-Controlling
      Interests
                                                          
                                                          
                                                          70,806
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -Total Comprehensive Income Attributable to Agree
      RealtyCorporation
                                                          
                                                          $
                                                          16,973,184
                                                          
                                                          
                                                          $
                                                          15,017,427
                                                          
                                                          
                                                          $
                                                          15,482,274Basic
      Earnings Per Share (Note 2)
                                                          
                                                          $
                                                          2.15
                                                          
                                                          
                                                          $
                                                          1.95
                                                          
                                                          
                                                          $
                                                          2.02Dilutive
      Earnings Per Share (Note 2)
                                                          
                                                          $
                                                          2.14
                                                          
                                                          
                                                          $
                                                          1.95
                                                          
                                                          
                                                          $
                                                          2.01Dividend
      Declared Per Common Share
                                                          
                                                          $
                                                          2.02
                                                          
                                                          
                                                          $
                                                          2.00
                                                          
                                                          
                                                          $
                                                          1.97


See
accompanying notes to consolidated financial statements.


F-5


Agree
Realty Corporation





Consolidated
Statements of Stockholders’ Equity





Additional
                            
                            
                            
                            
                            
                            
                            
                            
                            Accumulated
                              OtherCommon
      Stock
                            
                            
                            Paid-In
                            
                            
                            Non-Controlling
                            
                            
                            
                            
                            
                            ComprehensiveShares
                            
                            
                            Amount
                            
                            
                            Capital
                            
                            
                            Interest
                            
                            
                            Deficit
                            
                            
                            Income
      (loss)Balance, January 1,
      2007
                            
                            
                            7,750,496
                            
                            
                            $
                            775
                            
                            
                            $
                            141,276,763
                            
                            
                            $
                            5,878,593
                            
                            
                            $
                            (10,858,938
                            )
                            
                            $Issuance
      of shares under the Equity  Incentive Plan
                            
                            
                            3,750
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Vesting
      of restricted stock
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            983,896
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Dividends
      and distributions declared $1.97 per share
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (1,326,888
                            )
                            
                            
                            (15,270,960
                            )
                            
                            
                            -Net
      income
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,344,475
                            
                            
                            
                            15,482,274
                            
                            
                            
                            -Balance, December 31,
      2007
                            
                            
                            7,754,246
                            
                            
                            
                            775
                            
                            
                            
                            142,260,659
                            
                            
                            
                            5,896,180
                            
                            
                            
                            (10,647,624
                            )
                            
                            
                            -Issuance
      of shares under the Equity Incentive Plan
                            
                            
                            46,350
                            
                            
                            
                            4
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Forfeiture
      of shares
                            
                            
                            (4,800
                            )
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Conversion
      of OP Units
                            
                            
                            68,134
                            
                            
                            
                            7
                            
                            
                            
                            501,025
                            
                            
                            
                            (501,025
                            )
                            
                            
                            -
                            
                            
                            
                            -Vesting
      of restricted stock
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,130,474
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Dividends
      and distributions declared $2.00 per share
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (1,313,025
                            )
                            
                            
                            (15,627,334
                            )
                            
                            
                            -Net
      income
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,264,611
                            
                            
                            
                            15,017,427
                            
                            
                            
                            -Balance,December 31,
      2008
                            
                            
                            7,863,930
                            
                            
                            
                            786
                            
                            
                            
                            143,892,158
                            
                            
                            
                            5,346,741
                            
                            
                            
                            (11,257,531
                            )
                            
                            
                            -Issuance
      of shares under the Equity Incentive Plan
                            
                            
                            74,350
                            
                            
                            
                            8
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Conversion
      of OP Units
                            
                            
                            257,794
                            
                            
                            
                            26
                            
                            
                            
                            2,398,186
                            
                            
                            
                            (2,398,186
                            )
                            
                            
                            -
                            
                            
                            
                            -Vesting
      of restricted stock
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,175,757
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Other
      comprehensive (loss)
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (3,947
                            )
                            
                            
                            -
                            
                            
                            
                            (70,806
                            )Dividends
      and distributions declared $2.02 per share
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (831,087
                            )
                            
                            
                            (16,419,257
                            )
                            
                            
                            -Net
      income
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            950,046
                            
                            
                            
                            17,043,990
                            
                            
                            
                            -Balance,December 31,
      2009
                            
                            
                            8,196,074
                            
                            
                            $
                            820
                            
                            
                            $
                            147,466,101
                            
                            
                            $
                            3,063,567
                            
                            
                            $
                            (10,632,798
                            )
                            
                            $
                            (70,806
                            )




See
accompanying notes to consolidated financial statements.


F-6


Agree
Realty Corporation





Consolidated
Statements of Cash Flows





Year
      Ended December 31,
                              
                              2009
                              
                              
                              2008
                              
                              
                              2007Cash
      Flows From Operating ActivitiesNet
      income
                              
                              $
                              17,994,036
                              
                              
                              $
                              16,282,038
                              
                              
                              $
                              16,826,749Adjustments
      to reconcile net income to net cash provided by operating
      activitiesDepreciation
                              
                              
                              5,643,350
                              
                              
                              
                              5,320,394
                              
                              
                              
                              4,958,300Amortization
                              
                              
                              354,212
                              
                              
                              
                              237,297
                              
                              
                              
                              241,290Stock-based
      compensation
                              
                              
                              1,175,757
                              
                              
                              
                              1,130,474
                              
                              
                              
                              983,896Gain
      on sale of assets
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (1,043,675
                              )(Increase)
      in accounts receivable
                              
                              
                              (1,022,034
                              )
                              
                              
                              (194,437
                              )
                              
                              
                              (38,224
                              )(Increase)
      decrease in other assets
                              
                              
                              69,172
                              
                              
                              
                              (112,144
                              )
                              
                              
                              (33,734
                              )(Decrease)
      increase in accounts payable
                              
                              
                              267,275
                              
                              
                              
                              (221,317
                              )
                              
                              
                              342,510Decrease
      in deferred revenue
                              
                              
                              (689,550
                              )
                              
                              
                              (689,550
                              )
                              
                              
                              (689,550
                              )Increase
      (decrease) in accrued interest
                              
                              
                              (239,784
                              )
                              
                              
                              171,625
                              
                              
                              
                              89,853Increase
      in tenant deposits
                              
                              
                              27,208
                              
                              
                              
                              5,992
                              
                              
                              
                              -Net
      Cash Provided By Operating Activities
                              
                              
                              23,579,642
                              
                              
                              
                              21,930,372
                              
                              
                              
                              21,637,415Cash
      Flows From Investing ActivitiesAcquisition
      of real estate investments (including capitalized interest of $220,782 in
      2009, $557,645 in 2008 and $556,000 in 2007)
                              
                              
                              (8,748,856
                              )
                              
                              
                              (21,418,961
                              )
                              
                              
                              (19,756,255
                              )Net
      proceeds from sale of assets, less amounts held in escrow
                              
                              
                              -
                              
                              
                              
                              
                              
                              
                              
                              1,748,675Net
      Cash Used In Investing Activities
                              
                              
                              (8,748,856
                              )
                              
                              
                              (21,418,961
                              )
                              
                              
                              (18,007,580
                              )




See
accompanying notes to consolidated financial statements.


F-7


Agree
Realty Corporation





Consolidated
Statements of Cash Flows





Year
      Ended December 31,
                                      
                                      2009
                                      
                                      
                                      2008
                                      
                                      
                                      2007Cash
      Flows From Financing ActivitiesMortgage
      proceeds
                                      
                                      
                                      11,358,000
                                      
                                      
                                      
                                      24,800,000
                                      
                                      
                                      
                                      -Line-of-credit
      net (payments) borrowings
                                      
                                      
                                      (3,945,000
                                      )
                                      
                                      
                                      (3,855,000
                                      )
                                      
                                      
                                      16,300,000Dividends
      and limited partners’ distributions paid
                                      
                                      
                                      (17,129,368
                                      )
                                      
                                      
                                      (16,918,952
                                      )
                                      
                                      
                                      (16,497,828
                                      )Payments
      of mortgages payable
                                      
                                      
                                      (3,428,895
                                      )
                                      
                                      
                                      (2,936,471
                                      )
                                      
                                      
                                      (2,531,079
                                      )Payments
      of payables for capital expenditures
                                      
                                      
                                      (850,225
                                      )
                                      
                                      
                                      (1,069,734
                                      )
                                      
                                      
                                      (766,378
                                      )Payments
      for financing costs
                                      
                                      
                                      (697,004
                                      )
                                      
                                      
                                      (287,666
                                      )
                                      
                                      
                                      -Payments
      of leasing costs
                                      
                                      
                                      (118,296
                                      )
                                      
                                      
                                      (119,550
                                      )
                                      
                                      
                                      (53,641
                                      )Net
      Cash Used In Financing Activities
                                      
                                      
                                      (14,810,788
                                      )
                                      
                                      
                                      (387,373
                                      )
                                      
                                      
                                      (3,548,926
                                      )Net
      Increase (Decrease) In Cash and Cash Equivalents
                                      
                                      
                                      19,998
                                      
                                      
                                      
                                      124,038
                                      
                                      
                                      
                                      80,909Cash and Cash
      Equivalents, beginning of year
                                      
                                      
                                      668,677
                                      
                                      
                                      
                                      544,639
                                      
                                      
                                      
                                      463,730Cash and Cash
      Equivalents, end of year
                                      
                                      $
                                      688,675
                                      
                                      
                                      $
                                      668,677
                                      
                                      
                                      $
                                      544,639Supplemental
      Disclosure of Cash Flow InformationCash
      paid for interest (net of amounts capitalized)
                                      
                                      $
                                      4,590,239
                                      
                                      
                                      $
                                      4,835,277
                                      
                                      
                                      $
                                      4,629,948Supplemental
      Disclosure of Non-Cash TransactionsDividends
      and limited partners’ distributions Declared and unpaid
                                      
                                      $
                                      4,354,163
                                      
                                      
                                      $
                                      4,233,232
                                      
                                      
                                      $
                                      4,211,827Conversion
      of OP Units
                                      
                                      $
                                      2,398,186
                                      
                                      
                                      $
                                      501,025
                                      
                                      
                                      $
                                      -Shares
      issued under Stock Incentive Plan
                                      
                                      $
                                      1,159,316
                                      
                                      
                                      $
                                      1,364,459
                                      
                                      
                                      $
                                      116,688Real
      estate investments financed with accounts Payable
                                      
                                      $
                                      352,430
                                      
                                      
                                      $
                                      850,225
                                      
                                      
                                      $
                                      1,069,734


See
accompanying notes to consolidated financial statements.


F-8


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 (“REIT”), which develops, acquires, owns and
      operates retail properties, which are primarily leased to national and
      regional retail companies under net leases. At December 31, 2009, the
      Company's properties are comprised of 61 single tenant retail facilities
      and 12 community shopping centers located in 16 states. During the year
      ended December 31, 2009, approximately 97% of the Company's annual base
      rental revenues was received from national and regional tenants under
      long-term leases, including approximately 30% from Walgreen Co.
      (“Walgreen”), 29% from Borders Group, Inc. (“Borders”), and 11% from Kmart
      Corporation, a wholly-owned subsidiary of Sears Holdings Corporation
      (“Kmart”).2.
                    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, 95.93%
      and 92.85% of the Operating Partnership as of December 31, 2009 and
      2008, respectively. All material intercompany accounts and transactions
      are eliminated.Use
      of EstimatesThe
      preparation of financial statements in conformity with accounting
      principles generally accepted in the United States of America 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 InstrumentsCertain
      of the Company’s assets and liabilities are disclosed at fair value. Fair
      value is the price that would be received to sell an asset or paid to
      transfer a liability in an orderly transaction between market participants
      at the measurement date.  In determining fair value, the Company
      uses various valuation methods including the market, income and cost
      approaches.  The assumptions used in the application of these
      valuation methods are developed from the perspective of market
      participants, pricing the asset or liability.  Inputs used in
      the valuation methods can be either readily observable, market
      corroborated, or generally unobservable inputs.  Whenever
      possible the Company attempts to utilize valuation methods that maximize
      the uses of observable inputs and minimizes the use of unobservable
      inputs.  Based on the operability of the inputs used in the
      valuation methods the Company is required to provide the following
      information according to the fair value hierarchy.  The fair
      value hierarchy ranks the quality and reliability of the information used
      to determine fair values.  Assets and liabilities measured,
      reported and/or disclosed at fair value will be classified and disclosed
      in one of the following three
categories:


F-9




Agree
Realty Corporation
 
 Notes
to Consolidated Financial Statements


Level
      1 – Quoted market prices in active markets for identical assets or
      liabilities.
                
                Level
      2 – Observable market based inputs or unobservable inputs that are
      corroborated by market data.
                
                Level
      3 – Unobservable inputs that are not corroborated by market
      data.
                
                The
      table below sets forth the Company’s fair value hierarchy for liabilities
      measured or disclosed at fair value as of December 31,
      2009.





Level
      1
                            
                            
                            Level
      2
                            
                            
                            Level
      3Liability:Interest
      rate swap
                            
                            $
                            —
                            
                            
                            $
                            74,753
                            
                            
                            $
                            —Fixed
      rate mortgage
                            
                            $
                            —
                            
                            
                            $
                            —
                            
                            
                            $
                            48,671,257Variable
      rate mortgage
                            
                            $
                            —
                            
                            
                            $
                            —
                            
                            
                            $
                            22,434,177Variable
      rate debt
                            
                            $
                            —
                            
                            
                            $
                            29,000,000
                            
                            
                            $
                            —





The
      carrying amounts of the Company’s short-term financial instruments, which
      consist of cash, cash equivalents, receivables, and accounts payable,
      approximate their fair values. The fair value of the interest rate swap
      was derived using estimates to settle the interest rate swap agreement,
      which is based on the net present value of expected future cash flows on
      each leg of the swap utilizing market-based inputs and discount rates
      reflecting the risks involved.  The fair value of fixed and
      variable rate mortgages was derived using the present value of future
      mortgage payments based on estimated current market interest
      rates.  The fair value of variable rate debt is estimated to be
      equal to the face value of the debt because the interest rates are
      floating and is considered to approximate fair
  value.


F-10




Agree
Realty Corporation
 
 Notes
to Consolidated Financial Statements


Investments
      in Real Estate – Carrying Value of Assets
                
                Real
      estate assets are stated at cost less accumulated depreciation. All costs
      related to planning, development and construction of buildings prior to
      the date they become operational, including interest and real estate taxes
      during the construction period, are capitalized for financial reporting
      purposes and recorded as “Property under development” until construction
      has been completed.
                
                The
      Company allocates the cost of an acquisition based upon the estimated fair
      value of the net assets acquired.  The Company also estimates
      the fair value of intangibles related to its acquisitions.  The
      valuation of the fair value of the intangibles primarily involves
      estimates related to market conditions, probability of lease renewals and
      the current market value of leases.Subsequent
      to completion of construction, expenditures for property maintenance are
      charged to operations as incurred, while significant renovations are
      capitalized.Depreciation
      and AmortizationDepreciation
      expense is computed using a straight-line method and estimated useful
      lives for buildings and improvements of 20 to 40 years and equipment and
      fixtures of five to 10 years.Investment
      in Real Estate – Impairment evaluationReal
      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 and eventual disposition 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 as of December 31,
      2009.





Cash
      and Cash EquivalentsThe
      Company considers all highly liquid investments with a maturity of three
      months or less when purchased to be cash equivalents.  The
      Company maintains its cash and cash equivalents at a financial
      institution.  The account balances periodically exceed the
      Federal Deposit Insurance Corporation (“FDIC”) insurance coverage, and as
      a result, there is a concentration of credit risk related to amounts on
      deposit in excess of FDIC insurance
coverage.





Accounts
      Receivable – TenantsAccounts
      receivable from tenants are unsecured and 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 in the year when receipt is
      determined to be remote.


F-11




Agree
Realty Corporation
 
 Notes
to Consolidated Financial Statements


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.  The Company incurred
      expenses of $354,212, $231,725 and $233,740 for the years ended December
      31, 2009, 2008 and 2007, respectively.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 non-cash financing
  activity.





Revenue
      RecognitionMinimum
      rental income attributable to leases is recorded when due from tenants.
      Certain leases provide for additional percentage rents based on tenants'
      sales volume. These percentage rents are recognized when determinable by
      the Company. In addition, leases for certain tenants contain rent
      escalations and/or free rent during the first several months of the lease
      term; however, such amounts are not material.Costs
      and Estimated Earnings on Uncompleted ContractsFor
      contracts where the Company does not retain ownership of real property
      developed and receives fee income for managing the development project,
      the Company uses the percentage of completion accounting
      method.  Under this approach, income is recognized based on the
      status of the uncompleted contracts and the current estimates of costs to
      complete.  The percentage of completion is determined by the
      relationship of costs incurred to the total estimated costs of the
      contract.  Provisions are made for estimated loses on
      uncompleted contracts in the period in which such losses are
      determined.  Changes in job performance, job conditions, and
      estimated profitability including those arising from contract penalty
      provisions and final contract settlements, may result in revisions to
      costs and income.  Such revisions are recognized in the period
      in which they are determined.  Claims for additional
      compensation due to the Company are recognized in contract revenues when
      realization is probable and the amount can be reliably
      estimated.


F-12




Agree
Realty Corporation
 
 Notes
to Consolidated Financial Statements


Taxes
      Collected and Remitted to Governmental AuthoritiesThe
      Company reports taxes, collected from tenants that are to be remitted to
      governmental authorities, on a net basis and therefore does not include
      the taxes in revenue.Operating
      Cost ReimbursementSubstantially
      all of the Company's leases contain provisions requiring tenants to pay as
      additional rent a proportionate share of operating expenses such as real
      estate taxes, repairs and maintenance, insurance, etc. The related revenue
      from tenant billings is recognized as operating cost reimbursement in the
      same period the expense is
recorded.





Income
      TaxesThe
      Company has made an election to be taxed as a REIT under Sections 856
      through 860 of the Internal Revenue Code of 1986, as amended and related
      regulations.  The Company generally will not be subject to
      federal income taxes on amounts distributed to stockholders, providing it
      distributes 100 percent of its REIT taxable income and meets certain other
      requirements for qualifying as a REIT.  For each of the years in
      the three-year period ended December 31, 2009, the Company believes it has
      qualified as a REIT.  Notwithstanding the Company’s
      qualification for taxation as a REIT, the Company is subject to certain
      state taxes on its income and real estate.
                
                The
      Company and its taxable REIT subsidiaries (“TRS”) have made a timely TRS
      election pursuant to the provisions of the REIT Modernization
      Act.  A TRS is able to engage in activities resulting in income
      that previously would have been disqualified from being eligible REIT
      income under the federal income tax regulations.  As a result,
      certain activities of the Company which occur within its TRS entity are
      subject to federal and state income taxes (See Note 8).  All
      provisions for federal income taxes in the accompanying consolidated
      financial statements are attributable to the Company’s
  TRS.


F-13




Agree
Realty Corporation
 
 Notes
to Consolidated Financial Statements


DividendsThe
      Company declared dividends of $2.02, $2.00 and $1.97 per share during the
      years ended December 31, 2009, 2008, and 2007; the dividends have been
      reflected for federal income tax purposes as
  follows:





December
      31,
                          
                          2009
                          
                          
                          2008
                          
                          
                          2007Ordinary
      income
                          
                          $
                          2.02
                          
                          
                          $
                          1.96
                          
                          
                          $
                          1.93Return
      of capital
                          
                          
                          -
                          
                          
                          
                          .04
                          
                          
                          
                          .04Total
                          
                          $
                          2.02
                          
                          
                          $
                          2.00
                          
                          
                          $
                          1.97





The
      aggregate federal income tax basis of Real Estate Investments is
      approximately $21.6 million less than the financial statement
      basis.





Earnings
      Per ShareEarnings
      per share have been computed by dividing the net income by the weighted
      average number of common shares
      outstanding.    Diluted earnings per share is computed
      by dividing net income by the weighted average common and potential
      dilutive common shares outstanding in accordance with the treasury stock
      method.The
      following is a reconciliation of the denominator of the basic net earnings
      per common share computation to the denominator of the diluted net
      earnings per common share computation for each of the periods
      presented:





Year
      Ended December 31,
                            
                            2009
                            
                            
                            2008
                            
                            
                            2007Weighted
      average number of common shares outstanding
                            
                            
                            8,086,840
                            
                            
                            
                            7,810,692
                            
                            
                            
                            7,751,321Unvested
      restricted stock
                            
                            
                            140,980
                            
                            
                            
                            104,050
                            
                            
                            
                            96,450Weighted
      average number of common shares outstanding used in basic earnings per
      share
                            
                            
                            7,945,860
                            
                            
                            
                            7,706,642
                            
                            
                            
                            7,654,871Weighted
      average number of common shares outstanding used in basic earnings per
      share
                            
                            
                            7,945,860
                            
                            
                            
                            7,706,642
                            
                            
                            
                            7,654,871Effect
      of dilutive securitiesRestricted
      stock
                            
                            
                            20,099
                            
                            
                            
                            11,893
                            
                            
                            
                            61,160Weighted
      average number of common shares outstanding used in diluted earnings per
      share
                            
                            
                            7,965,959
                            
                            
                            
                            7,718,535
                            
                            
                            
                            7,716,031


F-14




Agree
Realty Corporation
 
 Notes
to Consolidated Financial Statements


Stock
      Based CompensationThe
      Company estimates fair value of restricted stock and stock option grants
      at the date of grant and amortize those amounts into expense on a
      straight-line basis or amount vested, if greater, over the appropriate
      vesting period.  No stock options were issued or vested during
      2009, 2008 or 2007.Recent
      Accounting PronouncementsIn
      June 2009, the Financial Accounting Standards Board (“FASB”) issued
      “Accounting Standards Update 2009-01 Topic 105-Generally Accepted
      Accounting Principles amendments based on Statement of Financial
      Accounting Standards No. 168-The FASB Accounting Standards Codification
      and the Hierarchy of Generally Accepted Accounting Principles” (“ASU
      2009-01”), “The FASB
      Accounting Standards Codification and the Hierarchy of Generally Accepted
      Accounting Principles – a replacement of FASB Statement No. 162”
      (“SFAS 168”).  ASU 2009-01, or the FASB Accounting Standards
      Codification (“Codification”), will become the source of authoritative
      U.S. generally accepted accounting principles (“GAAP”) recognized by the
      FASB to be applied by nongovernmental entities.  On the
      effective date of ASU 2009-01, the Codification will supersede all
      then-existing non-SEC accounting and reporting standards.  All
      other non-grandfathered non-SEC accounting literature not included in the
      Codification will become non-authoritative.  ASU 2009-01 is
      effective for financial statements issued for interim and annual periods
      ending after September 15, 2009.  The adoption of the standard
      did not have a material impact on the Company’s consolidated financial
      position, results of operations, or cash
flows.




3.
                      Costs
      and Estimated Earnings on Uncompleted Contracts
                      
                      For
      contracts where the Company does not retain ownership of real property
      developed and received fee income for managing the development project,
      the Company uses the percentage of completion accounting
      method.  Under this approach, income is recognized based on the
      status of the uncompleted contracts and the current estimates of costs to
      complete.  The percentage of completion is determined by the
      relationship of costs incurred to the total estimated costs of the
      contract.  Provisions are made for estimated loses on
      uncompleted contracts in the period in which such losses are
      determined.  Changes in job performance, job conditions, and
      estimated profitability including those arising from contract penalty
      provisions and final contract settlements, may result in revisions to
      costs and income.  Such revisions are recognized in the period
      in which they are determined.  Claims for additional
      compensation due to the Company are recognized in contract revenues when
      realization is probable and the amount can be reliably
      estimated.


F-15




Agree
Realty Corporation
 
 Notes
to Consolidated Financial Statements


2009Cost
      incurred on uncompleted contracts
                            
                            $
                            520,357Estimated
      earnings
                            
                            
                            409,643Earned
      revenue
                            
                            
                            930,000Less
      billings to date
                            
                            
                            -Total
                            
                            $
                            930,000




Total unbilled receivable at December 31, 2009 is $930,000 and is
included in accounts receivable – tenants on the consolidated balance
sheet.




F-16




Agree
Realty Corporation
 
 Notes
to Consolidated Financial Statements




4.
                Mortgages
      Payable
                
                Mortgages
      payable consisted of the
following:




December
      31,
                                          
                                          2008
                                          
                                          
                                          2007Note
      payable in monthly   installments of $39,591 plus interest
      at 150 basis points over LIBOR (1.73% and 2.695% at December 31, 2009 and
      2008 respectively).  A final balloon payment in the amount of
      $22,318,478 is due on July 14, 2013 unless extended for a two year period
      at the option of the Company
                                          
                                          $
                                          24,153,965
                                          
                                          
                                          $
                                          24,613,300Note
      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
                                          
                                          
                                          13,385,336
                                          
                                          
                                          
                                          14,274,218Note
      payable in monthly installments of $91,675 including interest at 6.27% per
      annum, with a final monthly payment due July 2026; collateralized by
      related real estate and tenants’ leases
                                          
                                          
                                          11,325,671
                                          
                                          
                                          
                                          -Note
      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
                                          
                                          
                                          10,517,686
                                          
                                          
                                          
                                          11,374,994Note
      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
                                          
                                          
                                          6,803,218
                                          
                                          
                                          
                                          7,521,293Note
      payable in monthly    installments of $57,423
      including interest at 6.50% per annum, with the final monthly payment due
      February 2023; collateralized by related real estate and tenant
      lease
                                          
                                          
                                          6,083,869
                                          
                                          
                                          
                                          6,367,177Note
      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
                                          
                                          
                                          2,480,272
                                          
                                          
                                          
                                          2,597,032Note
      payable in monthly installments of $12,453 including interest at 6.85% per
      annum, with the final monthly payment due December 2017; collateralized by
      related real estate and tenant lease
                                          
                                          
                                          802,785
                                          
                                          
                                          
                                          875,683Total
                                          
                                          $
                                          75,552,802
                                          
                                          
                                          $
                                          67,623,697




F-17




Agree
Realty Corporation
 
 Notes
to Consolidated Financial Statements




Future
      scheduled annual maturities of mortgages payable for years ending
      December 31 are as follows: 2010 - $4,026,021; 2011 - $4,295,502;
      2012 - $4,583,021; 2013 - $26,910,481; 2014 - $4,600,685 and $31,137,092
      thereafter.  The weighted average interest rate at December 31,
      2009 and 2008 was 5.66% and 5.59%,
respectively.




5.
                    Notes
      Payable
                    
                    The
      Operating Partnership has in place a $55 million line-of-credit agreement
      (the “Credit Facility”), which is guaranteed by the Company up to the
      maximum amount and for the full term. The agreement expires in November
      2011.   Advances under the Credit Facility bear interest
      within a range of one-month to 12-month LIBOR plus 100 basis points to 150
      basis points or the bank's prime rate, at the option of the Company, based
      on certain factors such as the ratio of the Company’s indebtedness to the
      capital value of its properties.  In addition, the Company must
      maintain certain leverage and debt service coverage ratios, maintain its
      adjusted net worth at a minimum level, maintain its tax status as a REIT,
      and distribute no more than 95% of its adjusted funds from operations. The
      facility also requires that the Company pay a non-use fee of .125% of the
      unfunded balance if its outstanding balance is greater than $25 million or
      .20% of the unfunded balance if its outstanding balance is less than $25
      million.  The Credit Facility is used to fund property
      acquisitions and development activities. At December 31, 2009 and
      2008, $28,500,000 and $30,500,000, respectively, was outstanding under
      this facility with a weighted average interest rate of 1.23% and 2.32%,
      respectively.  The Credit Facility’s covenants were all complied
      with through December 31, 2009.In
      addition, the Company maintains a $5,000,000 line-of-credit agreement that
      matures in November 2011 and can be extended at the Company’s option
      subject to specified conditions for two additional one-year
      periods.  Monthly interest payments are required, either at the
      bank's prime rate less 75 basis points, or 150 basis points in excess of
      the one-month to 12-month LIBOR rate, at the option of the
      Company.  At December 31, 2009 and 2008, $500,000 and
      $2,445,000, respectively, was outstanding under this agreement with a
      weighted average interest rate of 2.50% and 3.25%,
      respectively.
  F-18
  Agree
Realty Corporation
 Notes
to Consolidated Financial Statements
  6.
                          Dividends
      and Distributions Payable
                          
                          On
      December 7, 2009 the Company declared a dividend of $.51 per share
      for the quarter ended December 31, 2009. The holders of OP Units were
      entitled to an equal distribution per OP Unit held as of December 31,
      2009. The dividends and distributions payable are recorded as liabilities
      in the Company's consolidated balance sheet at December 31, 2009. 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,
      2010.


7.
              Derivative
      Instruments and Hedging Activity
              
              On
      January 2, 2009, the Company entered into an interest rate swap agreement
      for a notional amount of $24,501,280, effective on January 2, 2009 and
      ending on July 1, 2013. The notional amount decreases over the term to
      match the outstanding balance of the hedge borrowing. The Company entered
      into this derivative instrument to hedge against the risk of changes in
      future cash flows related to changes in interest rates on $24,501,280 of
      the total variable-rate borrowings outstanding. Under the terms of the
      interest rate swap agreement, the Company will receive from the
      counterparty interest on the notional amount based on 1.5% plus one-month
      LIBOR and will pay to the counterparty a fixed rate of 3.744%. This swap
      effectively converted $24,501,280 of variable-rate borrowings to
      fixed-rate borrowings beginning on January 2, 2009 and through July 1,
      2013.
                
                Companies
      are required to recognize all derivative instruments as either assets or
      liabilities at fair value on the balance sheet. The Company has designated
      this derivative instrument as a cash flow hedge. As such, changes in the
      fair value of the derivative instrument are recorded as a component of
      other comprehensive income (loss) for the year ended December 31, 2009 to
      the extent of effectiveness. The ineffective portion of the change in fair
      value of the derivative instrument is recognized in interest
      expense.  For the year ended December 31, 2009, the Company has
      determined this derivative instrument to be an effective
      hedge.
                
                The
      Company does not use derivative instruments for trading or other
      speculative purposes and it did not have any other derivative instruments
      or hedging activities as of December 31,
  2009.
  
  Agree
Realty Corporation


Notes
to Consolidated Financial Statements




8.
                Income
      Taxes
                
                In
      June 2006, the FASB issued an interpretation which clarified the
      accounting for uncertainty in income taxes recognized in a company’s
      financial statements.  The interpretation prescribed a
      recognition threshold and measurement attribute for the financial
      statement recognition and measurement of a tax position taken or expected
      to be taken in a tax return.  The interpretation also provided
      guidance on de-recognition, classification, interest and penalties,
      accounting in interim periods, disclosure and transition.
                  
                  The
      Company was subject to the provisions of FASB ASC 740-10 as of January 1,
      2007, and has analyzed its various federal and state filing
      positions.  The Company believes that its income tax filing
      positions and deductions are documented and
      supported.  Additionally the Company believes that its accruals
      for tax liabilities are adequate.  Therefore, no reserves for
      uncertain income tax positions have been recorded pursuant to FASB ASC
      740-10.  In addition, the Company did not record a cumulative
      effect adjustment related to the adoption of FASB ASC
      740-10.  The Company’s Federal income tax returns are open for
      examination by taxing authorities for all tax years after December 31,
      2005.
                  
                  For
      income tax purposes, the Company has certain TRS entities that have been
      established and in which certain real estate activities are
      conducted.
                  
                  As
      of December 31, 2009, the Company has estimated a current income tax
      liability of approximately $62,000 and a deferred income tax liability in
      the amount of $705,000.  This deferred income tax balance
      represents the federal and state tax effect of deferring income tax in
      2007 on the sale of an asset under section 1031 of the Internal Revenue
      Code.  This transaction accrued within the TRS described
      above.




9.
                Stock
      Incentive Plan
                
                The
      Company established a stock incentive plan in 1994 (the “1994 Plan”) under
      which options were granted.   The options, had an exercise
      price equal to the initial public offering price ($19.50/share), could be
      exercised in increments of 25% on each anniversary of the date of the
      grant, and expire upon employment termination. All options granted under
      the 1994 Plan have been exercised.  In 2005, the Company’s
      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. No options
      were granted during 2009, 2008 or 2007.10.
                Stock
      Based Compensation
                
                As
      part of the Company's 2005 Equity Incentive Plan, restricted common shares
      are granted to certain employees. As of December 31, 2009, there was
      $2,469,448 of total unrecognized compensation costs related to the
      outstanding restricted shares, which is expected to be recognized over a
      weighted average period of 3.06 years.  The Company used 0% for
      both the discount factor and forfeiture rate for determining the fair
      value of restricted stock.  The forfeiture rate was based on
      historical results and trends and the Company does not consider discount
      rates to be material.




F-20




Agree
Realty Corporation
 
 Notes
to Consolidated Financial Statements




The
      holder of a restricted share award is generally entitled at all times on
      and after the date of issuance of the restricted shares to exercise the
      rights of a stockholder of the Company, including the right to vote the
      shares and the right to receive dividends on the shares.  The
      Company granted 74,350 shares of restricted stock in 2009 to employees and
      sub-contractors under the 2005 Equity Incentive Plan.  The
      restricted shares vest over a 5 year period based on continued service to
      the Company.  Restricted share activity is summarized as
      follows:




Shares
                    Outstanding
                  
                  
                  Weighted
                    Average
                    Grant Date
                    Fair ValueNon-vested
      restricted shares at January 1, 2008
                  
                  
                  96,450
                  
                  
                  $
                  24.89Restricted
      shares granted
                  
                  
                  46,350
                  
                  
                  $
                  29.44Restricted
      shares vested
                  
                  
                  (33,950
                  )
                  
                  $
                  28.57Restricted
      shares forfeited
                  
                  
                  (4,800
                  )
                  
                  $
                  31.03Non-vested
      restricted shares at December 31, 2008
                  
                  
                  104,050
                  
                  
                  $
                  30.57Restricted
      shares granted
                  
                  
                  74,350
                  
                  
                  $
                  15.59Restricted
      shares vested
                  
                  
                  (37,420
                  )
                  
                  $
                  30.46Restricted
      shares forfeited
                  
                  
                  -
                  
                  
                  
                  -Non-vested
      restricted shares at December 31, 2009
                  
                  
                  140,980
                  
                  
                  $
                  22.70




11.
                    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 2009, 2008 or
      2007.12.
                    Rental
      Income
                    
                    The
      Company leases premises in its properties to tenants pursuant to lease
      agreements, which provide for terms ranging generally from five to 25
      years. The majority of leases provide for additional rents based on
      tenants' sales volume.  The weighted average remaining lease
      term is 10.3 years.As
      of December 31, 2009, 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):




F-21
  Agree
Realty Corporation
 
 Notes
to Consolidated Financial Statements


2010
                      
                      $
                      34,2612011
                      
                      
                      33,0892012
                      
                      
                      31,5102013
                      
                      
                      29,7722014
                      
                      
                      28,964Thereafter
                      
                      
                      213,373Total
                      
                      $
                      370,969





Of
      these future minimum rentals, approximately 49% of the total is
      attributable to Walgreen, approximately 24% of the total is attributable
      to Borders and approximately 8% is attributable to
      Kmart.  Walgreen operates in the national drugstore chain
      industry, Borders is a major operator of book superstores in the United
      States 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.
                      
                      The
      Company’s properties are located primarily in the Midwestern United States
      and in particular Michigan. Of the Company’s 73 properties, 42 are located
      in Michigan.13.
                    Lease
      Commitments
                    
                    The
      Company has entered into certain land lease agreements for four of its
      properties. As of December 31, 2009, future annual lease commitments
      under these agreements are as
follows:





For
      the Year ending December 31,2010
                            
                            $
                            890,6002011
                            
                            
                            906,3002012
                            
                            
                            906,3002013
                            
                            
                            906,3002014
                            
                            
                            906,300Thereafter
                            
                            
                            9,459,222Total
                            
                            $
                            13,975,022





The
      Company leases its executive offices from a limited liability company
      controlled by its Chief Executive Officer’s children.  Under the
      terms of the lease, which expires on December 31, 2014, the Company is
      required to pay an annual rental of $90,000 and is responsible for the
      payment of real estate taxes, insurance and maintenance expenses relating
      to the building.




F-22




Agree
Realty Corporation
 
 Notes
to Consolidated Financial Statements




14.
                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, 2008 through December 31, 2009. Certain amounts
      have been reclassified to conform to the current presentation of
      discontinued
operations:




Three
      Months Ended2009
                                                  
                                                  March 31,
                                                  
                                                  
                                                  June 30,
                                                  
                                                  
                                                  September 30,
                                                  
                                                  
                                                  December 31,Revenues
                                                  
                                                  $
                                                  9,241
                                                  
                                                  
                                                  $
                                                  9,123
                                                  
                                                  
                                                  $
                                                  9,201
                                                  
                                                  
                                                  $
                                                  9,695Net
      Income
                                                  
                                                  $
                                                  4,317
                                                  
                                                  
                                                  $
                                                  4,508
                                                  
                                                  
                                                  $
                                                  4,607
                                                  
                                                  
                                                  $
                                                  4,562Earnings
      Per Share – Diluted
                                                  
                                                  $
                                                  .52
                                                  
                                                  
                                                  $
                                                  .54
                                                  
                                                  
                                                  $
                                                  .55
                                                  
                                                  
                                                  $
                                                  .53Three
      Months Ended2008
                                                  
                                                  March 31,
                                                  
                                                  
                                                  June 30,
                                                  
                                                  
                                                  September 30,
                                                  
                                                  
                                                  December 31,Revenues
                                                  
                                                  $
                                                  8,768
                                                  
                                                  
                                                  $
                                                  8,789
                                                  
                                                  
                                                  $
                                                  9,029
                                                  
                                                  
                                                  $
                                                  9,068Net
      Income
                                                  
                                                  $
                                                  3,888
                                                  
                                                  
                                                  $
                                                  4,091
                                                  
                                                  
                                                  $
                                                  4,182
                                                  
                                                  
                                                  $
                                                  4,121Earnings
      Per Share – Diluted
                                                  
                                                  $
                                                  .47
                                                  
                                                  
                                                  $
                                                  .49
                                                  
                                                  
                                                  $
                                                  .50
                                                  
                                                  
                                                  $
                                                  .49





15.
                Deferred
      Revenue
                
                In
      July 2004, the Company’s tenant in two joint venture properties located in
      Ann Arbor, MI and Boynton Beach, FL repaid $13.8 million that had been
      contributed by the Company’s joint venture partner. As a result of this
      repayment the Company became the sole member of the limited liability
      companies holding the properties. Total assets of the two properties were
      approximately $13.8 million. The Company has 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.16.
                Subsequent
      Events
                
                In
      January 2010, the Company granted 75,800 shares of restricted stock to
      employees and associates under the 2005 Equity Incentive
      Plan.  The restricted shares vest over a five year period based
      on continued service to the Company.The
      Company evaluates events occurring after the date of the financial
      statements for events requiring recording or disclosure in the financial
      statements.




F-23




Agree
Realty Corporation
 Schedule
III – Real Estate and Accumulated Depreciation
 December
31, 2009


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
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  550,000
                                  
                                  
                                  $
                                  562,404
                                  
                                  
                                  $
                                  1,087,596
                                  
                                  
                                  $
                                  550,000
                                  
                                  
                                  $
                                  1,650,000
                                  
                                  
                                  $
                                  2,200,000
                                  
                                  
                                  $
                                  1,411,767
                                  
                                  1977
                                  
                                  40
      YearsCapital
      Plaza, KY
                                  
                                  
                                  -
                                  
                                  
                                  
                                  7,379
                                  
                                  
                                  
                                  2,240,607
                                  
                                  
                                  
                                  3,337,274
                                  
                                  
                                  
                                  7,379
                                  
                                  
                                  
                                  5,577,881
                                  
                                  
                                  
                                  5,585,260
                                  
                                  
                                  
                                  2,178,098
                                  
                                  1978
                                  
                                  40
      YearsCharlevoix
      Common, MI
                                  
                                  
                                  -
                                  
                                  
                                  
                                  305,000
                                  
                                  
                                  
                                  5,152,992
                                  
                                  
                                  
                                  106,718
                                  
                                  
                                  
                                  305,000
                                  
                                  
                                  
                                  5,259,710
                                  
                                  
                                  
                                  5,564,710
                                  
                                  
                                  
                                  2,504,254
                                  
                                  1991
                                  
                                  40
      YearsChippewa
      Commons, WI
                                  
                                  
                                  3,278,952
                                  
                                  
                                  
                                  1,197,150
                                  
                                  
                                  
                                  6,367,560
                                  
                                  
                                  
                                  446,0018
                                  
                                  
                                  
                                  1,197,150
                                  
                                  
                                  
                                  6,813,578
                                  
                                  
                                  
                                  8,010,728
                                  
                                  
                                  
                                  3,225,681
                                  
                                  1990
                                  
                                  40
      YearsGrayling
      Plaza, MI
                                  
                                  
                                  -
                                  
                                  
                                  
                                  200,000
                                  
                                  
                                  
                                  1,778,657
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  200,000
                                  
                                  
                                  
                                  1,778,657
                                  
                                  
                                  
                                  1,978,657
                                  
                                  
                                  
                                  1,147,280
                                  
                                  1984
                                  
                                  40
      YearsIronwood
      Commons, MI
                                  
                                  
                                  -
                                  
                                  
                                  
                                  167,500
                                  
                                  
                                  
                                  8,181,306
                                  
                                  
                                  
                                  332,545
                                  
                                  
                                  
                                  167,500
                                  
                                  
                                  
                                  8,513,851
                                  
                                  
                                  
                                  8,681,351
                                  
                                  
                                  
                                  3,900,883
                                  
                                  1991
                                  
                                  40
      YearsMarshall
      Plaza Two, MI
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  4,662,230
                                  
                                  
                                  
                                  115,294
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  4,777,524
                                  
                                  
                                  
                                  4,777,524
                                  
                                  
                                  
                                  2,222,379
                                  
                                  1990
                                  
                                  40
      YearsNorth
      Lakeland Plaza, FL
                                  
                                  
                                  4,002,494
                                  
                                  
                                  
                                  1,641,879
                                  
                                  
                                  
                                  6,364,379
                                  
                                  
                                  
                                  1,772,138
                                  
                                  
                                  
                                  1,641,879
                                  
                                  
                                  
                                  8,136,517
                                  
                                  
                                  
                                  9,778,396
                                  
                                  
                                  
                                  3,047,928
                                  
                                  1987
                                  
                                  40
      YearsOscoda
      Plaza, MI
                                  
                                  
                                  -
                                  
                                  
                                  
                                  183,295
                                  
                                  
                                  
                                  1,872,854
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  183,295
                                  
                                  
                                  
                                  1,872,854
                                  
                                  
                                  
                                  2,056,149
                                  
                                  
                                  
                                  1,204,321
                                  
                                  1984
                                  
                                  40
      YearsPetoskey
      Town Center, MI
                                  
                                  
                                  4,127,870
                                  
                                  
                                  
                                  875,000
                                  
                                  
                                  
                                  8,895,289
                                  
                                  
                                  
                                  314,411
                                  
                                  
                                  
                                  875,000
                                  
                                  
                                  
                                  9,209,700
                                  
                                  
                                  
                                  10,084,700
                                  
                                  
                                  
                                  4,277,059
                                  
                                  1990
                                  
                                  40
      YearsPlymouth
      Commons, WI
                                  
                                  
                                  -
                                  
                                  
                                  
                                  535,460
                                  
                                  
                                  
                                  5,667,504
                                  
                                  
                                  
                                  282,915
                                  
                                  
                                  
                                  535,460
                                  
                                  
                                  
                                  5,950,419
                                  
                                  
                                  
                                  6,485,879
                                  
                                  
                                  
                                  2,823,384
                                  
                                  1990
                                  
                                  40
      YearsRapids
      Associates, MI
                                  
                                  
                                  -
                                  
                                  
                                  
                                  705,000
                                  
                                  
                                  
                                  6,854,790
                                  
                                  
                                  
                                  1,885,531
                                  
                                  
                                  
                                  705,000
                                  
                                  
                                  
                                  8,740,321
                                  
                                  
                                  
                                  9,445,321
                                  
                                  
                                  
                                  3,398,794
                                  
                                  1990
                                  
                                  40
      YearsShawano
      Plaza, WI
                                  
                                  
                                  3,920,344
                                  
                                  
                                  
                                  190,000
                                  
                                  
                                  
                                  9,133,934
                                  
                                  
                                  
                                  253,763
                                  
                                  
                                  
                                  190,000
                                  
                                  
                                  
                                  9,387,697
                                  
                                  
                                  
                                  9,577,697
                                  
                                  
                                  
                                  4,521,308
                                  
                                  1990
                                  
                                  40
      YearsWest
      Frankfort Plaza, IL
                                  
                                  
                                  -
                                  
                                  
                                  
                                  8,002
                                  
                                  
                                  
                                  784,077
                                  
                                  
                                  
                                  143,258
                                  
                                  
                                  
                                  8,002
                                  
                                  
                                  
                                  927,335
                                  
                                  
                                  
                                  935,337
                                  
                                  
                                  
                                  581,031
                                  
                                  1982
                                  
                                  40
      YearsOmaha,
      NE
                                  
                                  
                                  1,539,611
                                  
                                  
                                  
                                  1,705,619
                                  
                                  
                                  
                                  2,053,615
                                  
                                  
                                  
                                  2,152
                                  
                                  
                                  
                                  1,705,619
                                  
                                  
                                  
                                  2,055,767
                                  
                                  
                                  
                                  3,761,386
                                  
                                  
                                  
                                  725,934
                                  
                                  1995
                                  
                                  40
      YearsWichita,
      KS
                                  
                                  
                                  1,127,474
                                  
                                  
                                  
                                  1,039,195
                                  
                                  
                                  
                                  1,690,644
                                  
                                  
                                  
                                  24,666
                                  
                                  
                                  
                                  1,039,195
                                  
                                  
                                  
                                  1,715,310
                                  
                                  
                                  
                                  2,754,505
                                  
                                  
                                  
                                  605,645
                                  
                                  1995
                                  
                                  40
      YearsSanta
      Barbara, CA
                                  
                                  
                                  -
                                  
                                  
                                  
                                  2,355,423
                                  
                                  
                                  
                                  3,240,557
                                  
                                  
                                  
                                  2,650
                                  
                                  
                                  
                                  2,355,423
                                  
                                  
                                  
                                  3,243,207
                                  
                                  
                                  
                                  5,598,630
                                  
                                  
                                  
                                  1,145,247
                                  
                                  1995
                                  
                                  40
      YearsMonroeville,
      PA
                                  
                                  
                                  -
                                  
                                  
                                  
                                  6,332,158
                                  
                                  
                                  
                                  2,249,724
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  6,332,158
                                  
                                  
                                  
                                  2,249,724
                                  
                                  
                                  
                                  8,581,882
                                  
                                  
                                  
                                  737,937
                                  
                                  1996
                                  
                                  40
      YearsNorman,
      OK
                                  
                                  
                                  -
                                  
                                  
                                  
                                  879,562
                                  
                                  
                                  
                                  1,626,501
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  879,562
                                  
                                  
                                  
                                  1,626,501
                                  
                                  
                                  
                                  2,506,063
                                  
                                  
                                  
                                  538,590
                                  
                                  1996
                                  
                                  40
      YearsColumbus,
      OH
                                  
                                  
                                  -
                                  
                                  
                                  
                                  826,000
                                  
                                  
                                  
                                  2,336,791
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  826,000
                                  
                                  
                                  
                                  2,336,791
                                  
                                  
                                  
                                  3,162,791
                                  
                                  
                                  
                                  813,007
                                  
                                  1996
                                  
                                  40
      YearsAventura,
      FL
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  3,173,121
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  3,173,121
                                  
                                  
                                  
                                  3,173,121
                                  
                                  
                                  
                                  1,087,455
                                  
                                  1996
                                  
                                  40
      YearsBoyton
      Beach, FL
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,534,942
                                  
                                  
                                  
                                  2,043,122
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,534,942
                                  
                                  
                                  
                                  2,043,122
                                  
                                  
                                  
                                  3,578,064
                                  
                                  
                                  
                                  668,083
                                  
                                  1996
                                  
                                  40
      YearsLawrence,
      KS
                                  
                                  
                                  2,480,272
                                  
                                  
                                  
                                  981,331
                                  
                                  
                                  
                                  3,000,000
                                  
                                  
                                  
                                  349,127
                                  
                                  
                                  
                                  981,331
                                  
                                  
                                  
                                  3,349,127
                                  
                                  
                                  
                                  4,330,458
                                  
                                  
                                  
                                  994,104
                                  
                                  1997
                                  
                                  40
      YearsWaterford,
      MI
                                  
                                  
                                  1,638,215
                                  
                                  
                                  
                                  971,009
                                  
                                  
                                  
                                  1,562,869
                                  
                                  
                                  
                                  135,390
                                  
                                  
                                  
                                  971,009
                                  
                                  
                                  
                                  1,698,259
                                  
                                  
                                  
                                  2,669,268
                                  
                                  
                                  
                                  508,442
                                  
                                  1997
                                  
                                  40
      YearsChesterfield
      Township, MI
                                  
                                  
                                  1,798,771
                                  
                                  
                                  
                                  1,350,590
                                  
                                  
                                  
                                  1,757,830
                                  
                                  
                                  
                                  (46,164
                                  )
                                  
                                  
                                  1,350,590
                                  
                                  
                                  
                                  1,711,666
                                  
                                  
                                  
                                  3,062,256
                                  
                                  
                                  
                                  492,685
                                  
                                  1998
                                  
                                  40
      YearsGrand
      Blanc, MI
                                  
                                  
                                  1,718,493
                                  
                                  
                                  
                                  1,104,285
                                  
                                  
                                  
                                  1,998,919
                                  
                                  
                                  
                                  43,929
                                  
                                  
                                  
                                  1,104,285
                                  
                                  
                                  
                                  2,042,848
                                  
                                  
                                  
                                  3,147,133
                                  
                                  
                                  
                                  554,638
                                  
                                  1998
                                  
                                  40
      YearsPontiac,
      MI
                                  
                                  
                                  1,647,739
                                  
                                  
                                  
                                  1,144,190
                                  
                                  
                                  
                                  1,808,955
                                  
                                  
                                  
                                  (113,506
                                  )
                                  
                                  
                                  1,144,190
                                  
                                  
                                  
                                  1,695,449
                                  
                                  
                                  
                                  2,839,639
                                  
                                  
                                  
                                  478,552
                                  
                                  1998
                                  
                                  40
      YearsMt.
      Pleasant Shopping Center, MI
                                  
                                  
                                  -
                                  
                                  
                                  
                                  907,600
                                  
                                  
                                  
                                  8,081,968
                                  
                                  
                                  
                                  684,287
                                  
                                  
                                  
                                  907,600
                                  
                                  
                                  
                                  8,766,255
                                  
                                  
                                  
                                  9,673,855
                                  
                                  
                                  
                                  3,193,599
                                  
                                  1973
                                  
                                  40 YearsTulsa,
      OK
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,100,000
                                  
                                  
                                  
                                  2,394,512
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,100,000
                                  
                                  
                                  
                                  2,394,512
                                  
                                  
                                  
                                  3,494,512
                                  
                                  
                                  
                                  698,405
                                  
                                  1998
                                  
                                  40 YearsColumbia,
      MD
                                  
                                  
                                  2,468,501
                                  
                                  
                                  
                                  1,545,509
                                  
                                  
                                  
                                  2,093,700
                                  
                                  
                                  
                                  286,589
                                  
                                  
                                  
                                  1,545,509
                                  
                                  
                                  
                                  2,380,289
                                  
                                  
                                  
                                  3,925,798
                                  
                                  
                                  
                                  623,044
                                  
                                  1999
                                  
                                  40 YearsRochester,
      MI
                                  
                                  
                                  2,682,421
                                  
                                  
                                  
                                  2,438,740
                                  
                                  
                                  
                                  2,188,050
                                  
                                  
                                  
                                  1,949
                                  
                                  
                                  
                                  2,438,740
                                  
                                  
                                  
                                  2,189,999
                                  
                                  
                                  
                                  4,628,739
                                  
                                  
                                  
                                  574,851
                                  
                                  1999
                                  
                                  40 Years





F-24




Agree
Realty Corporation
 Schedule
III – Real Estate and Accumulated Depreciation
 December
31, 2009




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
                                    
                                    
                                    2,422,746
                                    
                                    
                                    
                                    2,050,000
                                    
                                    
                                    
                                    2,222,097
                                    
                                    
                                    
                                    29,624
                                    
                                    
                                    
                                    2,050,000
                                    
                                    
                                    
                                    2,251,721
                                    
                                    
                                    
                                    4,301,721
                                    
                                    
                                    
                                    562,974
                                    
                                    1999
                                    
                                    40
      YearsGermantown,
      MD
                                    
                                    
                                    2,321,253
                                    
                                    
                                    
                                    1,400,000
                                    
                                    
                                    
                                    2,288,890
                                    
                                    
                                    
                                    45,000
                                    
                                    
                                    
                                    1,400,000
                                    
                                    
                                    
                                    2,333,890
                                    
                                    
                                    
                                    3,733,890
                                    
                                    
                                    
                                    591,010
                                    
                                    2000
                                    
                                    40
      YearsPetoskey,
      MI
                                    
                                    
                                    1,685,214
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,332,473
                                    
                                    
                                    
                                    (1,721
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,330,752
                                    
                                    
                                    
                                    2,330,752
                                    
                                    
                                    
                                    564,065
                                    
                                    2000
                                    
                                    40
      YearsFlint,
      MI
                                    
                                    
                                    2,541,875
                                    
                                    
                                    
                                    2,026,625
                                    
                                    
                                    
                                    1,879,700
                                    
                                    
                                    
                                    (1,201
                                    )
                                    
                                    
                                    2,026,625
                                    
                                    
                                    
                                    1,878,499
                                    
                                    
                                    
                                    3,905,124
                                    
                                    
                                    
                                    422,667
                                    
                                    2000
                                    
                                    40
      YearsFlint,
      MI
                                    
                                    
                                    2,187,164
                                    
                                    
                                    
                                    1,477,680
                                    
                                    
                                    
                                    2,241,293
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,477,680
                                    
                                    
                                    
                                    2,241,293
                                    
                                    
                                    
                                    3,718,973
                                    
                                    
                                    
                                    497,284
                                    
                                    2001
                                    
                                    40
      YearsNew
      Baltimore, MI
                                    
                                    
                                    1,865,916
                                    
                                    
                                    
                                    1,250,000
                                    
                                    
                                    
                                    2,285,781
                                    
                                    
                                    
                                    (16,502
                                    )
                                    
                                    
                                    1,250,000
                                    
                                    
                                    
                                    2,269,279
                                    
                                    
                                    
                                    3,519,279
                                    
                                    
                                    
                                    475,305
                                    
                                    2001
                                    
                                    40
      YearsFlint,
      MI
                                    
                                    
                                    3,719,383
                                    
                                    
                                    
                                    1,729,851
                                    
                                    
                                    
                                    1,798,091
                                    
                                    
                                    
                                    660
                                    
                                    
                                    
                                    1,729,851
                                    
                                    
                                    
                                    1,798,751
                                    
                                    
                                    
                                    3,528,602
                                    
                                    
                                    
                                    346,597
                                    
                                    2002
                                    
                                    40
      YearsOklahoma
      City, OK
                                    
                                    
                                    2,987,023
                                    
                                    
                                    
                                    1,914,859
                                    
                                    
                                    
                                    2,057,034
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,914,859
                                    
                                    
                                    
                                    2,057,034
                                    
                                    
                                    
                                    3,971,893
                                    
                                    
                                    
                                    376,399
                                    
                                    2002
                                    
                                    40
      YearsOmaha,
      NE
                                    
                                    
                                    2,740,909
                                    
                                    
                                    
                                    1,530,000
                                    
                                    
                                    
                                    2,237,702
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,530,000
                                    
                                    
                                    
                                    2,237,702
                                    
                                    
                                    
                                    3,767,702
                                    
                                    
                                    
                                    409,437
                                    
                                    2002
                                    
                                    40
      YearsIndianapolis,
      IN
                                    
                                    
                                    802,785
                                    
                                    
                                    
                                    180,000
                                    
                                    
                                    
                                    1,117,617
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    180,000
                                    
                                    
                                    
                                    1,117,617
                                    
                                    
                                    
                                    1,297,617
                                    
                                    
                                    
                                    204,550
                                    
                                    2002
                                    
                                    40
      YearsBig
      Rapids, MI
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,201,675
                                    
                                    
                                    
                                    2,014,107
                                    
                                    
                                    
                                    (2,000
                                    )
                                    
                                    
                                    1,201,675
                                    
                                    
                                    
                                    2,012,107
                                    
                                    
                                    
                                    3,213,782
                                    
                                    
                                    
                                    339,583
                                    
                                    2003
                                    
                                    40
      YearsFlint,
      MI
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    471,272
                                    
                                    
                                    
                                    (201,809
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    269,463
                                    
                                    
                                    
                                    269,463
                                    
                                    
                                    
                                    58,383
                                    
                                    2003
                                    
                                    20
      YearsAnn
      Arbor, MI
                                    
                                    
                                    6,083,869
                                    
                                    
                                    
                                    1,727,590
                                    
                                    
                                    
                                    6,009,488
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,727,590
                                    
                                    
                                    
                                    6,009,488
                                    
                                    
                                    
                                    7,737,078
                                    
                                    
                                    
                                    1,072,392
                                    
                                    2003
                                    
                                    40
      YearsTulsa,
      OK
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,000,000
                                    
                                    
                                    
                                    2,740,507
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,000,000
                                    
                                    
                                    
                                    2,740,507
                                    
                                    
                                    
                                    4,740,507
                                    
                                    
                                    
                                    442,129
                                    
                                    2003
                                    
                                    40
      YearsCanton
      Twp., MI
                                    
                                    
                                    1,516,578
                                    
                                    
                                    
                                    1,550,000
                                    
                                    
                                    
                                    2,132,096
                                    
                                    
                                    
                                    23,020
                                    
                                    
                                    
                                    1,550,000
                                    
                                    
                                    
                                    2,155,116
                                    
                                    
                                    
                                    3,705,116
                                    
                                    
                                    
                                    327,708
                                    
                                    2003
                                    
                                    40
      YearsFlint,
      MI
                                    
                                    
                                    4,310,695
                                    
                                    
                                    
                                    1,537,400
                                    
                                    
                                    
                                    1,961,674
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,537,400
                                    
                                    
                                    
                                    1,961,674
                                    
                                    
                                    
                                    3,499,074
                                    
                                    
                                    
                                    286,161
                                    
                                    2004
                                    
                                    40
      YearsWebster,
      NY
                                    
                                    
                                    1,653,154
                                    
                                    
                                    
                                    1,600,000
                                    
                                    
                                    
                                    2,438,781
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,600,000
                                    
                                    
                                    
                                    2,438,781
                                    
                                    
                                    
                                    4,038,781
                                    
                                    
                                    
                                    353,118
                                    
                                    2004
                                    
                                    40
      YearsAlbion,
      NY
                                    
                                    
                                    2,021,167
                                    
                                    
                                    
                                    1,900,000
                                    
                                    
                                    
                                    3,037,864
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,900,000
                                    
                                    
                                    
                                    3,037,864
                                    
                                    
                                    
                                    4,937,864
                                    
                                    
                                    
                                    389,228
                                    
                                    2004
                                    
                                    40
      YearsFlint,
      MI
                                    
                                    
                                    3,295,593
                                    
                                    
                                    
                                    1,029,000
                                    
                                    
                                    
                                    2,165,463
                                    
                                    
                                    
                                    (6,666
                                    )
                                    
                                    
                                    1,029,000
                                    
                                    
                                    
                                    2,158,797
                                    
                                    
                                    
                                    3,187,797
                                    
                                    
                                    
                                    276,555
                                    
                                    2004
                                    
                                    40
      YearsLansing,
      MI
                                    
                                    
                                    -
                                    
                                    
                                    
                                    785,000
                                    
                                    
                                    
                                    348,501
                                    
                                    
                                    
                                    3,045
                                    
                                    
                                    
                                    785,000
                                    
                                    
                                    
                                    351,546
                                    
                                    
                                    
                                    1,136,546
                                    
                                    
                                    
                                    48,301
                                    
                                    2004
                                    
                                    40
      YearsBoynton
      Beach, FL
                                    
                                    
                                    1,654,134
                                    
                                    
                                    
                                    1,569,000
                                    
                                    
                                    
                                    2,363,524
                                    
                                    
                                    
                                    108,651
                                    
                                    
                                    
                                    1,569,000
                                    
                                    
                                    
                                    2,472,175
                                    
                                    
                                    
                                    4,041,175
                                    
                                    
                                    
                                    330,823
                                    
                                    2004
                                    
                                    40
      YearsAnn
      Arbor, MI
                                    
                                    
                                    4,158,223
                                    
                                    
                                    
                                    1,700,000
                                    
                                    
                                    
                                    8,308,854
                                    
                                    
                                    
                                    150,000
                                    
                                    
                                    
                                    1,700,000
                                    
                                    
                                    
                                    8,458,854
                                    
                                    
                                    
                                    10,158,854
                                    
                                    
                                    
                                    1,309,189
                                    
                                    2004
                                    
                                    40
      YearsMidland,
      MI
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,350,000
                                    
                                    
                                    
                                    2,313,413
                                    
                                    
                                    
                                    2,070
                                    
                                    
                                    
                                    2,350,000
                                    
                                    
                                    
                                    2,315,483
                                    
                                    
                                    
                                    4,665,483
                                    
                                    
                                    
                                    258,004
                                    
                                    2005
                                    
                                    40
      YearsGrand
      Rapids, MI
                                    
                                    
                                    3,379,624
                                    
                                    
                                    
                                    1,450,000
                                    
                                    
                                    
                                    2,646,591
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,450,000
                                    
                                    
                                    
                                    2,646,591
                                    
                                    
                                    
                                    4,096,591
                                    
                                    
                                    
                                    286,715
                                    
                                    2005
                                    
                                    40
      YearsDelta
      Twp., MI
                                    
                                    
                                    3,809,766
                                    
                                    
                                    
                                    2,075,000
                                    
                                    
                                    
                                    2,535,971
                                    
                                    
                                    
                                    7,015
                                    
                                    
                                    
                                    2,075,000
                                    
                                    
                                    
                                    2,542,986
                                    
                                    
                                    
                                    4,617,986
                                    
                                    
                                    
                                    264,950
                                    
                                    2005
                                    
                                    40
      YearsRoseville.,
      MI
                                    
                                    
                                    3,380,829
                                    
                                    
                                    
                                    1,771,000
                                    
                                    
                                    
                                    2,327,052
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,771,000
                                    
                                    
                                    
                                    2,327,052
                                    
                                    
                                    
                                    4,098,052
                                    
                                    
                                    
                                    239,976
                                    
                                    2005
                                    
                                    40
      YearsMt
      Pleasant., MI
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,075,000
                                    
                                    
                                    
                                    1,432,390
                                    
                                    
                                    
                                    4,787
                                    
                                    
                                    
                                    1,075,000
                                    
                                    
                                    
                                    1,437,177
                                    
                                    
                                    
                                    2,512,177
                                    
                                    
                                    
                                    146,700
                                    
                                    2005
                                    
                                    40
      YearsN
      Cape May, NJ.,
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,075,000
                                    
                                    
                                    
                                    1,430,092
                                    
                                    
                                    
                                    495
                                    
                                    
                                    
                                    1,075,000
                                    
                                    
                                    
                                    1,430,587
                                    
                                    
                                    
                                    2,505,587
                                    
                                    
                                    
                                    146,035
                                    
                                    2005
                                    
                                    40
      YearsSummit
      Twp, MI
                                    
                                    
                                    1,926,188
                                    
                                    
                                    
                                    998,460
                                    
                                    
                                    
                                    1,336,357
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    998,460
                                    
                                    
                                    
                                    1,336,357
                                    
                                    
                                    
                                    2,334,817
                                    
                                    
                                    
                                    109,948
                                    
                                    2006
                                    
                                    40
      YearsLivonia,
      MI
                                    
                                    
                                    4,503,823
                                    
                                    
                                    
                                    1,200,000
                                    
                                    
                                    
                                    3,441,694
                                    
                                    
                                    
                                    817,589
                                    
                                    
                                    
                                    1,200,000
                                    
                                    
                                    
                                    4,259,283
                                    
                                    
                                    
                                    5,459,283
                                    
                                    
                                    
                                    245,652
                                    
                                    2007
                                    
                                    40
      YearsBarnesville,
      GA
                                    
                                    
                                    -
                                    
                                    
                                    
                                    932,500
                                    
                                    
                                    
                                    2,091,514
                                    
                                    
                                    
                                    5,490
                                    
                                    
                                    
                                    932,500
                                    
                                    
                                    
                                    2,097,004
                                    
                                    
                                    
                                    3,029,504
                                    
                                    
                                    
                                    115,743
                                    
                                    2007
                                    
                                    40
      YearsEast
      Lansing, MI
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,450,000
                                    
                                    
                                    
                                    1,002,192
                                    
                                    
                                    
                                    177,406
                                    
                                    
                                    
                                    1,450,000
                                    
                                    
                                    
                                    1,179,598
                                    
                                    
                                    
                                    2,629,598
                                    
                                    
                                    
                                    62,980
                                    
                                    2007
                                    
                                    40
      YearsPlainfield,
      IN
                                    
                                    
                                    -
                                    
                                    
                                    
                                    4,549,757
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    62,884
                                    
                                    
                                    
                                    4,612,641
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    4,612,641
                                    
                                    
                                    
                                    -
                                    
                                    2007
                                    
                                    40
      YearsMacomb
      Township, MI
                                    
                                    
                                    5,037,776
                                    
                                    
                                    
                                    2,621,500
                                    
                                    
                                    
                                    3,484,212
                                    
                                    
                                    
                                    799
                                    
                                    
                                    
                                    2,621,500
                                    
                                    
                                    
                                    3,485,011
                                    
                                    
                                    
                                    6,106,511
                                    
                                    
                                    
                                    19,713
                                    
                                    2008
                                    
                                    40
      YearsYpsilanti,
      MI
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,850,000
                                    
                                    
                                    
                                    3,034,335
                                    
                                    
                                    
                                    1,224
                                    
                                    
                                    
                                    1,850,000
                                    
                                    
                                    
                                    3,035,559
                                    
                                    
                                    
                                    4,885,559
                                    
                                    
                                    
                                    120,140
                                    
                                    2008
                                    
                                    40
      YearsMarion
      Oaks, FL
                                    
                                    
                                    -
                                    
                                    
                                    
                                    815,000
                                    
                                    
                                    
                                    2,329,487
                                    
                                    
                                    
                                    2,223
                                    
                                    
                                    
                                    815,000
                                    
                                    
                                    
                                    2,331,710
                                    
                                    
                                    
                                    3,146,710
                                    
                                    
                                    
                                    87,420
                                    
                                    2008
                                    
                                    40
      YearsShelby
      Township, MI
                                    
                                    
                                    2,115,958
                                    
                                    
                                    
                                    75,000
                                    
                                    
                                    
                                    2,533,876
                                    
                                    
                                    
                                    (44,028
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,564,848
                                    
                                    
                                    
                                    2,564,848
                                    
                                    
                                    
                                    90,509
                                    
                                    2008
                                    
                                    40
      YearsSilver
      Spring Shores, FL
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,975,000
                                    
                                    
                                    
                                    2,504,112
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,195,000
                                    
                                    
                                    
                                    2,504,112
                                    
                                    
                                    
                                    4,479,112
                                    
                                    
                                    
                                    62,603
                                    
                                    2009
                                    
                                    40
      Years




F-25




Agree
Realty Corporation
 Schedule
III – Real Estate and Accumulated Depreciation
 December
31, 2009




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
      ComputedBrighton,
      MI
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    1,365,000
                                                    
                                                    
                                                    
                                                    2,802,036
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    1,365,000
                                                    
                                                    
                                                    
                                                    2,802,036
                                                    
                                                    
                                                    
                                                    4,167,036
                                                    
                                                    
                                                    
                                                    58,376
                                                    
                                                    
                                                    2009
                                                    
                                                    
                                                    40
      YearsPort
      St John, FL
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    2,320,860
                                                    
                                                    
                                                    
                                                    2,402,641
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    2,320,860
                                                    
                                                    
                                                    
                                                    2,402,641
                                                    
                                                    
                                                    
                                                    4,723,501
                                                    
                                                    
                                                    
                                                    40,044
                                                    
                                                    
                                                    2009
                                                    
                                                    
                                                    40
      YearsLowell,
      MI
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    890,000
                                                    
                                                    
                                                    
                                                    1,930,182
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    890,000
                                                    
                                                    
                                                    
                                                    1,930,182
                                                    
                                                    
                                                    
                                                    2,820,182
                                                    
                                                    
                                                    
                                                    12,064
                                                    
                                                    
                                                    2009
                                                    
                                                    
                                                    40
      YearsSouthfield,
      MI
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    1,200,000
                                                    
                                                    
                                                    
                                                    125,616
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    1,200,000
                                                    
                                                    
                                                    
                                                    125,616
                                                    
                                                    
                                                    
                                                    1,325,616
                                                    
                                                    
                                                    
                                                    654
                                                    
                                                    
                                                    2009
                                                    
                                                    
                                                    40
      YearsSub
      Total
                                                    
                                                    
                                                    104,552,802
                                                    
                                                    
                                                    
                                                    94,979,575
                                                    
                                                    
                                                    
                                                    207,976,033
                                                    
                                                    
                                                    
                                                    12,616,585
                                                    
                                                    
                                                    
                                                    94,967,459
                                                    
                                                    
                                                    
                                                    220,604,734
                                                    
                                                    
                                                    
                                                    315,572,193
                                                    
                                                    
                                                    
                                                    64,076,469Retail
      Facilities Under DevelopmentSt
      Augustine Shores, FL
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    2,093,365
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    2,093,365
                                                    
                                                    
                                                    
                                                    2,093,365
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    N/A
                                                    
                                                    
                                                    
                                                    N/AAtlantic
      Beach, FL
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    1,842,477
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    1,842,477
                                                    
                                                    
                                                    
                                                    1,842,477
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    N/A
                                                    
                                                    
                                                    
                                                    N/AAnn
      Arbor, MI
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    418,718
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    418,718
                                                    
                                                    
                                                    
                                                    418,718
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    N/A
                                                    
                                                    
                                                    
                                                    N/AOther
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    80,000
                                                    
                                                    
                                                    
                                                    437,415
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    80,000
                                                    
                                                    
                                                    
                                                    437,415
                                                    
                                                    
                                                    
                                                    517,415
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    N/A
                                                    
                                                    
                                                    
                                                    N/A-
                                                    
                                                    
                                                    
                                                    80,000
                                                    
                                                    
                                                    
                                                    4,791,975
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    80,000
                                                    
                                                    
                                                    
                                                    4,791,975
                                                    
                                                    
                                                    
                                                    4,871,975
                                                    
                                                    
                                                    
                                                    -Total
                                                    
                                                    $
                                                    104,552,802
                                                    
                                                    
                                                    $
                                                    95,059,575
                                                    
                                                    
                                                    $
                                                    212,768,008
                                                    
                                                    
                                                    $
                                                    12,616,585
                                                    
                                                    
                                                    $
                                                    95,047,459
                                                    
                                                    
                                                    $
                                                    224,033,593
                                                    
                                                    
                                                    $
                                                    320,444,168
                                                    
                                                    
                                                    $
                                                    64,076,469




F-26




Agree
Realty Corporation
 Notes
to Schedule III
 December
31, 2009


1)
              Reconciliation of Real Estate
      Properties





The
following table reconciles the Real Estate Properties from January 1, 2007 to
December 31, 2009:





2009
                      
                      
                      2008
                      
                      
                      2007Balance
      at January 1
                      
                      $
                      311,342,882
                      
                      
                      $
                      289,073,696
                      
                      
                      $
                      268,247,707Construction
      and acquisition costs
                      
                      
                      9,101,286
                      
                      
                      
                      22,269,186
                      
                      
                      
                      20,825,989Balance
      at December 31
                      
                      $
                      320,444,168
                      
                      
                      $
                      311,342,882
                      
                      
                      $
                      289,073,696




2)
            Reconciliation of Accumulated
      Depreciation





The
following table reconciles the accumulated depreciation from January 1, 2007 to
December 31, 2009:





2009
                      
                      
                      2008
                      
                      
                      2007Balance
      at January 1
                      
                      $
                      58,502,384
                      
                      
                      $
                      53,250,564
                      
                      
                      $
                      48,352,753Current
      year depreciation expense
                      
                      
                      5,574,085
                      
                      
                      
                      5,251,820
                      
                      
                      
                      4,897,811Balance
      at December 31
                      
                      $
                      64,076,469
                      
                      
                      $
                      58,502,384
                      
                      
                      $
                      53,250,564





3)
            Tax Basis of Buildings and
      Improvements





The
aggregate cost of Building and Improvements for federal income tax purposes is
approximately $21,648,000 less than the cost basis used for financial statement
purpose.


F-27