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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
    Form 10-K þ
    
    ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004 ORo
    
    TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to Commission File Number: 1-12928
   AGREE REALTY CORPORATION (Exact name of Registrant as specified in its charter)
 Maryland
    
    38-3148187(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)31850 Northwestern Highway
    
    (248) 737-4190Farmington Hills, Michigan 48334
    
    (Registrants telephone number,(Address of principal executive offices)
    
    including area code)
   Securities Registered Pursuant to Section 12(b) of the Act: Name of each exchange onTitle of each class
    
    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 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, and (2)
has been subject to such filing requirements for the past 90 days. Yes þ          No o 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. o Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2). Yes þ          No o The aggregate market value of the Registrants shares of common stock held by non-affiliates was
approximately $163,614,366 as of June 30, 2004, based on the closing price of $25.30 on the NYSE on
that date. DOCUMENTS INCORPORATED BY REFERENCE Document
    
    Incorporated into Form 10-KPortions of the Registrants Proxy Statement for its
    
    Part IIIAnnual Meeting of Shareholders to be held on May 9, 2005
    
    Items 10-13




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TABLE OF CONTENTS Part IItem 1. Business
    
    
    4Item 2. Properties
    
    
    11Item 3. Legal Proceedings
    
    
    18Item 4. Submission of Matters to a Vote of Security Holders
    
    
    18Part IIItem 5. Market for Registrants Common Equity and Related Stockholder Matters
    
    
    19Item 6. Selected Financial Data
    
    
    20ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 7A Quantitative and Qualitative Disclosures about Market Risk
    
    
    26Item 8 Financial Statements and Supplementary Data
    
    
    27Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    27Item 9A Controls and Procedures
    
    
    27Part IIIItem 10. Directors and Executive Officers of the Registrant
    
    
    30Item 11. Executive Compensation
    
    
    30Item 12. Security Ownership of Certain Beneficial Owners and Management
    
    
    30Item 13. Certain Relationships and Related Transactions
    
    
    30Item 14. Principal Accountant Fees and Services
    
    
    30Part IVItem 15. Exhibits, Financial Statements and Schedules
    
    
    31Signatures
    
    
    342005 Equity Incentive PlanSubsidiaries of Agree Realty CorporationConsent of BDO Seidman, LLPSection 302 Certification of Chief Executive OfficerSection 302 Certification of Chief Financial OfficerSection 906 Certification of Chief Executive OfficerSection 906 Certification of Chief Financial Officer
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Part I FORWARD LOOKING STATEMENTS We have made statements in this Form 10-K that are forward- Looking in that they do not
discuss historical facts but instead note future expectations, projections, intentions or other
items relating to the future. Forward-looking statements, which are generally prefaced by the words anticipate,
estimate, should, expect, believe, intend, and similar terms, are subject to known and
unknown risks, uncertainties and other facts that may cause our actual results or performance to
differ materially from those contemplated by the forward-looking statements. Many of those factors
are noted in conjunction with the forward-looking statements in the text. Other important factors
that could cause our actual results to differ include:  
    Our inability to effect the development or acquisition of properties on favorable
terms.
    The effect of economic conditions. If an economic downturn occurs, any
corresponding decrease in disposable income could result in consumers being less
willing to purchase goods from our tenants which could adversely affect our financial
condition and results of operations. Our financial condition and results of operations
could also be adversely affected if our tenants are otherwise unable to make lease
payments or fail to renew their leases.
    Our inability to obtain long-term financing at interest rates that will allow us to
offer attractive rental rates to our tenants in order to continue the development or
acquisition of retail properties leased to national tenants on a long-term basis.
    Actions of our competitors. We seek to remain competitive in the development of
real estate assets in the markets that we currently serve. With regard to our
acquisition of properties, we compete with insurance companies, credit companies,
pension funds, private individuals, investment companies and other REITs, some of which
have greater resources than we do.
    Failure to qualify as a REIT. Although we believe that we were organized and have
been operating in conformity with the requirements for qualification as a REIT under
the Internal Revenue Code, we cannot assure you that we will continue to qualify as a
REIT.
    Changes in government regulations, tax rates and similar matters, For example,
changes in real estate and zoning laws, environmental uncertainties and natural
disasters could adversely affect our financial condition and results of operations. Other risk uncertainties and factors that could cause actual results to differ materially from
those projected are discussed in the Risk Factors section of this Form 10-K. We undertake no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise, except as required by law. In
light of these risks, uncertainties and assumptions, the forward-looking events discussed in or
incorporated by reference into this Form 10-K might not occur. References herein to the Company include Agree Realty Corporation, together with its
wholly-owned subsidiaries and its majority owned operating partnership, Agree Limited Partnership
(Operating Partnership), unless the context otherwise requires. 3




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Item 1. BUSINESS General We are a fully-integrated, self-administered and self-managed real estate investment trust (a
REIT) that focuses primarily on the development, acquisition and ownership of retail properties
net leased to national tenants. We were formed in December 1993 to continue and expand the retail
business founded in 1971 by our current President and Chairman, Richard Agree. We specialize in
building properties for national retailers who have signed long-term net leases prior to
commencement of construction. All of our freestanding property tenants and most of our community
shopping center tenants have triple-net leases which typically require the tenant to be responsible
for property operating expenses including property taxes, insurance and maintenance. We believe
this strategy provides us with a generally consistent source of income and cash for distributions
and also provides opportunities for development of additional properties at attractive returns on
investment, without the risks associated with speculative development. At December 31, 2004, our portfolio consisted of 54 properties, located in 14 states and
contained an aggregate of approximately 3.5 million square feet of gross leasable area (GLA). As
of December 31, 2004 our portfolio includes 41 freestanding net leased properties and 13 community
shopping centers that were 99% leased with a weighted average lease term of approximately 12 years.
As of December 31, 2004, approximately 65% of our annualized lease revenue is derived from our top
three tenants: Borders Group, Inc. (Borders)  32%, Walgreen Co. (Walgreen)  18% and Kmart
Corporation (Kmart) - 15%. As of December 31, 2004 approximately 89% of our annualized lease
revenue is derived from national tenants. We expect to continue to grow our asset base primarily through the development of new retail
properties that are pre-leased on a long-term basis to national tenants. Since our initial public
offering in 1994, we have developed 45 of our 54 properties. We developed 32 of our 41
freestanding properties and all 13 of our community shopping centers. As of December 31, 2004, the
properties that we developed (including the community shopping centers) accounted for 86% of our
annualized base rent. We focus on development because we believe it generally provides us a higher
return on investment than the acquisition of similarly located properties. We expect to continue
to expand our tenant relationships and diversify our tenant base to include other quality national
tenants. Growth Strategy Our growth strategy is to continue to develop retail properties pre-leased on a long-term
basis to national tenants. We believe that a development strategy combined with substantial
pre-leasing will produce superior risk adjusted returns. To effect this strategy, we identify a
land parcel that we believe is an attractive retail location for one of our tenant relationships.
The location must be in a concentrated retail corridor, have high traffic counts, good visibility
and demographics compatible with the needs of the particular retail tenant. Then we propose to
that tenant that we execute a long-term net lease for the finished development on that site. Once the lease is executed, 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 hands-on approach to development and property
management enhances our ability to maximize the long-term value of our properties. Financing Strategy The majority of our indebtedness is fixed rate, non-recourse and long-term in nature.
Whenever possible, we use long-term financing for our properties to match the underlying long-term
leases. As of December 31, 2004, the average weighted maturity of our long- term debt was 15.4
years. 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 refinance this floating rate debt with long-term, fixed rate, non-recourse
debt. As of December 31, 2004, our total debt was approximately $93 million, consisting of
approximately $53.8 million of fixed rate debt at an average interest rate of 6.63% and
approximately $39.2 million of floating rate 4




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debt, consisting primarily of the credit facilities, at an aggregate weighted average interest
rate of 3.78%. We intend to maintain a ratio of total indebtedness (including construction and
acquisition financing) to market capitalization of 65% or less. We may from time to time re-evaluate our borrowing policies in light of the then 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 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. Property Management We maintain an active 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 to require minimal capital improvements other than renovations or expansions paid for by
tenants. At our 13 community shopping centers properties, we sub-contract on-site functions such
as maintenance, landscaping, snow removal, sweeping, plumbing and electrical and, to the extent
permitted by the respective leases, our cost of these functions is 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
immediate 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. Agree Limited Partnership Our assets are held by, and all of our operations are conducted through, Agree Limited
Partnership (Operating Partnership), of which we are the sole general partner and held a 90.59%
interest as of December 31, 2004. 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. Recent Developments In January 2005 we priced a public offering of 1,000,000 shares of our common stock at an
offering price of $28.28 per share resulting in net proceeds of approximately $27.1 million. The
net proceeds were used to repay part of our outstanding indebtedness under our credit facility and
line of credit. In February 2005 the underwriters exercised their over allotment option for an additional
150,000 shares of our common stock at the per share price of $28.28, resulting in net proceeds of
approximately $4.1 million. The net proceeds were also used to repay part of our outstanding
indebtedness under our credit facility and line of credit. Headquarters 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. Agree Realty
Corporations SEC filings can be accessed through this site. 5




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Risk Factors General We rely significantly on three major tenants.As of December 31, 2004, we derived

approximately 65% of our annualized base rent from three major tenants, Borders, Walgreen and
Kmart. 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. The bankruptcy or insolvency of any of the major tenants would likely have a material
adverse effect on the properties affected and the income produced by those properties and
correspondingly our ability to make distributions. In November 2004, Kmart announced that Kmart and Sears, Roebuck and Co. had entered into an
agreement and plan of merger. In the event the combined operations result in the closing or sale
of certain stores, our portfolio of properties could be affected which could have a material
adverse effect on our operations. 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 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, 2004, 13 of our
properties had tenants with those provisions in their leases. We could be adversely affected by a tenants bankruptcy.If a tenant becomes bankrupt or
insolvent, that could diminish the income we expect 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 subject to statutory limitations that might be
substantially less than the remaining rent we are owed under the leases. In addition, any claim we
have for unpaid past rent would likely not be paid in full. One of our major tenants, Kmart
recently emerged from bankruptcy. As part of their plan of reorganization, Kmart terminated one of
our leases and modified two other leases. We cannot predict what effect a future Kmart bankruptcy
or the bankruptcy of a major tenant would have on us. A failure by Kmart to successfully implement
its reorganization plan or to continue as a going concern could result in Kmarts inability to
maintain its lease payments to us or to attempt to renegotiate to terminate its leases. Risks involved in single tenant leases.We focus our development activities on net leased
real estate or interests therein. Because our properties are generally leased to single tenants,
the financial failure of or other default by a tenant resulting in the termination of a lease is
likely to cause a significant reduction in our operating cash flow and might decrease the value of
the property leased to such tenant. Risks associated with borrowing, including loss of properties in the event of a foreclosure.
At December 31, 2004, our ratio of indebtedness to market capitalization was approximately 29.1%.
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. Risks associated with our development and acquisition activities.We intend to continue
development of new properties and to consider possible acquisitions of existing properties. 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. In
addition, we anticipate that our new development 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, the fact that we must distribute 90% of our taxable income in order to maintain our
qualification as a REIT will limit our ability to rely upon income 6




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from operations or cash flow from operations to finance new development or acquisitions. As a
result, if permanent debt or equity financing was 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. We are currently in litigation with Borders concerning the rental rate for our Ann Arbor,
Michigan property. This litigation could adversely affect our relationship with Borders including
future development and acquisition activities. To the extent we are unable to complete future
development and acquisition activities with Borders, our operations could be negatively impacted. Our portfolio has limited geographic diversification.Our properties are located primarily in
the Midwestern United States and Florida. The concentration of our properties in a limited number
of geographic regions creates the risk that, should these regions experience an economic downturn,
our operations may be adversely affected. Twenty-nine of our properties are located in Michigan.
Should Michigan experience an economic downturn, our operations and our rentals from our Michigan
properties could be adversely affected. Dependence on key personnel.We are dependent on the efforts of our executive officers and
directors. The loss of one or more of our executive officers or directors would likely have a
material adverse effect on our future development or acquisition operations, which could adversely
affect the market price of our common stock. We do not presently have key-man life insurance for
any of our employees. We are not limited by our organization documents as to the amount of debt we may incur.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. We can change our investment and financing policies without stockholder approval.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, are determined by our Board of Directors. Although we have no present intention to do
so, these policies may be amended or revised from time to time at the discretion of our Board of
Directors without a vote of our stockholders. Competition. We face competition in seeking properties for acquisition and tenants who will
lease space in these properties from 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 the Company will be able to successfully
compete with such entities in its development, acquisition and leasing activities in the future. Risks Associated With Investment In Real Estate There are risks associated with owning and leasing real estate. Although our lease terms
obligate the tenants to bear substantially all of the costs of operating our properties, investing
in real estate involves a number of risks, including:  
    The risk that tenants will not perform under their leases, reducing our income from
the leases or requiring us to assume the cost of performing obligations (such as taxes,
insurance and maintenance) that are the tenants responsibility under the lease. 7




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
    The risk that changes in economic conditions or real estate markets may adversely
affect the value of our properties.
    The risk that local conditions (such as oversupply of similar properties) could
adversely affect the value of our properties.
    The risk that we may not always be able to lease properties at favorable rental
rates.
    The risk that we may not always be able to sell a property when we desire to do so
at a favorable price.
    The risk of changes in tax, zoning or other laws could make properties less
attractive or less profitable. 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 dividends on our shares of
common stock. We cannot be assured that tenants will elect to renew their leases when the terms
expire. 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. Uncertainties relating to lease renewals and re-letting of space.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 we are unable to re-let promptly all or a substantial portion of our
retailers 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. Some potential losses are not covered by insurance.Our leases require the tenants to carry
comprehensive liability, casualty, workers compensation, extended coverage and rental loss
insurance on our properties. However, there are some types of losses, such as terrorist acts or
catastrophic acts of nature, for which we or our tenants cannot obtain insurance at an acceptable
cost. 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.
We believe the required coverage is of the type, and amount, customarily obtained by an owner of
similar properties. We believe all of our properties are adequately insured. However, there are
some types of losses, such as terrorist acts or catastrophic acts of nature, for which we or our
tenants cannot obtain insurance at an acceptable cost. 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. We would, however, remain obligated to repay any
mortgage indebtedness or other obligations related to the 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 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 fact that:  
    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. 8




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
    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. Our leases require our tenants to operate the properties in compliance 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. Real estate investments are relatively illiquid. 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 projects cannot always be sold
quickly, and we cannot assure you that we could always obtain a favorable price. We may be
required to invest in the restoration or modification of a property before we can sell it. Tax Risks We will be subject to increased taxation if we fail to qualify as a REIT for federal income
tax purposes. A REIT generally is not taxed at the corporate level on income it distributes to its
stockholders, as long as it distributes annually at lease 90% 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 dividends:  
    We would not be allowed a deduction for dividends paid to shareholders 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. 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 property that is not considered a real estate asset 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 company (other than a REIT, a qualified REIT 9




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subsidiary or a taxable REIT subsidiary) which represent in excess of 10% of the voting
securities or 10% of the value of all securities of any one company, 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 taxable REIT subsidiaries which have, in the aggregate, a value in excess of 20% 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 will lose our REIT status. The 25%, 20%, 10% and 5% tests are determined at the end of each calendar quarter. 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. We may be subject to other tax liabilities.Even if we qualify as a REIT, we may be subject
to some federal, state and local taxes on our income and property that could reduce operating cash
flow. Changes in tax laws may prevent us from qualifying as a REIT.As we have previously
described, we intend to qualify 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 prevents 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. Major Tenants As of December 31, 2004, approximately 66% of our gross leasable area was leased to Borders,
Walgreen, and Kmart and approximately 65% of our total annualized base rents were attributable to
these tenants. At December 31, 2004, Borders occupied approximately 28% of our gross leasable area
and accounted for approximately 32% of the annualized base rent. At December 31, 2004, Walgreen
Co. occupied approximately 6% of our gross leasable area and accounted for approximately 18% of the
annualized base rent. At December 31, 2004, Kmart Corporation occupied approximately 32% of our
gross leasable area and accounted for approximately 15% of the annualized base rent. No other
tenant accounted for more than 10% of gross leasable area or annualized base rent in 2004. The
loss of any of these anchor tenants or the inability of any of them to pay rent would have an
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 Code). In order to maintain
qualification as a REIT, we must, among other things, distribute at least 90% of our real estate
investment trust income and meet certain other asset and income tests. Additionally, our charter
limits ownership of the Company, directly or constructively, by any single person to 9.8% of the
total number of outstanding shares, subject to certain exceptions. As a REIT, we are not subject
to federal income tax with respect to that portion of its income that meets certain criteria and is
distributed annually to the stockholders. 10




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##### Table of Contents



Competition We face competition in seeking properties for acquisition and tenants who will lease space in
these properties from insurance companies, credit companies, pension funds, private individuals,
investment companies and other REITs, many of which have greater financial and other resources than
us. 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. 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 on each
Property by independent environmental consultants. 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 two properties we developed and the three
properties we acquired in 2004. The results of these Phase I studies required the Company to
perform a Phase II environmental site assessment on two of the properties (which involves soil
sampling or ground water analysis). The results of the Phase II environmental study conducted on
the properties indicated that no further action was required on one property and that we obtain a
baseline environmental assessment on the second property. The baseline environmental assessment
also confirmed that no further action was required. 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 28, 2005, we employed eight 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 Item 8
of this Annual Report on Form 10-K for certain information required in Item 1. 
 ITEM 2. PROPERTIES Our properties consist of 41 freestanding net leased properties and 13 community shopping
centers, that as of December 31, 2004 were 99% leased, with a weighted average lease term of 12
years. Approximately 89% of our base rental income was attributable to national retailers. Among
these retailers are Borders, Walgreen and Kmart which, at December 31, 2004, collectively
represented approximately 65% 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 32 of our 41 freestanding properties and all 13 of our community
shopping centers. Five of our freestanding properties, although not built by us, were acquired as
part of our relationship with Borders. Properties we have developed (including our community
shopping centers) account for approximately 86% of our annualized base rent for 2005. Our 41 freestanding properties are comprised of 40 retail
locations and Borders corporate headquarters. 11




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##### Table of Contents



A substantial portion of our income consists of rent received under net leases. Most of the
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 $63,031, $185,620 and $247,994 for the fiscal years 2004, 2003 and
2002, respectively, and these amounts represented 0.2%, 0.7% and 1.0%, respectively, of our total
revenue for these periods. Included in those amounts were percentage rents from Kmart of $-0-,
$106,282 and $162,419 for fiscal years 2004, 2003 and 2002, 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 2004 we completed the development of two (2) freestanding net leased properties that
added 28,210 square feet of gross leasable area to our operating portfolio and cost approximately
$6.7 million. The properties are located in Flint, Michigan and are leased to Walgreen Co. During 2004 we acquired three (3) freestanding net leased properties that added 27,626 square
feet of gross leasable area to our operating portfolio and cost approximately $10.1 million. The
properties are located in Webster, New York, Albion, New York and Lansing, Michigan and are leased
to Eckerd Drugs (2) and the Fajita Factory. During 2004, Borders, our tenant, in two joint venture properties located in Ann Arbor,
Michigan and Boynton Beach, Florida repaid $13.8 million that had been contributed by our joint
venture partner. As a result of this repayment we became the sole member of the limited liability
companies holding the properties. Total assets of the two properties were approximately $13.8
million. During 2004 we completed the sale of a single tenant property for $2.2 million. The property
was leased to Kmart and was located in Perrysburg, Ohio. Major Tenants The following table sets forth certain information with respect to our major tenants: Annualized Base
    
    
    Percent of TotalNumber
    
    
    Rent as of
    
    
    Annualized Base Rent asof Leases
    
    
    December 31, 2004
    
    
    of December 31, 2004Borders
    
    
    18
    
    
    $
    9,103,265
    
    
    
    32
    %Walgreen
    
    
    14
    
    
    
    5,206,306
    
    
    
    18Kmart
    
    
    13
    
    
    
    4,213,717
    
    
    
    15Total
    
    
    45
    
    
    $
    18,523,288
    
    
    
    65
    %
 Borders Group, Inc., (Borders), is a FORTUNE 500 company that trades on the New York Stock
Exchange under the symbol BGP. Borders, is a leading global retailer of books, music, movies and
other information and entertainment items. Headquartered in Ann Arbor, Michigan, Borders operates
over 460 Borders Books and Music stores in the United States, as well as 41 international Borders
stores, approximately 700 Waldenbooks locations and three United Kingdom based Books etc. stores.
BGI employs more than 32,000 people worldwide. We derive approximately 32% of our annualized base
rent as of December 31, 2004 from Borders. Borders has reported that its annual revenues for its
2003 fiscal year ended January 25, 2004 were approximately $3,731,000,000; its annual net income
for 2003 was approximately $120,000,000 and its total stockholders equity at fiscal year end 2003
was approximately of $1,153,000,000. 12




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##### Table of Contents



Walgreen is a leader of the U.S. chain drugstore industry and trades on the New York Stock
Exchange under the symbol WAG. It operates over 4,580 stores in 44 states and Puerto Rico and
has total assets of approximately $13.3 billion as of August 31, 2004. As of September 15, 2004,
Walgreen had a Standard and Poors rating of A+ and a Moodys rating of Aa3. We derived
approximately 18% of our annualized base rent as off December 31, 2004 from Walgreen. For its
fiscal year ended August 31, 2004, Walgreen reported that its annual net sales were $37,508,200,000
and its annual net income was $1,360,200,000 and that it had shareholders equity of
$8,228,000,000. Kmart is a retailer that operates over 1,500 stores following it emergence from bankruptcy
proceedings in May 2003. Kmarts principal business is general merchandise retailing through a
chain of department stores. We derived approximately 15% of our annualized base rent as of
December 31, 2004 from Kmart. As of October 27, 2004 Kmart had total liabilities of $4,606,000,000
and shareholders equity of $3,059,000,000. All of our Kmart properties are in the Big K format
and these Kmart properties average 85,000 square feet per property. In November 2004, Kmart
announced it was merging with Sears, Roebuck and Co The financial information set forth above with respect to Borders, Walgreen and Kmart was
derived from the annual reports on Form 10-K filed by Borders and Walgreen with the SEC with
respect to their 2003 fiscal years and the quarterly report on form 10-Q filed by Kmart with the
SEC with respect to the third quarter of 2004. Additional information regarding Borders, Walgreen
or Kmart may be found in their respective public filings. These filings can be accessed at
www.sec.gov. Location of Properties in the Portfolio Number
    
    
    Total Gross
    
    
    Percent of GLA Leasedof
    
    
    Leasable Area
    
    
    onState
    
    Properties
    
    
    (Sq. feet)
    
    
    December 31, 2004California
    
    
    1
    
    
    
    38,015
    
    
    
    100
    %Florida
    
    
    4
    
    
    
    258,793
    
    
    
    100Indiana
    
    
    1
    
    
    
    15,844
    
    
    
    100Illinois
    
    
    1
    
    
    
    20,000
    
    
    
    90Kansas
    
    
    2
    
    
    
    45,000
    
    
    
    100Kentucky
    
    
    1
    
    
    
    135,009
    
    
    
    100Maryland
    
    
    2
    
    
    
    53,000
    
    
    
    100Michigan
    

    
    29
    
    
    
    2,134,242
    
    
    
    99Nebraska
    
    
    2
    
    
    
    55,000
    
    
    
    100New York
    
    
    2
    
    
    
    27,626
    
    
    
    100Ohio
    
    
    1
    
    
    
    21,000
    
    
    
    100Oklahoma
    
    
    4
    
    
    
    99,282
    
    
    
    100Pennsylvania
    
    
    1
    
    
    
    37,004
    
    
    
    100Wisconsin
    
    
    3
    
    
    
    523,036
    
    
    
    100Total/Average
    
    
    54
    
    
    
    3,462,851
    
    
    
    99
    %
 13




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##### Table of Contents



Lease Expirations The following table shows lease expirations for the next 10 years for our community shopping
centers and wholly-owned freestanding properties, assuming that none of the tenants exercise
renewal options. December 31, 2004Gross Leasable Area
    
    
    Annualized Base RentNumberof Leases
    
    
    Square
    
    
    Percent
    
    
    
    
    
    
    PercentExpiration Year
    
    Expiring
    
    
    Footage
    
    
    of Total
    
    
    Amount
    
    
    of Total2005
    
    
    19
    
    
    
    141,395
    
    
    
    4.1
    %
    
    $
    781,915
    
    
    
    2.8
    %2006
    
    
    38
    
    
    
    180,024
    
    
    
    5.2
    %
    
    
    1,457,649
    
    
    
    5.2
    %2007
    
    
    13
    
    
    
    68,330
    
    
    
    2.0
    %
    
    
    491,710
    
    
    
    1.7
    %2008
    
    
    26
    
    
    
    314,595
    
    
    
    9.1
    %
    
    
    1,333,143
    
    
    
    4.7
    %2019
    
    
    10
    
    
    
    162,490
    
    
    
    4.7
    %
    
    
    732,864
    
    
    
    2.6
    %2010
    
    
    10
    
    
    
    226,385
    
    
    
    6.5
    %
    
    
    1,365,727
    
    
    
    4.8
    %2011
    
    
    6
    
    
    
    178,903
    
    
    
    5.2
    %
    
    
    1,163,938
    
    
    
    4.1
    %2012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2013
    
    
    1
    
    
    
    51,868
    
    
    
    1.5
    %
    
    
    492,746
    
    
    
    1.7
    %2014
    
    
    3
    
    
    
    172,958
    
    
    
    5.0
    %
    
    
    824,206
    
    
    
    2.9
    %Thereafter
    
    
    48
    
    
    
    1,965,903
    
    
    
    56.7
    %
    
    
    19,716,896
    
    
    
    69.5
    %Total
    
    
    174
    
    
    
    3,462,851
    
    
    
    100.0
    %
    
    $
    28,360,794
    
    
    
    100.0
    %
 We have made preliminary contact with the 19 tenants whose leases expire in 2005. Of
those tenants, seven (7) tenants, at their option, have the right to extend their lease term; ten
(10) tenants have leases expiring in 2005 and we expect to negotiate lease extensions; and two (2)
tenants have a month to month lease arrangement. Annualized Base Rent of our Properties The following is a breakdown of base rents in place at December 31, 2004 for each type of
retail tenant: Percent ofAnnualized
    
    
    AnnualizedType of Tenant
    
    Base Rent
    
    
    Base RentNational(1)
    
    $
    25,122,072
    
    
    
    89
    %Regional(2)
    
    
    1,999,713
    
    
    
    7Local
    
    
    1,239,009
    
    
    
    4Total
    
    $
    28,360,794
    
    
    
    100
    %
    (2) Includes the following regional tenants: Roundys Foods, Dunhams Sports, Christopher
Banks, Beals Department Stores and Hollywood Video. 14




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##### Table of Contents



Freestanding Properties Forty-one (41) of our Properties are freestanding properties which at December 31, 2004 were
leased to Borders (18), Circuit City Stores (1), Rite Aid (1), Eckerd Drugs (2), Fajita Factory
(1), Citizens Bank (1), Kmart (2), Walgreen (14) and Wal-Mart (1). Our freestanding properties provided $17,469,475, or
approximately 61.6% of our total annualized base rent as of December 31, 2004, at an average base
rent per square foot of $11.95. These properties contain, in the aggregate, 1,405,046 square feet
of gross leasable area or approximately 41% of our total gross leasable area. 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. Thirty-two (32) of our forty-one (41)
freestanding properties were developed by us. Five (5) of our 41 freestanding properties, although
not developed by us, were acquired as part of our relationship with Borders. As of December 31,
2004 our freestanding properties have a weighted average lease term of 15.3 years. Our freestanding properties range in size from 4,426 to 458,729 square feet of gross leasable
area and are located in the following states: California (1), Florida (3), Indiana (1), Kansas (2),
Maryland (2), Michigan (22), Nebraska (2), New York (2), Ohio (1), Oklahoma (4) and Pennsylvania
(1). Freestanding Properties Year Completed/
    
    
    
    
    
    Lease Expiration(2)Tenant/Location
    
    Expanded
    
    Total GLA
    
    
    
    (Option expiration)Borders,(1) Aventura, FL
    
    1996
    
    
    30,000
    
    
    Jan 31, 2016 (2036)Borders, Columbus, OH
    
    1996
    
    
    21,000
    
    
    Jan 23, 2016 (2036)Borders, Monroeville, PA
    
    1996
    
    
    37,004
    
    
    Nov 8, 2016 (2036)Borders, Norman, OK
    
    1996
    
    
    24,641
    
    
    Sep 20, 2016 (2036)Borders, Omaha, NE
    
    1995
    
    
    30,000
    
    
    Nov 3, 2015 (2035)Borders, Santa Barbara, CA
    
    1995
    
    
    38,015
    
    
    Nov 17, 2015 (2035)Borders, Wichita, KS
    
    1995
    
    
    25,000
    
    
    Nov 10, 2015 (2035)Borders,(1) Lawrence, KS
    
    1997
    
    
    20,000
    
    
    Oct 16, 2022 (2042)Borders, Tulsa, OK
    
    1998
    
    
    25,000
    
    
    Sep 30, 2018 (2038)Borders, Oklahoma City, OK
    
    2002
    
    
    24,641
    
    
    Nov 17, 2017 (2037)Borders, Omaha, NE
    
    2002
    
    
    25,000
    
    
    Nov 17, 2017 (2037)Borders, Indianapolis, IN
    
    2002
    
    
    15,844
    
    
    Nov 17, 2017 (2037)Borders, Columbia, MD
    
    1999
    
    
    28,000
    
    
    Oct 16, 2022 (2042)Borders, Germantown, MD
    
    2000
    
    
    25,000
    
    
    Oct 16, 2022 (2042)Borders Headquarters, Ann Arbor, MI
    
    1996/1998
    
    
    458,729
    
    
    Jan 29, 2023 (2043)Borders, Tulsa, OK
    
    1996
    
    
    25,000
    
    
    Sep 30, 2018 (2038)Borders, Boynton Beach, FL
    
    1996
    
    
    25,000
    
    
    July 20, 2024 (2044)Borders, Ann Arbor, MI
    
    1996
    
    
    110,000
    
    
    July 20, 2024 (2044)Circuit City, Boynton Beach, FL
    
    1996
    
    
    32,459
    
    
    Dec 15, 2016 (2036)Citizens Bank, Flint, MI
    
    2003
    
    
    4,426
    
    
    Apr 15, 2023Eckerd Drugs, Webster, NY
    
    2004
    
    
    13,813
    
    
    Feb 24, 2024 (2044)Eckerd Drugs, Albion, NY
    
    2004
    
    
    13,813
    
    
    Oct 12, 2024 (2044)Fajita Factory, Lansing, MI
    
    2004
    
    
    (3
    )
    
    Aug 31,2014 (2032)Kmart, Grayling, MI
    
    1984
    
    
    52,320
    
    
    Sep 30, 2009 (2059)Kmart, Oscoda, MI
    
    1984/1990
    
    
    90,470
    
    
    Sep 30, 2009 (2059)Rite Aid, Canton Twp, MI
    
    2003
    
    
    11,180
    
    
    Oct 31, 2019 (2049)Sams Club, Roseville, MI
    
    2002
    
    
    (4
    )
    
    Aug 4, 2022 (2082)Walgreen, Waterford, MI
    
    1997
    
    
    13,905
    
    
    Feb 28, 2018 (2058)Walgreen, Chesterfield, MI
    
    1998
    
    
    13,686
    
    
    July 31, 2018 (2058)Walgreen, Pontiac, MI
    
    1998
    
    
    13,905
    
    
    Oct 31, 2018 (2058)
 15




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##### Table of Contents



Year Completed/
    
    
    
    
    
    Lease Expiration(2)Tenant/Location
    
    Expanded
    
    Total GLA
    
    
    
    (Option expiration)Walgreen, Grand Blanc, MI
    
    1998
    
    
    13,905
    
    
    Feb 28, 2019 (2059)Walgreen, Rochester, MI
    
    1998
    
    
    13,905
    
    
    June 30, 2019 (2059)Walgreen, Ypsilanti, MI
    
    1999
    
    
    15,120
    
    
    Dec 31, 2019 (2059)Walgreen,(1) Petoskey, MI
    
    2000
    
    
    13,905
    
    
    Apr 30, 2020 (2060)Walgreen, Flint, MI
    
    2000
    
    
    14,490
    
    
    Dec 31, 2020 (2060)Walgreen, Flint, MI
    
    2001
    
    
    15,120
    
    
    Feb 28, 2021 (2061)Walgreen, N Baltimore, MI
    
    2001
    
    
    14,490
    
    
    Aug 31, 2021 (2061)Walgreen, Flint, MI
    
    2002
    
    
    14,490
    
    
    Apr 30, 2027 (2077)Walgreen, Big Rapids, MI
    
    2003
    
    
    13,560
    
    
    Apr 30, 2028 (2078)Walgreen, Flint, MI
    
    2004
    
    
    14,560
    
    
    Feb 28, 2029 (2079)Walgreen, Flint, MI
    
    2004
    
    
    13,650
    
    
    Oct 31, 2029 (2079)Total
    
    
    
    
    1,405,046
   (1)
    These properties are subject to long-term ground leases where a third party owns the
underlying land and has leased the land to us to construct or operate freestanding properties.
We pay rent for the use of the land and we are generally responsible for all costs and
expenses associated with the building and improvements. At the end of the lease terms, as
extended (Aventura, FL 2036, Lawrence, KS 2027 and Petoskey, MI 2049), the land together with
all improvements revert to the land owner. We have an option to purchase the Lawrence property
during the period October 1, 2006 to September 30, 2016 and to purchase the Petoskey property
after August 7, 2019.(2)
    At the expiration of tenants initial lease term, each tenant has an option, subject to
certain requirements, to extend its lease for an additional period of time.(3)
    This 2.03 acre property is leased from us by Fajita Factory, LLC pursuant to a ground lease.(4)
    This 12.68 acre property is leased from us by Wal-Mart pursuant to a ground lease. Joint Venture Properties During 1996, seven free-standing properties which we leased to Borders, including Borders
current corporate headquarters, its former headquarters building and properties operated as Borders
Books and Music were developed or acquired directly by seven limited liability companies which we
identify as joint ventures, but which are accounted for by us as partnerships. In July 2004, we
acquired the interest of our final joint venture partner. Of the seven joint venture properties,
we have entered into long-term leases with Borders for six properties. With respect to the seventh
property located in Ann Arbor, Michigan, a lease has not been executed because we have not been
able to reach agreement with our tenant, Borders, concerning the rental rate. On October 22, 2004,
we filed a complaint against Borders pursuant to which we are seeking a judgment ordering Borders
to execute a lease for the Ann Arbor property at our determined rental rate. Borders filed an
answer disputing our rent calculation and a counterclaim against the plaintiff and a third party
complaint against Agree Realty Corporation, seeking a declaratory judgment relating to the rent
payable under the long-term lease, damages and other relief. Our Company and Borders have agreed
to engage in a non-binding facilitation process in an effort to resolve the dispute. This process
is expected to commence during March 2005. The acquired properties are located in Oklahoma City,
Oklahoma, Omaha, Nebraska, Indianapolis, Indiana, Boynton Beach, Florida, Tulsa, Oklahoma and Ann
Arbor, Michigan (two properties). 16




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##### Table of Contents



Community Shopping Centers Thirteen (13) of our properties are community shopping centers ranging in size from 20,000 to
241,458 square feet of gross leaseable area. The community shopping centers are located in five
states as follows: Florida (1), Illinois (1), Kentucky (1), Michigan (7) 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, 2004 are set forth below: Gross
    
    
    
    
    
    
    Average
    
    
    Percent
    
    
    PercentYear
    
    
    Leasable
    
    
    
    
    
    
    Base
    
    
    Occupied at
    
    
    Leased at
    
    
    Anchor Tenants (LeaseCompleted/
    
    
    Area
    
    
    Annualized
    
    
    Rent per
    
    
    December 31,
    
    
    December 31,
    
    
    expiration/Option periodProperty Location
    
    Expanded
    
    
    Sq. Ft.
    
    
    Base Rent (2)
    
    

Sq. Ft. (3)
    
    
    2004
    
    
    2004 (4)
    
    
    expiration) (5)Capital Plaza,(1)
    
    
    1978/ 1991
    
    
    
    135,009
    
    
    $
    368,568
    
    
    $
    2.73
    
    
    
    75
    %
    
    
    100
    %
    
    Kmart(2008/2053)Frankfort, KY
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Winn Dixie(2010/2035)Fashion Bug(2005/2025Charlevoix Commons
    
    
    1991
    
    
    
    137,375
    
    
    
    654,245
    
    
    
    4.96
    
    
    
    72
    %
    
    
    98
    %
    
    Kmart (2015/2065)Charlevoix, MI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Roundys (2011-2031)Chippewa Commons
    
    
    1991
    
    
    
    168,311
    
    
    
    950,983
    
    
    
    5.65
    
    
    
    100
    %
    
    
    100
    %
    
    Kmart (2014/2064)Chippewa Falls, WI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Roundys (2011/2031)Fashion Bug (2006/2021)Iron Mountain Plaza
    
    
    1991
    
    
    
    176,352
    
    
    
    872,443
    
    
    
    5.09
    
    
    
    97
    %
    
    
    97
    %
    
    Kmart (2015/2065)Iron Mountain, MI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Roundys (2011/2031)Fashion Bug (2007/2022)Ironwood Commons
    
    
    1991
    
    
    
    185,535
    
    
    
    907,327
    
    
    
    5.00
    
    
    
    98
    %
    
    
    98
    %
    
    Kmart (2015/2065)Ironwood, MI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Super Value (2011/2036)Fashion Bug (2007/2022)Marshall Plaza
    
    
    1990
    
    
    
    119,279
    
    
    
    665,081
    
    
    
    5.58
    
    
    
    100
    %
    
    
    100
    %
    
    Kmart (2015/2065)Marshall, MIMt. Pleasant
Shopping Center
    
    
    1973/1997
    
    
    
    241,458
    
    
    
    1,093,535
    
    
    
    4.53
    
    
    
    100
    %
    
    
    100
    %
    
    Kmart (2008/2048)J.C. Penney Co. (2005/2020)Mt. Pleasant, MI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Staples, Inc. (2010/2025)Fashion Bug (2006/2026)North Lakeland Plaza
    
    
    1987
    
    
    
    171,334
    
    
    
    1,267,921
    
    
    
    7.40
    
    
    
    100
    %
    
    
    100
    %
    
    Best Buy (2013/2028)Lakeland, FL
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Bealls (2015/2025)Petoskey Town Center
    
    
    1990
    
    
    
    174,870
    
    
    
    1,067,542
    
    
    
    6.10
    
    
    
    100
    %
    
    
    100
    %
    
    Kmart (2015/2065)Petoskey, MI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Roundys (2010/2030)Fashion Bug (2007/2022)Plymouth Commons
    
    
    1990
    
    
    
    162,031
    
    
    
    976,521
    
    
    
    6.03
    
    
    
    100
    %
    
    
    100
    %
    
    Kmart (2015/2065)Plymouth, WI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Roundys (2010/2030)Fashion Bug (2006/2021)
 17




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##### Table of Contents



Gross
    
    
    
    
    
    
    Average
    
    
    Percent
    
    
    PercentYear
    
    
    Leasable
    
    
    
    
    
    
    Base
    
    
    Occupied at
    
    
    Leased at
    
    
    Anchor Tenants (LeaseCompleted/
    
    
    Area
    
    
    Annualized
    
    
    Rent per
    
    
    December 31,
    
    
    December 31,
    
    
    expiration/Option periodProperty Location
    
    Expanded
    
    
    Sq. Ft.
    
    
    Base Rent (2)
    
    

Sq. Ft. (3)
    
    
    2004
    
    
    2004 (4)
    
    
    expiration) (5)Rapids Associates
    
    
    1990
    
    
    
    173,557
    
    
    
    958,482
    
    
    
    5.52
    
    
    
    74
    %
    
    
    100
    %
    
    Kmart (2015/2065)Big Rapids, MI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Roundys (2010/2030)Fashion Bug (2006/2021)Shawano Plaza
    
    
    1990
    
    
    
    192,694
    
    
    
    994,671
    
    
    
    5.16
    
    
    
    100
    %
    
    
    100
    %
    
    Kmart (2014/2064)Shawano, WI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Roundys (2010/2030)J.C. Penney Co. (2005/2025)Fashion Bug (2006/2021)West Frankfort Plaza
    
    
    1982
    
    
    
    20,000
    
    
    
    114,000
    
    
    
    6.33
    
    
    
    90
    %
    
    
    90
    %
    
    Fashion Bug (2007)West Frankfort, ILTotal/Average
    
    
    
    
    
    
    2,057,805
    
    
    $
    10,891,319
    
    
    $
    5.33
    
    
    
    94
    %
    
    
    99
    %
   (1)
    
    All community shopping centers except Capital Plaza (which is subject to a long-term ground
lease expiring in 2053 from a third party) are wholly-owned by us.(2)
    
    Total annualized base rents of the Company as of December 31, 2004.(3)
    
    Calculated as total annualized base rents, divided by gross leaseable area actually leased as
of December 31, 2004.(4)
    
    Roundys has sub-leased the space it leases at Iron Mountain Plaza (35,285 square feet,
rented at a rate of $5.87 per square foot) and leases but does not currently occupy, the
35,896 square feet it leases at Charlevoix Commons at a rate of $5.97 per square foot and the
44,478 square feet it leases at Rapids Associates at a rate of $6.00 per square foot. The Iron
Mountain and Charlevoix leases expire in 2011 and the Rapids Associates lease expires in 2010
(assuming they are not extended by Roundys).(5)
    
    The option to extend the lease beyond its initial term is only at the option of the tenant. 
 ITEM 3. LEGAL PROCEEDINGS On October 22, 2004, we filed a complaint against Borders pursuant to which we are seeking a
judgment ordering Borders to execute a lease for the Ann Arbor property at our determined rental
rate. Borders filed an answer disputing our rent calculation and a counterclaim against the
plaintiff and a third party complaint against Agree Realty Corporation, seeking a declaratory
judgment relating to the rent payable under the long-term lease, damages and other relief. Our
Company and Borders have agreed to engage in a non-binding facilitation process in an effort to
resolve the dispute. We are not presently involved in any other litigation nor, to our knowledge, is any other
litigation threatened against us, except for routine litigation arising in the ordinary course of
business which is expected to be covered by our liability insurance. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of 2004. 18




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##### Table of Contents



Part II 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock is traded on the New York Stock Exchange under the symbol ADC. The
following table sets forth the high and low sales prices of our common stock, as reported on the
New York Stock Exchange Composite Tape, 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. Market Information Dividends PerHigh
    
    
    Low
    
    
    Common ShareQuarter EndedMarch 31, 2004
    
    $
    32.75
    
    
    $
    27.67
    
    
    $
    0.485June 30, 2004
    
    $
    32.55
    
    
    $
    22.78
    
    
    $
    0.485September 30, 2004
    
    $
    29.05
    
    
    $
    24.50
    
    
    $
    0.490December 31, 2004
    
    $
    31.88
    
    
    $
    27.60
    
    
    $
    0.490March 31, 2003
    
    $
    20.44
    
    
    $
    17.00
    
    
    $
    0.480June 30, 2003
    
    $
    25.62
    
    
    $
    19.35
    
    
    $
    0.485September 30, 2003
    
    $
    24.98
    
    
    $
    22.68
    
    
    $
    0.485December 31, 2003
    
    $
    28.50
    
    
    $
    24.41
    
    
    $
    0.485
 At December 31, 2004, there were 6,487,846 shares of our common stock issued and outstanding
which were held by approximately 215 stockholders of record. The stockholders of record do not
reflect persons or entities who held their shares in nominee or street name. We intend to continue to declare quarterly dividends to our shareholders. 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, our annual distribution requirements under the provisions of
the Code applicable to REITs and such other factors as our board of directors deems relevant. During the year ended December 31, 2004, we did not sell any unregistered securities, except
the grant, under our 1994 Stock Incentive Plan (the Plan), of 41,126 shares of restricted stock to
certain of our employees. The transfer restrictions on such shares lapse in equal annual
installments over a five-year period from the date of the grant, but the holder thereof is entitled
to receive dividends on all such shares from the date of the grant. On January 1, 2004 the Company
redeemed 6,000 shares of restricted stock previously issued under the Plan. In January 2005 we priced a public offering of 1,000,000 shares or our common stock at an
offering price of $28.28 per share resulting in net proceeds of approximately $27.1 million. In
February 2005 the underwriters exercised their over allotment option for an additional 150,000
shares at the same per share price resulting in net proceeds of approximately $4.1 million. 19




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##### Table of Contents



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 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, 2000 through 2004
and operating date for each of the periods presented were derived from our audited financial
statements. Selected Financial Data Year Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    Year EndedDec 31,
    
    
    Dec 31,
    
    
    Dec 31,
    
    
    Dec31,
    
    
    Dec 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Operating DataTotal Revenue
    
    $
    29,929
    
    
    $
    27,227
    
    
    $
    24,032
    
    
    $
    23,128
    
    
    $
    22,183ExpensesProperty expense (1)
    
    
    4,524
    
    
    
    4,418
    
    
    
    4,014
    
    
    
    3,622
    
    
    
    3,554General and administrative
    
    
    2,849
    
    
    
    2,275
    
    
    
    2,012
    
    
    
    1,807
    
    
    
    1,557Interest
    
    
    4,507
    
    
    
    5,684
    
    
    
    6,196
    
    
    
    6,720
    
    
    
    7,045Early extinguishment of debt
    
    
    
    
    
    
    961
    
    
    
    
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    4,437
    
    
    
    4,024
    
    
    
    3,654
    
    
    
    3,565
    
    
    
    3,414Total Expenses
    
    
    16,317
    
    
    
    17,362
    
    
    
    15,876
    
    
    
    15,714
    
    
    
    15,570Other Income (2)
    
    
    217
    
    
    
    438
    
    
    
    674
    
    
    
    913
    
    
    
    522Income before Minority Interest and
Discontinued Operations
    
    
    13,829
    
    
    
    10,303
    
    
    
    8,830
    
    
    
    8,327
    
    
    
    7,135Minority Interest
    
    
    1,304
    
    
    
    1,167
    
    
    
    1,161
    
    
    
    1,102
    
    
    
    948Income
before Discontinued Operations
    
    
    12,525
    
    
    
    9,136
    
    
    
    7,669
    
    
    
    7,225
    
    
    
    6,187Gain on Sale of Asset From Discontinued
Operations
    
    
    523
    
    
    
    740
    
    
    
    
    
    
    
    
    
    
    
    Income From Discontinued Operations
    
    
    75
    
    
    
    596
    
    
    
    1,103
    
    
    
    841
    
    
    
    911Net Income
    
    $
    13,123
    
    
    $
    10,472
    
    
    $
    8,772
    
    
    $
    8,066
    
    
    $
    7,098Number of Properties
    
    
    54
    
    
    
    50
    
    
    
    48
    
    
    
    47
    
    
    
    45Number of Square Feet
    
    
    3,463
    
    
    
    3,495
    
    
    
    3,699
    
    
    
    3,556
    
    
    
    3,526Percentage Leased
    
    
    99
    %
    
    
    97
    %
    
    
    99
    %
    
    
    99
    %
    
    
    96
    %Per Share DataIncome before discontinued operations
    
    $
    1.94
    
    
    $
    1.77
    
    
    $
    1.75
    
    
    $
    1.66
    
    
    $
    1.43Discontinued operations
    
    
    .09
    
    
    
    .22
    
    
    
    .22
    
    
    
    .17
    
    
    
    .18Net income
    
    $
    2.03
    
    
    $
    1.99
    
    
    $
    1.97
    
    
    $
    1.83
    
    
    $
    1.61Cash dividends
    
    $
    1.95
    
    
    $
    1.94
    
    
    $
    1.84
    
    
    $
    1.84
    
    
    $
    1.84Weighted average of common shares
outstanding  Dilutive
    
    
    6,475
    
    
    
    5,276
    
    
    
    4,447
    
    
    
    4,417
    
    
    
    4,396Balance Sheet DataReal Estate (before accumulated depreciation)
    
    $
    253,293
    
    
    $
    221,225
    
    
    $
    210,986
    
    

    $
    196,486
    
    
    $
    191,048Total Assets
    
    $
    215,702
    
    
    $
    191,686
    
    
    $
    178,162
    
    
    $
    167,511
    
    
    $
    166,052Total debt, including accrued interest
    
    $
    93,307
    
    
    $
    84,203
    
    
    $
    115,534
    
    
    $
    105,946
    
    
    $
    104,407
   (1)
    
    Property expense includes real estate taxes, property maintenance, insurance, utilities
and land lease expense. 20




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##### Table of Contents



(2)
    
    Other income is composed of development fee income, gain on land sales, and equity in net
income of unconsolidated entities.(3)
    
    Net income per share has been computed by dividing the net income by the weighted average
number of shares of Common Stock outstanding. The per share amounts are presented in
accordance with SFAS No. 128 Earnings per share. The Companys basic and diluted earnings
per share are the same. 
 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, Agree Limited Partnership (the Operating Partnership), of which
Agree Realty Corporation is the sole general partner and held a 90.59% interest as of December 31,
2004. We are operating so as to qualify as a real estate investment trust (REIT) for federal
income tax purposes. On August 4, 2003, we completed an offering of 1,700,000 shares of common stock at $23.50 per
share; on August 12, 2003 the underwriters exercised their over allotment option for an additional
255,000 shares at the same per share price (collectively, the 2003 Offering). The net proceeds
from the 2003 Offering of approximately $43.2 million were used to repay amounts outstanding under
our credit facility. On January 25, 2005 we completed an offering of 1,000,000 shares of common stock at $28.28 per
share; on February 7, 2005 the underwriter exercised its over allotment option for an additional
150,000 shares at the same per share price (collectively the 2005 Offering). The net proceeds from
the 2005 Offering of approximately $31.2 million were used to repay amounts outstanding under our
credit facility. We have thirteen (13) leases with Kmart Corporation. Eleven (11) of the Kmart stores are
currently anchors in our community shopping centers and two (2) Kmart stores are freestanding net
leased properties. The Kmart stores in our portfolio provided 15% of our annual base rent as of
December 31, 2004. As of December 31, 2004, all of our Kmart stores were open and operating as
Kmart discount stores. 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 December 2004, the FASB issued Statement of Financial Accounting Standards (SFAS) No.
123(R), to expand and clarify SFAS No. 123 in several areas. The Statement requires companies to
measure the cost of employee services received in exchange for an award of an equity instrument
based on the grant-date fair value of the award. The cost is recognized over the requisite service
period (usually the vesting period) for the estimated number of instruments where service is
expected to be rendered. This statement is effective for the interim reporting periods beginning
after June 15, 2005. We do not expect that our financial statements will be materially impacted by
SFAS No. 123(R). In May 2003, the Financial Accounting Standards Board (the FASB) issued SFAS No. 150,
Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity
(SFAS 150). The objective of SFAS 150 is to establish standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities and equity. In
November 2003, the FASB indefinitely delayed the effective date for certain mandatory redeemable
non-controlling interests in consolidated financial statements. Adoption of SFAS 150 did not have
an impact on the results of operations or financial position of the Company. 21




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##### Table of Contents



Critical Accounting Policies In the course of developing and evaluating accounting policies and procedures, we use
estimates, assumptions and judgments to determine the most appropriate methods to be applied. Such
processes are used in determining capitalization of costs related to real estate investments,
potential impairment of real estate investments, operating cost reimbursements, and taxable income. 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. 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. In determining the fair value of real estate investments, we consider future cash flow
projections on a property by property basis, current interest rates and current market conditions
of the geographical location of each property. 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 of 1986, as amended (the
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 taxable income to our shareholders
and satisfy certain other requirements defined in the Code. Accordingly, no provision was made for
federal income taxes in the accompanying consolidated financial statements. Comparison of Year Ended December 31, 2004 to Year Ended December 31, 2003 Minimum rental income increased $2,672,000, or 11%, to $26,778,000 in 2004, compared to
$24,106,000 in 2003. The increase resulted from rental increases of $251,000 from existing
properties; an increase of $909,000 due to additional rent resulting from the acquisition of our
joint venture partners interest in two joint venture properties in 2003 and two joint venture
properties in 2004; an increase of $640,000 from the acquisition of one property in 2003 and three
properties in 2004; an increase of $533,000 from the development of one property in 2003 and two
properties in 2004; and the receipt of a lease termination payment from Kmart with regard to their
Lakeland, Florida store in the amount of $339,000. Percentage rents decreased $123,000, or 66%, to $63,000 in 2004, compared to $186,000 in 2003.
The decrease was primarily the result of decreased tenant sales ($89,000) and the refund of
($34,000) pertaining to percentage rent paid in error by a tenant in 2003. Operating cost reimbursements increased $123,000, or 4%, to $3,055,000 in 2004, compared to
$2,932,000 in 2003. Operating cost reimbursement increased due to the increase in the reimbursable
property operating expenses as explained below. Included in 2004 and 2003 operating cost
reimbursements are bad debt recoveries of $100,000 and $65,000, respectively as a result of the
decrease in the allowance for bad debts. Other income increased $30,000 to $33,000 in 2004, compared to $3,000 in 2003. Other income
increased due to the sale of signage at one of our properties. Real estate taxes increased $33,000, or 2%, to $1,806,000 in 2004 compared to $1,773,000 in
2003. The increase is the result of general assessment increases on the properties and additional
real estate taxes related to a closed Kmart store. 22




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##### Table of Contents



Property operating expenses (shopping center maintenance, snow removal, insurance and
utilities) increased $72,000, or 4%, to $1,980,000 in 2004 compared to $1,908,000 in 2003. The
increase was the result of a reduction in shopping center maintenance expenses of ($73,000);
increased snow removal costs of $98,000; a decrease in utility costs of ($7,000); and an increase
in insurance costs of $54,000 in 2004 versus 2003. Land lease payments remained constant at $737,000 for 2004 and 2003. General and administrative expenses increased $573,000, or 25%, to $2,848,000 in 2004 compared
to $2,275,000 in 2003. The increase was primarily the result of an increase in compensation
related expenses of $244,000; increased general state taxes of $80,000; increased contracted
services to investigate development opportunities of $196,000; costs associated with Sarbanes-Oxley
compliance of $24,000 and property management related expenses of $23,000. General and
administrative expenses as a percentage of rental income increased from 9.4% for 2003 to 10.6% for
2004. Depreciation and amortization increased $413,000, or 10%, to $4,437,000 in 2004 compared to
$4,024,000 in 2003. The increase was the result the acquisition of one property in 2003 and three
properties in 2004; the acquisition of the joint venture partners interest in one joint venture
property in 2003 and two Joint Venture Properties in 2004 and the development of two properties in
2003 and two properties in 2004. Interest expense decreased $1,177,000, or 21%, to $4,507,000 in 2002, from $5,684,000 in 2003.
The decrease in interest expense was the result of decreased borrowings as a result of the
reduction in outstanding indebtedness from the net proceeds from the issuance of additional common
stock. Early extinguishment of debt totaled $961,000 in 2003, as a result of our repaying in 2003
three mortgages totaling approximately $37,000,000 prior to their scheduled maturity. In
connection with these repayments we incurred pre-payment penalties of $555,000 and wrote-off
unamortized mortgage costs in the amount of $406,000. There was no early extinguishment of debt in
2004. Equity in net income of unconsolidated entities decreased $221,000 to $217,000 in 2004
compared to $438,000 in 2003 as a result of the acquisition of the joint venture partners interest
in one joint venture property in 2003 and two joint venture properties in 2004. The Companys income before minority interest and discontinued interest increased $3,526,000,
or 34%, to $13,829,000 in 2004, from $10,303,000 in 2003 as a result of the foregoing factors. Comparison of Year Ended December 31, 2003 to Year Ended December 31, 2002 Minimum rental income increased $2,877,000, or 14%, to $24,106,000 in 2003, compared to
$21,229,000 in 2002. The increase was the result of rental increases of $511,000 from existing
properties; an increase of $1,953,000 due to additional rent resulting from the acquisition of our
joint venture partners interest in three joint venture properties in 2002 and two joint venture
properties in 2003; an increase of $387,000 from the development of one property in 2002 and two
properties in 2003; and an increase of $26,000 from the acquisition of one property in 2003. Percentage rental income decreased $62,000, or 25%, to $186,000 in 2003, compared to $248,000
in 2002. The decrease was the result of a decrease in percentage rent received from Kmart of
$56,000; and a decrease in percentage rent received from other tenants of $6,000. Operating cost reimbursements increased $386,000, or 15%, to $2,932,000 in 2003, compared to
$2,546,000 in 2002. Operating cost reimbursement increased due to the increase in the reimbursable
property operating expenses as explained below. Other income remained relatively constant at $3,000 in 2003, compared to $9,000 in 2002 23




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##### Table of Contents



Real estate taxes increased $79,000, or 5%, to $1,773,000 in 2003 compared to $1,694,000 in
2002. The increase is the result of general assessment increases of $32,000 and additional real
estate taxes of $47,000 which we are now required to pay as a result of the closing of the Kmart
store in Lakeland, Florida. Property operating expenses increased $327,000, or 21%, to $1,908,000 in 2003 compared to
$1,581,000 in 2002. The increase was the result of additional shopping center maintenance of
$57,000; increased snow removal costs of $36,000; an increase in utility costs of $22,000; and an
increase in insurance costs of $212,000 in 2003 versus 2002. Land lease payments remained relatively constant at $737,000 for 2003 and $739,000 in 2002. General and administrative expenses increased $263,000, or 13%, to $2,275,000 in 2003 compared
to $2,012,000 in 2002. The increase was the result of increased compensation related expenses of
$179,000; increased general state taxes of $50,000; and increased property management related
expenses of $34,000. General and administrative expenses as a percentage of rental income
increased from 9.2% for 2002 to 9.3% for 2003. Depreciation and amortization increased $370,000, or 10%, to $4,024,000 in 2003 compared to
$3,654,000 in 2002. The increase was the result of the development of one property in 2002 and two
properties in 2003; the acquisition of one property in 2003; and the acquisition of the joint
venture partners interest in three joint venture properties in 2002 and two joint venture
properties in 2003. Interest expense decreased $512,000, or 8%, to $5,684,000 in 2003, from $6,196,000 in 2002.
The decrease in interest expense was the result of decreased borrowings as a result of the
reduction in outstanding indebtedness with the net proceeds from the issuance of additional common
stock. Early extinguishment of debt totaled $961,000 in 2003, as a result of the Company repaying in
2003 three mortgages totaling approximately $37,000,000 prior to their scheduled maturity. In
connection with these repayments we incurred pre-payment penalties of $555,000 and wrote-off
unamortized mortgage costs in the amount of $406,000. There was no early extinguishment of debt in
2002. Equity in net income of unconsolidated entities decreased $235,000, or 35%, to $438,000 in
2003 compared to $674,000 in 2002 as a result of the acquisition of our joint venture partners
interest in three joint venture properties in 2002 and two joint venture properties in 2003. The Companys income before minority interest and discontinued operations increased
$1,473,000, or 17%, to $10,303,000 in 2003, from $8,830,000 in 2002 as a result of the foregoing
factors. Liquidity and Capital Resources Our principal demands for liquidity are distributions to our shareholders, debt service,
development of new properties and future property acquisitions. During the quarter ended December 31, 2004, we declared a quarterly dividend of $.49 per
share. The dividend was paid on January 6, 2005 to holders of record on December 23, 2004. As of December 31, 2004, we had total mortgage indebtedness of $53,808,689 with a weighted
average interest rate of 6.63%. Future scheduled annual maturities of mortgages payable for the
years ending December 31 are as follows: 2005 - $2,189,578; 2006 - $2,454,764; 2007 - $2,621,920;
2008 - $2,781,076; 2009 - $2,970,466. The mortgage debt is all fixed rate, self-amortizing debt. In addition, the Operating Partnership has in place a $50 million credit facility with
Standard Federal Bank, as the agent (Credit Facility), which is guaranteed by the Company. The
Credit Facility matures in November 2006 and can be extended for an additional three years. During
the three year extension period we will have no further ability to borrow under this facility and
will be required to repay a portion of the unpaid principal on a quarterly basis. Advances under
the Credit Facility bear interest within a range of one-month to six-month LIBOR plus 150 24




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##### Table of Contents



basis points to 213 basis points or the lenders prime rate, at the our option, based on
certain factors such as debt to property value and debt service coverage. The Credit Facility is
used to fund property acquisitions and development activities and is secured by most of the
properties which are not otherwise encumbered and properties to be acquired or developed. As of
February 15, 2005, $13,000,000 was outstanding under the Credit Facility bearing a weighted average
interest rate of 3.87%. We also have in place a $5 million line of credit (Line of Credit), which matures on June 30,
2005, and which we expect to renew for an additional 12-month period. The Line of Credit bears
interest at the lenders prime rate less 50 basis points or 175 basis points in excess of the
one-month LIBOR rate, at our option. The purpose of the Line of Credit is to provide working
capital and fund land options and start-up costs associated with new projects. As of February 15,
2005, $-0- was outstanding under the Line of Credit. The following table outlines our contractual obligations (in thousands) as of December 31,
2004. Total
    
    
    Yr 1
    
    
    2-3 Yrs
    
    
    4-5 Yrs
    
    
    Over 5 YrsMortgages Payable
    
    $
    53,809
    
    
    $
    2,190
    
    
    $
    5,077
    
    
    $
    5,751
    
    
    $
    40,791Notes Payable
    
    
    39,200
    
    
    
    200
    
    
    
    1,040
    
    
    
    37,960
    
    
    
    Land Lease Obligations
    
    
    14,347
    
    
    
    765
    
    
    
    1,543
    
    
    
    1,512
    
    
    
    10,527Other Long-Term Liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    107,356
    
    
    $
    3,155
    
    
    $
    7,660
    
    
    $
    45,223
    
    
    $
    51,318
 We have three development projects under construction that will add an additional 44,199
square feet of GLA to our portfolio. The projects are expected to be completed during the second
quarter of 2005. Additional funding required for this project is estimated to be approximately
$5,500,000 and will come from the Credit Facility. 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. We also have restricted cash available to fund future real estate
investments. We believe that adequate cash flow will be available to fund our operations and pay
dividends in accordance with REIT requirements. We may obtain additional funds for future
development or acquisitions through other borrowings or the issuance of additional shares of common
stock. We intend to incur additional debt in a manner consistent with our policy of maintaining a
ratio of total debt (including construction and acquisition financing) to total market
capitalization of 65% or less. 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 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 and /
or equity. Upon completion of refinancing, we intend to lower the ratio of total debt to market
capitalization to 50% or less. Nevertheless, we may operate with debt levels or ratios, which are
in excess of 50% for extended periods of time prior to such refinancing. 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. 25




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##### Table of Contents



Funds from Operations We consider Funds from Operations (FFO) to be a useful supplemental measure to evaluate our
operating performance because, by excluding gains or losses on dispositions and excluding
depreciation, FFO can help an investor compare the operating performance of our real estate between
periods or compare such performance to that of different companies. 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 uses historical cost
accounting is insufficient by itself. FFO is defined by the National Association of Real Estate Investment Trusts, Inc. (NAREIT) to
mean net income computed in accordance with generally accepted accounting principles (GAAP),
excluding gains (or losses) from sales of property, plus real estate related depreciation and
amortization. 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.
While we adhere to the NAREIT definition of FFO in making our calculation, our method of
calculating FFO may not be comparable to the methods used by other REITs and accordingly may be
different from similarly titled measures reported by other companies. The following table illustrates the calculation of FFO for the years ended December 31, 2004,
2003 and 2002: Year ended December 31,2004
    
    
    2003
    
    
    2002Net income
    
    $
    13,123,020
    
    
    $
    10,471,746
    
    
    $
    8,772,330Depreciation of real estate assets
    
    
    4,379,912
    
    
    
    4,164,691
    
    
    
    3,840,636Amortization of leasing costs
    
    
    45,178
    
    
    
    55,182
    
    
    
    68,325Minority interest
    
    
    1,366,347
    
    
    
    1,338,046
    
    
    
    1,328,233Gain on sale of assets
    
    
    (577,168
    )
    
    
    (834,669
    )
    
    
    Funds from Operations
    
    $
    18,337,289
    
    
    $
    15,194,996
    
    
    $
    14,009,524Weighted average shares and
OP Units outstanding
    
    
    7,148,664
    
    
    
    5,946,070
    
    
    
    5,120,338
 
 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 remaining debt,
by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate
changes. 2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Thereafter
    
    
    TotalFixed rate debt
    
    
    2,189
    
    
    
    2,455
    
    
    
    2,622
    
    
    
    2,781
    
    
    
    2,971
    
    
    
    40,791
    
    
    
    53,809Average interest rate
    
    
    6.63
    
    
    
    6.63
    
    
    
    6.63
    
    
    
    6.63
    
    
    
    6.63
    
    
    
    6.63
    
    
    
    Variable rate debt
    
    
    200
    
    
    
    260
    
    
    
    1,040
    
    

    
    1,040
    
    
    
    36,660
    
    
    
    
    
    
    
    39,200Average interest rate
    
    
    4.75
    
    
    
    3.77
    
    
    
    3.77
    
    
    
    3.77
    
    
    
    3.77
    
    
    
    
    
    
    
    
 26




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##### Table of Contents



The fair value (in thousands) is estimated at $54,000 and $39,200 for fixed rate debt and
variable rate debt, respectively. The table above incorporates those exposures that exist as of December 31, 2004; it does not
consider those exposures or position, 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. The Company does not enter into financial instrument transactions for trading or other
speculative purposes or to manage interest rate exposure. A 10% adverse change in interest rates on the portion of the Companys debt bearing interest
at variable rates would result in an increase in interest expense of approximately $153,000. 
 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
 During our last two fiscal years, there have been no changes in the independent accountants or
disagreements with such accountants as to accounting and financial disclosures of the type required
to be disclosed in this Item 9. 
 ITEM 9A
    
    CONTROLS AND PROCEDURES
 Under the supervision and with the participation of our management, including our principal
executive officer and principal financial officer, we conducted an evaluation of the effectiveness
of the design and operation of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act),
as of the end of the period covered by this report (the Evaluation Date). Based on this evaluation, and due to the material weakness in our internal control over
financial reporting (as described below in Managements Report on Internal Control over Financial
Reporting), our chief executive officer and chief financial officer concluded that as of December
31, 2004, our disclosure controls and procedures were not 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. There was no change in our internal control over financial reporting during its most
recently completed fiscal quarter that has materially affected or is reasonably likely to
materially affect our internal control over financial reporting. Our audit committee will engage independent third party consultants to perform periodic
reviews of our financial reporting process to help mitigate the material weakness in our internal
controls described in Managements Report on Internal Control and Financial Reporting. Because of its inherent limitations, our disclosure controls and procedures may not prevent or
detect misstatements. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control system are met.
Because of the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issued and instances of fraud, if any, have been detected. 27




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##### Table of Contents



Report of Management on Agree Realty Corporations Internal Control Over Financial Reporting We, as members of management of Agree Realty Corporation, are responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is defined in Exchange
Act Rules 13a-15(f). Internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. 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 our assets; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that our receipts and expenditures are being made
only in accordance with authorizations of our management and directors; and (3) 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, our internal controls and procedures may not prevent or
detect misstatements. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control system are met.
Because of the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, have been detected.
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 and procedures may deteriorate. Management has identified and reported to the audit committee a material weakness in our
internal controls regarding the segregation of duties resulting from the fact that we do not have
an accounting staff sufficient to enable us to comply with acceptable internal controls under
Section 404 of Sarbanes-Oxley of 2002. At December 31, 2004, we had seven employees, one of which
(our Chief Financial Officer) was engaged full time in the period-end financial reporting process. We, under the supervision of and with the participation of our management, including the Chief
Executive Officer and Chief Financial Officer, assessed the our internal control over financial
reporting as of December 31, 2004, based on criteria for effective internal control over financial
reporting described in Internal Control  Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. As a result of the material weakness
described above, management has concluded that our internal control was not effective as of
December 31, 2004. Managements assessment of the effectiveness of our internal control over financial reporting
has been audited by BDO Seidman, LLP, an independent registered public accounting firm, as stated
in their report that is included herein. Report of Independent Registered Public Accounting Firm To the Board of Directors and Owners of Agree Realty Corporation We have audited managements assessment, included in the accompanying Report of Management on
Agree Realty Corporations Internal Control Over Financial Reporting, that Agree Realty
Corporation (the Company) did not maintain effective internal control over financial reporting as
of December 31, 2004, because of the effect of the lack of segregation of duties over the
period-end financial reporting process, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Agree Realty Corporations management is responsible 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 managements assessment and an opinion on the effectiveness of the Companys internal
control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether 28




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##### Table of Contents



effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating managements assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides 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
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 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 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. A material weakness is a control deficiency, or combination of control deficiencies, that
results in more than a remote likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. The following material weakness has been
identified and included in managements assessment. The Company has identified a material weakness
as a result of the lack of segregation of duties in the period-end financial reporting process.
The Chief Financial Officer (CFO) is the only employee with any significant knowledge of
generally accepted accounting principles. The CFO is also the sole employee in charge of the
general ledger (including the preparation of routine and non-routine journal entries and journal
entries involving accounting estimates), the preparation of account reconciliations, the selection
of accounting principles, and the preparation of interim and annual financial statements (including
report combinations, consolidation entries and footnote disclosures) in accordance with generally
accepted accounting principles. This material weakness was considered in determining the nature,
timing, and extent of audit tests applied in our audit of the 2004 financial statements, and this
report does not affect our report dated February 11, 2005 on those financial statements. In our opinion, managements assessment that Agree Realty Corporation did not maintain
effective internal control over financial reporting as of December 31, 2004, is fairly stated, in
all material respects, based on the COSO criteria. Also, in our opinion, because of the effect of
the material weakness described above on the achievement of the objectives of the control criteria,
Agree Realty Corporation has not maintained effective internal control over financial reporting as
of December 31, 2004, based on criteria established in Internal Control  Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). BDO Seidman, LLP
Troy, Michigan
February 11, 2005 Changes in Internal Control over Financial Reporting There were not changes in our internal control over financial reporting identified in
connection with the above-referenced evaluation by management of the effectiveness of our internal
control over financial reporting that occurred during our fourth quarter ended December 31, 2004. 29




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##### Table of Contents



PART III 
 ITEM 10.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 Incorporated herein by reference to our definitive proxy statement to be filed with the
Securities and Exchange Commission within 120 days after the year covered by this Form 10-K with
respect to its Annual Meeting of Stockholders to be held on May 9, 2005. 
 ITEM 11.
    
    EXECUTIVE COMPENSATION
 Incorporated herein by reference to our definitive proxy statement to be filed with the
Securities and Exchange Commission within 120 days after the year covered by this Form 10-K with
respect to its Annual Meeting of Stockholders to be held on May 9, 2005. The following table summarizes the equity compensation plans under which the Companys common
stock may be issued as of December 31, 2004. Number of securities to be
    
    
    Weighted averageissued upon exercise of
    
    
    exercise price of outstanding
    
    
    Number of securitiesoutstanding options,
    
    
    options, warrants and
    
    
    remaining available forPlan category
    
    warrants and rights
    
    
    rights
    
    
    future issuanceEquity compensation
plans approved by
security holders
    
    
    4,900
    
    
    $
    19.50
    
    
    
    191,147Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    4,900
    
    
    $
    19.50
    
    
    
    191,147
 
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 Incorporated herein by reference from our definitive proxy statement to be filed with the
Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this
Form 10-K with respect to its Annual Meeting of Stockholders to be held on May 9, 2005. 
 ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 Incorporated herein by reference from our definitive proxy statement to be filed with the
Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this
Form 10-K with respect to its Annual Meeting of Stockholders to be held on May 9, 2005. 
 ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
 Incorporated herein by reference from our definitive proxy statement to be filed with the
Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this
Form 10-K with respect to its Annual Meeting of Stockholders to be held on May 9, 2005. 30




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##### Table of Contents



PART IV 
 ITEM 15.
    
    EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES
 (a)
    
    The following documents are filed as part of this Report(1) (2)
    
    The financial statements indicated by Part II, Item 8,
Financial Statements and Supplementary Data.(b)
    
    Exhibits
 3.1
    
    
    
    Articles of Incorporation and Articles of Amendment of the Company (incorporated by reference
to Exhibit 3.1 to the Companys Registration Statement on Form S-11 (Registration Statement
No. 33-73858, as amended (Agree S-11))3.2
    
    
    
    Bylaws of the Company (incorporated by reference to Exhibit 3.3 to Agree S-11)4.1
    
    
    
    Rights Agreement by and between Agree Realty Corporation and BankBoston, N.A. as Rights Agent
dated as of December 7, 1998 (incorporated by reference to Exhibit 4.1 to the Companys Form
8-K filed on December 7, 1998)10.1
    
    
    
    First Amended and Restated Agreement of Limited Partnership of Agree Limited Partnership,
dated as of April 22, 1994, by and among the Company, Richard Agree, Edward Rosenberg and Joel
Weiner (incorporated by reference to Exhibit 10.6 to the 1996 Form 10-K)10.2
    
    
    
    Amended and Restated Registration Rights Agreement, dated July 8, 1994 by and among the
Company, Richard Agree, Edward Rosenberg and Joel Weiner (incorporated by reference to Exhibit
10.2 to the Companys Annual Report on Form 10-K for the year ended December 31, 1994)10.3
    
    
    
    Contribution Agreement, dated as of April 21, 1994, by and among the Company, Richard Agree,
Edward Rosenberg and the co-partnerships named therein (incorporated by reference to Exhibit
10.10 to the 1996 Form 10-K)10.4
    
    +
    
    Agree Realty Corporation Profit Sharing Plan (incorporated by reference to Exhibit 10.13 to
the 1996 Form 10-K)10.5
    
    
    
    Line of Credit Agreement by and among Agree Limited Partnership, the Company, the lenders
parties thereto, and Michigan National Bank as Agent (incorporated by reference to Exhibit
10.10 to the 1995 Form 10-K)10.6
    
    
    
    First amendment to $5 million business loan agreement dated September 21, 1997 between Agree
Limited Partnership and Michigan National Bank (incorporated by reference to Exhibit 10.2 to
the September 1997 Form 10-Q)10.7
    
    
    
    Second amendment to amended and restated $5 million business Loan agreement dated October 19,
1998 between Agree Limited Partnership and Michigan National Bank (incorporated by reference
to Exhibit 10.17 to the Companys Annual Report on Form 10-K for the year ended December 31,
1998)10.8
    
    +
    
    Employment Agreement, dated July 1, 2004, by and between the
Company and Richard Agree (incorporated by reference to
exhibit 10.1 to the Companys Quarterly Report on Form 10-Q
for the period ending June 30, 2004 (June 2004 Form 10-
Q))
 31




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##### Table of Contents



10.9
    
    +
    
    Employment Agreement, dated July 1, 2004, by and between the
Company, and Kenneth R. Howe (incorporated by reference to
exhibit 10.2 to the June 1999 Form 10-Q)10.10
    
    
    
    Third amendment to amended and restated $5 million business Loan agreement dated December
19, 1999 between Agree Limited Partnership and Michigan National Bank (incorporated by
reference to exhibit 10.17 to the 1999 Form 10-K)10.11
    
    
    
    Trust Mortgage dated as of June 27, 1999 from Agree Facility No. 1, L.L.C. as Grantor to
Manufacturers and Traders Trust Company (incorporated by reference to exhibit 10.4 to the June
1999 Form 10-Q)10.12
    
    +
    
    Employment Agreement, dated January 10, 2000, by and between the Company, and David J.
Prueter (incorporated by reference to exhibit 10.1 to the Companys Quarterly Report on Form
10-Q for the period ended March 31, 200010.13
    
    
    
    Fourth amendment to amended and restated $5 million business Loan agreement dated February
19, 2001 between Agree Limited Partnership and Michigan National Bank (incorporated by
reference to exhibit 10.23 to the Companys Annual Report on Form 10-K for the year ended
December 31, 2000 (the 2000 Form 10-K))10.14
    
    
    
    Mortgage dated as of December 20, 2001, by Agree Limited Partnership to and in favor of
Nationwide Life Insurance Company (incorporated by reference to exhibit 10.25 to the Companys
Annual Report on Form 10-K for the year ended December 31, 2001 (the 2001 from 10-K))10.15
    
    
    
    Fifth amendment to amended and restated $5 million business Loan agreement dated April 30,
2002 between Agree Limited Partnership and Standard Federal Bank (incorporated by reference to
exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the period ended June 30, 2002
(the June 2002 Form 10-Q))10.16
    
    
    
    Project Loan Agreement dated as of April 30, 2002 between Royal Identify Company (together
with its successors and assigns) and Lawrence Store No. 203 L.L.C. (together with its
permitted successors and assigns) (incorporated by reference to exhibit 10.2 to the June 2002
Form 10-Q)10.17
    
    
    
    Project Loan Agreement dated as of November 25, 2002 between Wilmington Trust Company, not
in its individual capacity, but solely as Owner Trustee, and Indianapolis Store No. 16 L.L.C.10.18
    
    
    
    Project Loan Agreement dated as of January 30, 2003 between Modern Woodman of America and
Phoenix Drive L.L.C. (incorporated by reference to exhibit 10.1 to the March 31, 2003 Form
10-Q)10.19
    
    
    
    Sixth amendment to amended and restated $5 million business loan agreement dated April 30,
2003, between Agree Limited Partnership and Standard Federal Bank (incorporated by reference
to exhibit 10.1 to the June 30, 2003 Form 10-Q)10.20
    
    
    
    Amended and Restated $50 million Line of Credit agreement dated November 5, 2003, among
Agree Realty Corporation, Standard Federal Bank and Bank One. (incorporated by reference to
exhibit 10.1 to the Sep 30, 2003 Form 10-Q)10.21
    
    
    
    Indemnity Deed of Trust and Security Agreement dated October 31, 2003, by Agree  Columbia
Crossing Project, L.L.C., and Nationwide Life Insurance Company10.22
    
    
    
    Indemnity Deed of Trust and Security Agreement dated October 31, 2003, by Agree-Milestone
Center Project, L.L.C., and Nationwide Life Insurance Company
 32




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##### Table of Contents



10.23
    
    
    
    Mortgage and Security Agreement dated October 31, 2003, by Oklahoma Store No. 151, L.L.C.
and Nationwide Life Insurance Company10.24
    
    
    
    Deed of Trust and Security Agreement dated October 31, 2003, by Omaha Store No. 166, L.L.C.
and Nationwide Life Insurance Company10.25
    
    * +
    
    The Companys 2005 Equity Incentive Plan21.1
    
    *
    
    Subsidiaries of Agree Realty Corporation23
    
    *
    
    Consent of BDO Seidman, LLP31.1
    
    *
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, Richard Agree, Chief Executive Officer32.2
    
    *
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, Kenneth R. Howe, Chief Financial Officer32.1
    
    *
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, Richard Agree, Chief Executive Officer32.2
    
    *
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, Kenneth R. Howe, Chief Financial Officer
   *
    
    Filed herewith+
    
    Management contract or compensatory plan or arrangement 33




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##### Table of Contents



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 AgreePresident and Chairman of theBoard of DirectorsDate:
    
    March 14, 2005
 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 14th day of March 2005. By:
    
    /s/ Richard Agree
    
    By:
    
    /s/ Farris G. KalilRichard Agree
    
    
    
    Farris G. KalilPresident and Chairman of the
    
    
    
    DirectorBoard of Directors(Principal Executive Officer)By:
    
    /s/ Michael RotchfordMichael RotchfordDirectorBy:
    
    /s/ Kenneth R. Howe
    
    By:
    

/s/ Ellis G. WachsKenneth R. Howe
    
    
    
    Ellis G. WachsVice President, Finance and
    
    
    
    DirectorSecretary(Principal Financial andAccounting Officer)By:
    
    /s/ Gene SilvermanGene SilvermanDirectorBy:
    
    /s/ Leon M. SchurginLeon M. SchurginDirector
 34




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##### Table of Contents



Agree Realty Corporation Financial Statements
Years Ended December 31, 2004, 2003 and 2002




---



##### Table of Contents



Agree Realty Corporation Index PageReport of Independent Registered Public Accounting Firm
    
    F-2Financial StatementsConsolidated Balance Sheets
    
    F-3Consolidated Statements of Income
    
    F-5Consolidated Statements of Stockholders Equity
    
    F-6Consolidated Statements of Cash Flows
    
    F-7Notes to Consolidated Financial Statements
    
    F-9Schedule III -Real Estate and Accumulated Depreciation
    
    F-24
 F - 1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm To the Board of Directors and Owners of
Agree Realty Corporation
Farmington Hills, Michigan We have audited the accompanying consolidated balance sheets of Agree Realty Corporation (the
Company) as of December 31, 2004 and 2003, and the related consolidated statements of income,
stockholders equity and cash flows for each of the three years in the period ended December 31,
2004. We have also audited the schedule listed in the accompanying index. These financial
statements and the schedule are the responsibility of the Companys management. Our responsibility
is to express an opinion on these financial statements and the schedule 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 financial statements and the schedule are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and the schedule. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements and the schedule. We believe that our audits
provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Agree Realty Corporation at December 31, 2004 and
2003, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2004 in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, the schedule presents fairly, in all material respects, the information set
forth therein. We have also audited, in accordance with the Standards of the Public Company Accounting Oversight
Board, the effectiveness of Agree Realty Corporations internal control over financial reporting as
of December 31, 2004, based on criteria established in
Internal Control  Integrated Framework,
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our
report dated February 11, 2005 expressed an unqualified opinion on managements assessment of, and
an adverse opinion on the effectiveness of internal control over financial reporting. BDO SEIDMAN, LLP Troy, Michigan
February 11, 2005 F - 2




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##### Table of Contents



Agree Realty Corporation 
 Consolidated Balance Sheets December 31,
    
    2004
    
    
    2003AssetsReal Estate Investments(Notes 3, 4 and 5)Land
    
    $
    70,592,068
    
    
    $
    56,848,606Buildings
    
    
    180,595,915
    
    
    
    161,265,188Property under development
    
    
    2,104,553
    
    
    
    3,110,835253,292,536
    
    
    
    221,224,629Less accumulated depreciation
    
    
    (41,727,987
    )
    
    
    (38,475,767
    )Net Real Estate Investments
    
    
    211,564,549
    
    
    
    182,748,862Cash and Cash Equivalents
    
    
    587,524
    
    
    
    1,004,090Cash - Restricted
    
    
    
    
    
    
    4,309,914Accounts
Receivable - Tenants,net of allowance of
$20,000 and $120,000 for possible losses
    
    
    627,298
    
    
    
    622,337Investments In and Advances To
Unconsolidated Entities
    
    
    
    
    
    
    330,316Unamortized Deferred ExpensesFinancing costs
    
    
    1,003,169
    
    
    
    1,155,427Leasing costs
    
    
    258,316
    
    
    
    231,344Other Assets
    
    
    1,661,504
    
    
    
    1,283,424$
    215,702,360
    
    
    $
    191,685,714
 See accompanying notes to consolidated financial statements. F - 3




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##### Table of Contents



Agree Realty Corporation Consolidated Balance Sheets December 31,
    
    2004
    
    
    2003Liabilities and Stockholders EquityMortgages Payable(Note 3)
    
    $
    53,808,689
    
    
    $
    55,967,378Construction Loans(Note 4)
    
    
    
    
    
    
    1,569,000Notes Payable(Note 5)
    
    
    39,200,000
    
    
    
    26,500,000Dividends and Distributions Payable(Note 6)
    
    
    3,509,083
    
    
    
    3,447,328Deferred Revenue
    
    
    13,483,054
    
    
    
    Accrued Interest Payable
    
    
    298,115
    
    
    
    167,099Accounts PayableCapital expenditures
    
    
    393,711
    
    
    
    570,363Operating
    
    
    1,441,877
    
    
    
    1,408,272Tenant Deposits
    
    
    60,989
    
    
    
    47,099Total Liabilities
    
    
    112,195,518
    
    
    
    89,676,539Minority Interest(Note 7)
    
    
    5,874,855
    
    
    
    5,821,739Stockholders Equity(Note 6)Common stock, $.0001 par value; 20,000,000
shares authorized; 6,487,846 and 6,434,345
shares issued and outstanding
    
    
    649
    
    
    
    643Additional paid-in capital
    
    
    109,599,965
    
    
    
    108,251,813Deficit
    
    
    (10,726,663
    )
    
    
    (11,227,636
    )98,873,951
    
    
    
    97,024,820Less:
unearned compensation - restricted stock (Note 9)
    
    
    (1,241,964
    )
    
    
    (837,384
    )Total Stockholders Equity
    
    
    97,631,987
    
    
    
    96,187,436$
    215,702,360
    
    
    $
    191,685,714
 See accompanying notes to consolidated financial statements. F - 4




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##### Table of Contents



Agree Realty Corporation 
 Consolidated Statements of Income Year Ended December 31,
    
    2004
    
    
    2003
    
    
    2002RevenuesMinimum rents
    
    $
    26,778,024
    
    
    $
    24,106,002
    
    
    $
    21,229,087Percentage rents
    
    
    63,031
    
    
    
    185,620
    
    
    
    247,994Operating cost reimbursement
    
    
    3,055,019
    
    
    
    2,932,398
    
    
    
    2,546,105Other income
    
    
    32,716
    
    
    
    2,885
    
    
    
    9,250Total Revenues
    
    
    29,928,790
    
    
    
    27,226,905
    
    
    
    24,032,436Operating ExpensesReal estate taxes
    
    
    1,806,324
    
    
    
    1,773,060
    
    
    
    1,694,031Property operating expenses
    
    
    1,980,263
    
    
    
    1,907,568
    
    
    
    1,580,804Land lease payments
    
    
    737,460
    
    
    
    736,793
    
    
    
    738,915General and administrative
    
    
    2,848,414
    
    
    
    2,275,177
    
    
    
    2,011,854Depreciation and amortization
    
    
    4,437,034
    
    
    
    4,023,876
    
    
    
    3,654,307Total Operating Expenses
    
    
    11,809,495
    
    
    
    10,716,474
    
    
    
    9,679,911Income From Continuing Operations
    
    
    18,119,295
    
    
    
    16,510,431
    
    
    
    14,352,525Other Income (Expense)Interest expense, net
    
    
    (4,506,712
    )
    
    
    (5,684,200
    )
    
    
    (6,196,153
    )Early extinguishment of debt
    
    
    
    
    
    
    (961,334
    )
    
    
    Equity in net income of unconsolidated entities
    
    
    216,837
    
    
    
    438,489
    
    
    
    673,580Total Other Expense
    
    
    (4,289,875
    )
    
    
    (6,207,045
    )
    
    
    (5,522,573
    )Income Before Minority Interest and Discontinued Operations
    
    
    13,829,420
    
    
    
    10,303,386
    
    
    
    8,829,952Minority Interest
    
    
    1,304,115
    
    
    
    1,167,267
    
    
    
    1,161,148Income Before Discontinued Operations
    
    
    12,525,305
    
    
    
    9,136,119
    
    
    
    7,668,804Gain on Sale of Asset From Discontinued Operations,
net of minority interest of $54,427 and $94,575
    
    
    522,741
    
    
    
    740,094
    
    
    
    Income From Discontinued Operations,net of minority
interest of $7,805, $76,204 and $167,085
    
    
    74,974
    
    
    
    595,533
    
    
    
    1,103,526Net Income
    
    $
    13,123,020
    
    
    $
    10,471,746
    
    
    $
    8,772,330Basic and Diluted Earnings Per Share(Note 2)Income before discontinued operations
    
    $
    1.94
    
    
    $
    1.74
    
    
    $
    1.72Discontinued operations
    
    
    .09
    
    
    
    .25
    
    
    
    .25Earnings Per Share
    
    $
    2.03
    
    
    $
    1.99
    
    
    $
    1.97
 See accompanying notes to consolidated financial statements. F - 5




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##### Table of Contents



Agree Realty Corporation 
 Consolidated Statements of Stockholders Equity Additional
    
    
    
    
    
    
    UnearnedCommon Stock
    
    
    Paid-In
    
    
    
    
    
    
    Compensation -Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Restricted StockBalance,January 1, 2002
    
    
    4,416,869
    
    
    $
    442
    
    
    $
    63,937,682
    
    
    $
    (11,724,832
    )
    
    $
    (581,339
    )Issuance of shares under the Stock
Incentive Plan
    
    
    37,662
    
    
    
    3
    
    
    
    680,030
    
    
    
    
    
    
    
    (482,900
    )Shares redeemed under the Stock
Incentive Plan
    
    
    (6,000
    )
    
    
    
    
    
    
    (110,940
    )
    
    
    
    
    
    
    Vesting of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    315,245Dividends declared, $1.84 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,182,997
    )
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,772,330
    
    
    
    Balance,December 31, 2002
    
    
    4,448,531
    
    
    
    445
    
    
    
    64,506,772
    
    
    
    (11,135,499
    )
    
    
    (748,994
    )Issuance of common stock, net of
issuance costs
    
    
    1,955,000
    
    
    
    195
    
    
    
    43,224,291
    
    
    
    
    
    
    
    Issuance of shares under the Stock
Incentive Plan
    
    
    36,814
    
    
    
    3
    
    
    
    622,150
    
    
    
    
    
    
    
    (456,300
    )Shares redeemed under the Stock
Incentive Plan
    
    
    (6,000
    )
    
    
    
    
    
    
    (101,400
    )
    
    
    
    
    
    
    Vesting of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    367,910Dividends declared, $1.94 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,563,883
    )
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,471,746
    
    
    
    Balance,December 31, 2003
    
    
    6,434,345
    
    
    
    643
    
    
    
    108,251,813
    
    
    
    (11,227,636
    )
    
    
    (837,384
    )Issuance of shares under the Stock
Incentive Plan
    
    
    59,501
    
    
    
    6
    
    
    
    1,517,832
    
    
    
    
    
    
    
    (950,925
    )Shares redeemed under the Stock
Incentive Plan
    
    
    (6,000
    )
    
    
    
    
    
    
    (169,680
    )
    
    
    
    
    
    
    Vesting of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    546,345Dividends declared, $1.95 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,622,047
    )
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,123,020
    
    
    
    Balance,December 31, 2004
    
    
    6,487,846
    
    
    $
    649
    
    
    $
    109,599,965
    
    
    $
    (10,726,663
    )
    
    $
    (1,241,964
    )
 See accompanying notes to consolidated financial statements. F - 6




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##### Table of Contents



Agree Realty Corporation 
 Consolidated Statements of Cash Flows Year Ended December 31,
    
    2004
    
    
    2003
    
    
    2002Cash Flows From Operating ActivitiesNet income
    
    $
    13,123,020
    
    
    $
    10,471,746
    
    
    $
    8,772,330Adjustments to reconcile net income to net
cash provided by operating activitiesDepreciation
    
    
    4,418,177
    
    
    
    4,188,655
    
    
    
    3,861,751Amortization
    
    
    204,986
    
    
    
    633,922
    
    
    
    357,589Stock-based compensation
    
    
    546,345
    
    
    
    367,910
    
    
    
    315,245Gain on sale of assets
    
    
    (577,168
    )
    
    
    (834,669
    )
    
    
    Equity in net income of unconsolidated entities
    
    
    (216,837
    )
    
    
    (438,489
    )
    
    
    (673,580
    )Minority interests
    
    
    1,366,347
    
    
    
    1,338,046
    
    
    
    1,328,233Decrease (increase) in accounts receivable
    
    
    (4,961
    )
    
    
    162,300
    
    
    
    (117,888
    )(Increase) in other assets
    
    
    (431,446
    )
    
    
    (336,483
    )
    
    
    (191,958
    )Increase (decrease) in accounts payable
    
    
    33,605
    
    
    
    228,999
    
    
    
    (65,677
    )Decrease in deferred revenue
    
    
    (307,936
    )
    
    
    
    
    
    
    Increase (decrease) in accrued interest
    
    
    131,016
    
    
    
    (82,607
    )
    
    
    31,108Increase (decrease) in tenant deposits
    
    
    13,890
    
    
    
    (46,039
    )
    
    
    43,118Net Cash Provided By Operating Activities
    
    
    18,299,038
    
    
    
    15,653,291
    
    
    
    13,660,271Cash Flows From Investing ActivitiesAcquisition of real estate investments (including
capitalized interest of $305,000 in 2004,
$213,000 in 2003 and $118,000 in 2002)
    
    
    (21,711,356
    )
    
    
    (20,116,584
    )
    
    
    (13,910,078
    )Distributions from unconsolidated entities
    
    
    216,837
    
    
    
    438,489
    
    
    
    673,580Decrease in restricted cash
    
    
    4,309,914
    
    
    
    
    
    
    
    Net proceeds from sale of assets, less
amounts held in escrow
    
    
    2,046,493
    
    
    
    3,887,338
    
    
    
    Net Cash Used In Investing Activities
    
    
    (15,138,112
    )
    
    
    (15,790,757
    )
    
    
    (13,236,498
    )
 See accompanying notes to consolidated financial statements. F - 7




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##### Table of Contents



Agree Realty Corporation Consolidated Statements of Cash Flows Year Ended December 31,
    
    2004
    
    
    2003
    
    
    2002Cash Flows From Financing ActivitiesLine-of-credit net borrowings (payments)
    
    
    12,700,000
    
    
    
    (11,583,232
    )
    
    
    18,125,000Dividends and limited partners distributions paid
    
    
    (13,873,516
    )
    
    
    (10,776,024
    )
    
    
    (9,407,759
    )Payment on construction loans
    
    
    
    
    
    
    (4,043,313
    )
    
    
    (7,766,219
    )Payments of mortgages payable
    
    
    (2,158,689
    )
    
    
    (38,320,636
    )
    
    
    (2,104,010
    )Mortgage proceeds
    
    
    
    
    
    
    22,699,151
    
    
    
    1,301,866Payments of payables for capital expenditures
    
    
    (361,769
    )
    
    
    (423,910
    )
    
    
    (401,229
    )Redemption of restricted stock
    
    
    (169,680
    )
    
    
    (101,400
    )
    
    
    (110,940
    )Payments for financing costs
    
    
    
    
    
    
    (609,367
    )
    
    
    (43,103
    )Payments of leasing costs
    
    
    (72,150
    )
    
    
    (19,811
    )
    
    
    (23,630
    )Exercise of stock options
    
    
    358,312
    
    
    
    
    
    
    
    Net proceeds from the issuance of common stock
    
    
    
    
    
    
    43,224,488
    
    
    
    Net Cash Provided By (Used In) Financing Activities
    
    
    (3,577,492
    )
    
    
    45,946
    
    
    
    (430,024
    )Net Decrease In Cash and Cash Equivalents
    
    
    (416,566
    )
    
    
    (91,520
    )
    
    
    (6,251
    )Cash and Cash Equivalents,beginning of year
    
    
    1,004,090
    
    
    
    1,095,610
    
    
    
    1,101,861Cash and Cash Equivalents,end of year
    
    $
    587,524
    
    
    $
    1,004,090
    
    
    $
    1,095,610Supplemental Disclosure of Cash Flow InformationCash paid for interest (net of amounts capitalized)
    
    $
    4,243,983
    
    
    $
    5,619,551
    
    
    $
    5,889,778Supplemental Disclosure of Non-Cash TransactionsConstruction loan paid with mortgage
    
    $
    
    
    
    $
    
    
    
    $
    3,181,670Dividends and limited partners distributions
declared and unpaid
    
    $
    3,509,083
    
    
    $
    3,447,328
    
    
    $
    2,356,156Shares issued under Stock Incentive Plan
    
    $
    1,159,518
    
    
    $
    622,153
    
    
    $
    680,033Real estate investments financed with accounts
payable
    
    $
    393,711
    
    
    $
    570,363
    
    
    $
    589,760Real estate investments acquired from joint ventures
    
    $
    13,790,990
    
    
    $
    
    
    
    $
    
 See accompanying notes to consolidated financial statements. F - 8




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##### Table of Contents



Agree Realty Corporation 
 Notes to Consolidated Financial Statements 1. The Company Agree Realty Corporation (the Company)
is a self-administered, self-managed real
estate investment trust, which develops,
acquires, owns and operates properties,
which are primarily leased to national
and regional retail companies under net
leases. At December 31, 2004 the
Companys properties are comprised of
forty-one single tenant retail facilities
and thirteen shopping centers located in
fourteen states. During the year ended
December 31, 2004, approximately 96% of
the Companys base rental revenues were
received from national and regional
tenants under long-term leases, including
approximately 32% from Borders, Inc., 18%
from Walgreen Co., and 15% from Kmart
Corporation. 2. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements of
Agree Realty Corporation include the
accounts of the Company, its
majority-owned partnership, Agree Limited
Partnership (the Operating
Partnership), and its wholly-owned
subsidiaries. The Company controlled, as
the sole general partner, 90.59% and
90.52% of the Operating Partnership as of
December 31, 2004 and 2003, respectively.
All material intercompany accounts and
transactions are eliminated. Use of Estimates The preparation of financial statements
in conformity with generally accepted
accounting principles, requires
management to make estimates and
assumptions that affect the reported
amounts of (1) assets and liabilities and
the disclosure of contingent assets and
liabilities as of the date of the
financial statements, and (2) revenues
and expenses during the reporting period.
Actual results could differ from those
estimates. Fair Values of Financial Instruments The carrying amounts of the Companys
financial instruments, which consist of
cash, cash equivalents, receivables,
notes payable, accounts payable and
long-term debt, approximate their fair
values. F - 9




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##### Table of Contents



Agree Realty Corporation Notes to Consolidated Financial Statements Valuation of Long-Lived Assets Long-lived assets such as real estate investments are evaluated
for impairment when events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable
through the estimated undiscounted future cash flows from the use
of these assets. When any such impairment exists, the related
assets will be written down to fair value. No impairment loss
recognition has been required through December 31, 2004. Real Estate Investments 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. As of December 31, 2004, the cost
to complete the properties under development is approximately
$5,500,000. Subsequent to completion of construction, expenditures for
property maintenance are charged to operations as incurred, while
significant renovations are capitalized. Depreciation of the
buildings is recorded on the straight-line method using an
estimated useful life of forty years. Cash and Cash Equivalents Cash and cash equivalents include cash and money market accounts. Pursuant to an agreement, restricted cash is held in escrow for
the acquisition of real estate investments. F - 10




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##### Table of Contents



Agree Realty Corporation Notes to Consolidated Financial Statements Accounts
Receivable - Tenants Accounts receivable from tenants reflect primarily reimbursement
of specified common area expenses. The Company determines its
allowance for uncollectible accounts based on historical trends,
existing economic conditions, and known financial position of its
tenants. Tenant accounts receivable are written-off by the Company
only when receipt is remote. Investments in Unconsolidated Entities The Company uses the equity method of accounting for investments
in non-majority owned entities where the Company has the ability
to exercise significant influence over operating and financial
policies. The Companys initial investment is recorded at cost, and the
carrying amount of the investment is (a) increased by the
Companys share of the investees earnings (as defined in the
limited liability company agreements), and (b) reduced by
distributions paid from the investees to the Company. Unamortized Deferred Expenses Deferred expenses are stated net of total accumulated
amortization. The nature and treatment of these capitalized costs
are as follows: (1) financing costs, consisting of expenditures
incurred to obtain long-term financing, are being amortized using
the interest method over the term of the related loan, and (2)
leasing costs, which are amortized on a straight-line basis over
the term of the related lease. Other Assets The Company records prepaid expenses, deposits and miscellaneous
receivables as other assets in the accompanying balance sheets. Accounts
Payable - Capital Expenditures Included in accounts payable are amounts related to the
construction of buildings. Due to the nature of these
expenditures, they are reflected in the statements of cash flows
as a financing activity. F - 11




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##### Table of Contents



Agree Realty Corporation Notes to Consolidated Financial Statements Minority Interest This amount represents the limited partners interest (OP Units)
of 9.41% and 9.48% (convertible into 637,547 shares) in the
Operating Partnership as of December 31, 2004 and 2003,
respectively. Revenue Recognition Minimum 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. Operating Cost Reimbursement Substantially 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 in the same period the expense is recorded. Income Taxes The Company elected to be taxed as a REIT under the Internal
Revenue Code of 1986, as amended (the Code), and began operating
as such on April 22, 1994. As a result, the Company is not subject
to federal income taxes to the extent that it distributes annually
at least 90% of its taxable income to its shareholders and
satisfies certain other requirements defined in the Code.
Accordingly, no provision was made for federal income taxes in the
accompanying consolidated financial statements. Stock Options The Company has elected to adopt the recognition provisions of
Statement of Financial Accounting Standards (SFAS) No. 123
Accounting for Stock-Based Compensation (SFAS 123) using the
prospective method beginning January 1, 2003. SFAS 123 establishes
a fair value based method of accounting for stock-based
compensation plans under which employees receive shares of stock
or other equity instruments of the Company or the Company incurs
liabilities to employees in amounts based on the price of its
stock. No stock options were granted during 2004, 2003 or 2002 and
there was no expense for stock options that would be required. F - 12




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##### Table of Contents



Agree Realty Corporation Notes to Consolidated Financial Statements Dividends
The Company declared dividends of $1.95, $1.94 and $1.84 per share during
the years ended December 31, 2004, 2003, and 2002; the dividends have been
reflected for federal income tax purposes as follows: December 31,
    
    2004
    
    
    2003
    
    
    2002Ordinary income
    
    $
    1.95
    
    
    $
    1.78
    
    
    $
    1.84Return of capital
    
    
    
    
    
    
    .16
    
    
    
    Total
    
    $
    1.95
    
    
    $
    1.94
    
    
    $
    1.84
 The aggregate federal income tax basis of Real Estate Investments is
approximately $21.3 million less than the financial statement basis. Discontinued Operations In October 2003 the Company completed the sale of a shopping center for
approximately $8.5 million and recognized a gain of approximately $740,000,
net of minority interest. The shopping center was anchored by Kmart
Corporation and Kash N Karry and was located in Winter Garden, Florida. In
August 2004 the Company completed the sale of a single tenant property for
approximately $2.2 million and recognized a gain of approximately $523,000,
net of minority interest. The property was leased to Kmart corporation and
was located in Perrysburg, Ohio. The gain on sale and results of operations
for these properties are presented as discontinued operations in the
Companys Consolidated Statements of Income. The revenues from the properties were $137,151, $1,123,998 and $1,791,998
for the years ended December 31, 2004, 2003 and 2002, respectively. The
expenses for the properties were $62,177, $528,465 and $688,472, including
minority interest charges of $7,805, $76,204 and $167,085, for the years
ending December 31, 2004, 2003 and 2002, respectively. F - 13




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##### Table of Contents



Agree Realty Corporation Notes to Consolidated Financial Statements Early Extinguishment of Debt In August 2003, the Company repaid three mortgages totaling approximately $37,000,000 prior to
their scheduled maturity. In connection with this transaction, the Company incurred a
pre-payment penalty of $555,000 and wrote-off unamortized mortgage costs in the amount of
$406,000. Earnings Per Share Earnings per share reflected in the consolidated statements of operations are presented for all
periods in accordance with SFAS No. 128, Earnings per Share. In connection therewith, any
conversion of OP Units to common stock would have no effect on the earnings per share
calculation since the allocation of earnings to an OP Unit is equivalent to earnings allocated
to a share of common stock. The following table sets forth the computation of basic and diluted earnings per share: December 31,
    
    2004
    
    
    2003
    
    
    2002NumeratorNet income
    
    $
    13,123,020
    
    
    $
    10,471,746
    
    
    $
    8,772,330Income allocated to minority interests
    
    
    1,366,347
    
    
    
    1,338,046
    
    
    
    1,328,233Numerator for Basic and Diluted
Earnings Per Share - Income Available
to Shareholders After Assumed
Conversions
    
    $
    14,489,367
    
    
    $
    11,809,792
    
    
    $
    10,100,563
 F - 14




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##### Table of Contents



Agree Realty Corporation Notes to Consolidated Financial Statements December 31,
    
    2004
    
    
    2003
    
    
    2002DenominatorWeighted average shares outstanding
    
    
    6,468,351
    
    
    
    5,272,523
    
    
    
    4,446,791Weighted average OP Units outstanding,
Assuming conversion
    
    
    673,547
    
    
    
    673,547
    
    
    
    673,547Denominator for Basic Earnings Per Share -
Adjusted Weighted Average Shares and Assumed
Conversions
    
    
    7,141,898
    
    
    
    5,946,070
    
    
    
    5,120,338Employee Stock Options
    
    
    6,766
    
    
    
    3,343
    
    
    
    Denominator for Diluted Earnings Per Share
    
    
    7,148,664
    
    
    
    5,949,413
    
    
    
    5,120,338
 Options to purchase shares of common stock were outstanding (see Note 8) but were not included
in the computation of diluted earnings per share in 2002 because the options exercise price was
greater than the average market price of the common shares and, therefore, any additional shares
would be anti-dilutive. Recent Accounting Pronouncements In
December 2004, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 123(R),
to expand and clarify SFAS No. 123 in several areas. The Statement requires companies to measure
the cost of employee services received in exchange for an award of an equity instrument based on
the grant-date fair value of the award. The cost is recognized over the requisite service period
(usually the vesting period) for the estimated number of instruments where service is expected to
be rendered. This Statement is effective for the interim reporting periods beginning after June 15,
2005. We do not expect that our financial statements will be materially impacted by SFAS No.
123(R). In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity (SFAS 150). The objective of SFAS 150 is to establish standards
for how an issuer classifies and measures certain financial instruments
with characteristics of both liabilities and equity. In November 2003,
the FASB indefinitely delayed the effective date for certain mandatorily
redeemable noncontrolling interests in consolidated financial statements.
Adoption of SFAS 150 did not have an impact on the results of operations
or financial position of the Company. F - 15




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##### Table of Contents



Agree Realty Corporation Notes to Consolidated Financial Statements 3. Mortgages Payable Mortgages payable consisted of the following: December 31,
    
    2004
    
    
    2003Note 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
    
    $
    17,222,287
    
    
    $
    17,856,063Note 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
    
    
    14,265,790
    
    
    
    14,898,328Note payable in
monthly
installments of
$99,598 including
interest at 6.63%
per annum, with the
final monthly
payment due
February 2017;
collateralized by
related real estate
and tenants leases
    
    
    9,962,642
    
    
    
    10,478,580Note payable in
monthly
installments of
$57,403 including
interest at 6.50%
per annum, with the
final monthly
payment due
February 2023;
collateralized by
related real estate
and tenant lease
    
    
    7,333,400
    
    
    
    7,538,278
 F - 16




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##### Table of Contents



Agree Realty Corporation Notes to Consolidated Financial Statements December 31,
    
    2004
    
    
    2003Note 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
    
    
    2,985,794
    
    
    
    3,066,134Note payable in
monthly
installments of
$12,453 including
interest at 6.95%
per annum, with the
final monthly
payment due
December 2017;
collateralized by
related real estate
and tenant lease
    
    
    1,173,102
    
    
    
    1,239,682Note payable in
monthly
installments of
$6,449 including
interest at 6.00%
per annum, with the
final monthly
payment due July
2023;
collateralized by
elated real estate
and tenant lease
    
    
    865,674
    
    
    
    890,313Total
    
    $
    53,808,689
    
    
    $
    55,967,378
 Future scheduled annual maturities of mortgages payable for years ending
December 31 are as follows: 2005 - $2,189,578; 2006 - $2,454,764; 2007 -
$2,621,920; 2008 - $2,781,076; 2009 - $2,970,466 and $40,790,885
thereafter. F - 17




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##### Table of Contents



Agree Realty Corporation Notes to Consolidated Financial Statements 4. Construction Loans The Company received funding
from an unaffiliated third party
for one of its single tenant
retail properties. Borrowings
under this arrangement bore no
interest. The advances were
secured by the specific land and
buildings developed. The Company
owed $1,569,000 for these
advances as of December 31,
2003. The advances were repaid
in 2004. 5. Notes Payable The Operating Partnership has in
place a $50 million
line-of-credit agreement, which
is guaranteed by the Company.
The agreement expires in August
2006 and can be extended, solely
at the option of the Operating
Partnership, for an additional
three years. Advances under the
Credit Facility bear interest
within a range of one-month to
six-month LIBOR plus 150 basis
points to 213 basis points or
the banks prime rate, at the
option of the Company, based on
certain factors such as debt to
property value and debt service
coverage. The Credit Facility is
used to fund property
acquisitions and development
activities and is secured by
most of the Companys Properties
which are not otherwise
encumbered and properties to be
acquired or developed. At
December 31, 2004 and 2003,
$39,000,000 and $24,000,000,
respectively, was outstanding
under this facility with a
weighted average interest rate
of 3.77% and 2.74%,
respectively. In addition, the Company
maintains a $5,000,000
line-of-credit agreement with a
bank. Monthly interest payments
are required, either at the
banks prime rate less 50 basis
points, or 175 basis points in
excess of the one-month LIBOR
rate, at the option of the
Company. At December 31, 2004
and 2003, $200,000 and
$2,500,000, respectively, was
outstanding under this agreement
with a weighted average interest
rate of 4.75% and 3.50%,
respectively. 6. Dividends and Distributions Payable On December 6, 2004 the Company
declared a dividend of $.49 per
share for the quarter ended
December 31, 2004. The holders
of OP Units were entitled to an
equal distribution per OP Unit
held as of December 31, 2004.
The dividends and distributions
payable are recorded as
liabilities in the Companys
balance sheet at December 31,
2004. 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 6, 2005. F - 18




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##### Table of Contents



Agree Realty Corporation Notes to Consolidated Financial Statements 7. Minority Interest The following summarizes the changes in minority interest since January 1, 2002: Minority Interest at January 1, 2002
    
    $
    5,698,101Minority interests share of income for the year
    
    
    1,328,233Distributions for the year
    
    
    (1,239,327
    )Minority Interest at December 31, 2002
    
    
    5,787,007Minority interests share of income for the year
    
    
    1,338,046Distributions for the year
    
    
    (1,303,314
    )Minority Interest at December 31, 2003
    
    
    5,821,739Minority interests share of income for the year
    
    
    1,366,347Distributions for the year
    
    
    (1,313,231
    )Minority Interest at December 31, 2004
    
    $
    5,874,855
 8. Stock Incentive Plan The Company has established a stock incentive plan (the Plan)
under which options were granted in April 1994. The options, which
have an exercise price equal to the initial public offering price
($19.50/share), can be exercised in increments of 25% on each
anniversary of the date of the grant, and expire upon employment
termination. There were 4,900, 23,275 and 23,275 options
outstanding and exercisable at December 31, 2004, 2003 and 2002,
respectively. There were 18,375 options exercised in 2004. No
options were granted during 2004, 2003 or 2002. F - 19




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##### Table of Contents



Agree Realty Corporation Notes to Consolidated Financial Statements 9. Unearned Compensation - Restricted Stock As part of the Companys
stock incentive plan, restricted common shares are granted to certain
employees. On the date of the award,the Company increases unearned compensation
- restricted stock on the balance sheet by the stock price multiplied by the number of
shares awarded. The restricted shares vest and are charged to expense in increments of 20% per
year for five years. Plan participants are entitled to receive the quarterly dividends on their
respective restricted shares. The following table summarizes the restricted shares for the years
ended December 31, 2004, 2003 and 2002: 2004
    
    
    2003
    
    
    2002Restricted shares outstanding January 1
    
    
    199,810
    
    
    
    168,996
    
    
    
    137,334Restricted shares granted during the year
    
    
    41,126
    
    
    
    36,814
    
    
    
    37,662Restricted shares redeemed during the year
    
    
    (6,000
    )
    
    
    (6,000
    )
    
    
    (6,000
    )Restricted shares outstanding
December 31
    
    
    234,936
    
    
    
    199,810
    
    
    
    168,996Compensation Expense Recorded
Related to Restricted Common Shares
    
    $
    546,345
    
    
    $
    367,910
    
    
    $
    315,245
 10. 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 2004, 2003 or 2002. 11. Rental Income The Company leases premises in its properties
to tenants pursuant to lease agreements, which
provide for terms ranging generally from 5 to
25 years. The majority of leases provide for
additional rents based on tenants sales
volume. F - 20




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##### Table of Contents



Agree Realty Corporation Notes to Consolidated Financial Statements As of December 31, 2004, the future minimum revenues 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): 2005
    
    $
    28,1652006
    
    
    26,9582007
    
    
    26,4782008
    
    
    25,3762009
    
    
    24,552Thereafter
    
    
    199,098Total
    
    $
    330,627
 Of these future minimum rentals, approximately 39% of
the total is attributable to Borders, Inc.,
approximately 27% of the total is attributable to
Walgreen and approximately 13% is attributable to
Kmart Corporation. Borders is a major operator of
book superstores in the United States, Walgreen
operates in the national drugstore chain industry and
Kmarts principal business is general merchandise
retailing through a chain of discount department
stores. The loss of any of these anchor tenants or
the inability of any of them to pay rent could have
an adverse effect on the Companys business. 12. Lease Commitments The Company has entered into certain land lease
agreements for four of its properties. As of December
31, 2004, future annual lease commitments under these
agreements are as follows: Year Ended December 31,2005
    
    $
    764,7682006
    
    
    768,3432007
    
    
    774,6192008
    
    
    760,4242009
    
    
    751,757Thereafter
    
    
    10,527,130Total
    
    $
    14,347,041
 F - 21




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##### Table of Contents



Agree Realty Corporation Notes to Consolidated Financial Statements 13. 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, 2003 through
December 31, 2004. Certain amounts
have been reclassified to conform to
the current presentation of
discontinued operations: Three Months Ended2004
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,Revenues
    
    $
    7,188
    
    
    $
    7,198
    
    
    $
    7,607
    
    
    $
    7,936Income before discontinued operations
    
    $
    2,864
    
    
    $
    3,025
    
    
    $
    3,361
    
    
    $
    3,275Discontinued operations,
net of minority interest
    
    
    32
    
    
    
    32
    
    
    
    534
    
    
    
    Net Income
    
    $
    2,896
    
    
    $
    3,057
    
    
    $
    3,895
    
    
    $
    3,275Earnings Per Share
    
    $
    .45
    
    
    $
    .47
    
    
    $
    .60
    
    
    $
    .51
 Three Months Ended2003
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,Revenues
    
    $
    6,623
    
    
    $
    6,725
    
    
    $
    6,675
    
    
    $
    7,204Income before discontinued operations
    
    $
    2,056
    
    
    $
    2,228
    
    
    $
    1,677
    
    
    $
    3,175Discontinued operations,
net of minority interest
    
    
    188
    
    
    
    146
    
    
    
    180
    
    
    
    822Net Income
    
    $
    2,244
    
    
    $
    2,374
    
    
    $
    1,857
    
    
    $
    3,997Earnings Per Share
    
    $
    .50
    
    
    $
    .53
    
    
    $
    .33
    
    
    $
    .63
 F - 22




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##### Table of Contents



Agree Realty Corporation Notes to Consolidated Financial Statements 14. Deferred Revenue In July 2004, our tenant in two joint
venture properties located in Ann Arbor,
MI and Boynton Beach, FL repaid $13.8
million that had been contributed by our
joint venture partner. As a result of this
repayment the Company became the sole
member of the limited liability companies
holding the properties. Total assets of
the two properties were approximately
$13.8 million. We have treated the $13.8
million repayment of the capital
contribution as deferred revenue and
accordingly, will recognize rental income
over the term of the related leases. 15. Subsequent Event In January 2005, the Company priced a
public offering of 1,000,000 shares of our
common stock at an offering price of
$28.88 per share resulting in net proceeds
of approximately $27.1 million. In
February 2005 the underwriters exercised
their over allotment option for an
additional 150,000 shares of our common
stock at the same per share stock price,
resulting in net proceeds of approximately
$4.1 million. F - 23




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##### Table of Contents



Agree Realty Corporation 
 Schedule III - Real Estate and Accumulated Depreciation December 31, 2004 Column HColumn A
    
    Column B
    
    
    Column C
    
    
    Column D
    
    
    Column E
    
    
    Column F
    
    
    Column G
    
    
    Life 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
    
    $
    1,440,843
    
    
    $
    550,000
    
    
    $
    562,404
    
    
    $
    1,087,596
    
    
    $
    550,000
    
    
    $
    1,650,000
    
    
    $
    2,200,000
    
    
    $
    1,205,529
    
    
    
    1977
    
    
    40 YearsCapital Plaza, KY
    
    
    1,822,077
    
    
    
    7,379
    
    
    
    2,240,607
    
    
    
    534,115
    
    
    
    7,379
    
    
    
    2,774,722
    
    
    
    2,782,101
    
    
    
    1,619,669
    
    
    
    1978
    
    
    40 YearsCharlevoix Common, MI
    
    
    
    
    
    
    305,000
    
    
    
    5,152,992
    
    
    
    106,718
    
    
    
    305,000
    
    
    
    5,259,710
    
    
    
    5,564,710
    
    
    
    1,846,789
    
    
    
    1991
    
    
    40 YearsChippewa Commons, WI
    
    
    
    
    
    
    1,197,150
    
    
    
    6,367,560
    
    
    
    439,818
    
    
    
    1,197,150
    
    
    
    6,807,378
    
    
    
    8,004,528
    
    
    
    2,375,762
    
    
    
    1990
    
    
    40 YearsGrayling Plaza, MI
    
    
    1,295,879
    
    
    
    200,000
    
    
    
    1,778,657
    
    
    
    
    
    
    
    200,000
    
    
    
    1,778,657
    
    
    
    1,978,657
    
    
    
    930,805
    
    
    
    1984
    
    
    40 YearsIron Mountain Plaza, MI
    
    
    5,360,404
    
    
    
    677,820
    
    
    
    7,014,996
    
    
    
    491,900
    
    
    
    677,820
    
    
    
    7,506,896
    
    
    
    8,184,716
    
    
    
    2,475,676
    
    
    
    1991
    
    
    40 YearsIronwood Commons, MI
    
    
    5,632,686
    
    
    
    167,500
    
    
    
    8,181,306
    
    
    
    251,653
    
    
    
    167,500
    
    
    
    8,432,959
    
    
    
    8,600,459
    
    
    
    2,841,558
    
    
    
    1991
    
    
    40 YearsMarshall Plaza Two, MI
    
    
    
    
    
    
    
    
    
    
    4,662,230
    
    
    
    115,294
    
    
    
    
    
    
    
    4,777,524
    
    
    
    4,777,524
    
    
    
    1,625,194
    
    
    
    1990
    
    
    40 YearsNorth Lakeland Plaza, FL
    
    
    
    
    
    
    1,641,879
    
    
    
    6,364,379
    
    
    
    1,511,028
    
    
    
    1,641,879
    
    
    
    7,875,407
    
    
    
    9,517,286
    
    
    
    3,051,836
    
    
    
    1987
    
    
    40 YearsOscoda Plaza, MI
    
    
    1,346,631
    
    
    
    183,295
    
    
    
    1,872,854
    
    
    
    
    
    
    
    183,295
    
    
    
    1,872,854
    
    
    
    2,056,149
    
    
    
    975,106
    
    
    
    1984
    
    
    40 YearsPetoskey Town Center, MI
    
    
    
    
    
    
    875,000
    
    
    
    8,895,289
    
    
    
    223,581
    
    
    
    875,000
    
    
    
    9,118,870
    
    
    
    9,993,870
    
    
    
    3,127,803
    
    
    
    1990
    
    
    40 YearsPlymouth Commons, WI
    
    
    
    
    
    
    535,460
    
    
    
    5,667,504
    
    
    
    279,073
    
    
    
    535,460
    
    
    
    5,946,577
    
    
    
    6,482,037
    
    
    
    2,079,728
    
    
    
    1990
    
    
    40 YearsRapids Associates, MI
    
    
    
    
    
    
    705,000
    
    
    
    6,854,790
    
    
    
    27,767
    
    
    
    705,000
    
    
    
    6,882,557
    
    
    
    7,587,557
    
    
    
    2,443,648
    
    
    
    1990
    
    
    40 YearsShawano Plaza, WI
    
    
    
    
    
    
    190,000
    
    
    
    9,133,934
    
    
    
    101,471
    
    
    
    190,000
    
    
    
    9,235,405
    
    
    
    9,425,405
    
    
    
    3,356,433
    
    
    
    1990
    
    
    40 YearsWest Frankfort Plaza, IL
    
    
    612,579
    
    
    
    8,002
    
    
    
    784,077
    
    
    
    143,258
    
    
    
    8,002
    
    
    
    927,335
    
    
    
    935,337
    
    
    
    465,116
    
    
    
    1982
    
    
    40 YearsOmaha, NE
    
    
    2,463,439
    
    
    
    1,705,619
    
    
    
    2,053,615
    
    
    
    2,152
    
    
    
    1,705,619
    
    
    
    2,055,767
    
    
    
    3,761,386
    
    
    
    468,964
    
    
    
    1995
    
    
    40 YearsWichita, KS
    
    
    1,804,004
    
    
    
    1,039,195
    
    
    
    1,690,644
    
    
    
    24,666
    
    
    
    1,039,195
    
    
    
    1,715,310
    
    
    
    2,754,505
    
    
    
    391,230
    
    
    
    1995
    
    
    40 YearsSanta Barbara, CA
    
    
    3,666,702
    
    
    
    2,355,423
    
    
    
    3,240,557
    
    
    
    2,650
    
    
    
    2,355,423
    
    
    
    3,243,207
    
    
    
    5,598,630
    
    
    
    739,847
    
    
    
    1995
    
    
    40 YearsMonroeville, PA
    
    
    5,620,519
    
    
    
    6,332,158
    
    
    
    2,249,724
    
    
    
    
    
    
    
    6,332,158
    
    
    
    2,249,724
    
    
    
    8,581,882
    
    
    
    456,722

    
    
    
    1996
    
    
    40 YearsNorman, OK
    
    
    1,641,292
    
    
    
    879,562
    
    
    
    1,626,501
    
    
    
    
    
    
    
    879,562
    
    
    
    1,626,501
    
    
    
    2,506,063
    
    
    
    335,275
    
    
    
    1996
    
    
    40 YearsColumbus, OH
    
    
    2,071,402
    
    
    
    826,000
    
    
    
    2,336,791
    
    
    
    
    
    
    
    826,000
    
    
    
    2,336,791
    
    
    
    3,162,791
    
    
    
    520,907
    
    
    
    1996
    
    
    40 YearsAventura, FL
    
    
    2,078,167
    
    
    
    
    
    
    
    3,173,121
    
    
    
    
    
    
    
    
    
    
    
    3,173,121
    
    
    
    3,173,121
    
    
    
    690,815
    
    
    
    1996
    
    
    40 YearsBoyton Beach, FL
    
    
    2,343,376
    
    
    
    1,534,942
    
    
    
    2,043,122
    
    
    
    
    
    
    
    1,534,942
    
    
    
    2,043,122
    
    
    
    3,578,064
    
    
    
    412,693
    
    
    
    1996
    
    
    40 YearsLawrence, KS
    
    
    2,985,794
    
    
    
    
    
    
    
    3,000,000
    
    
    
    155,407
    
    
    
    
    
    
    
    3,155,407
    
    
    
    3,155,407
    
    
    
    569,711
    
    
    
    1997
    
    
    40 YearsWaterford, MI
    
    
    2,399,004
    
    
    
    971,009
    
    
    
    1,562,869
    
    
    
    135,390
    
    
    
    971,009
    
    
    
    1,698,259
    
    
    
    2,669,268
    
    
    
    296,162
    
    
    
    1997
    
    
    40 YearsChesterfield Township, MI
    
    
    2,634,123
    
    
    
    1,350,590
    
    
    
    1,757,830
    
    
    
    (46,164
    )
    
    
    1,350,590
    
    
    
    1,711,666
    
    
    
    3,062,256
    
    
    
    278,725
    
    
    
    1998
    
    
    40 YearsGrand Blanc, MI
    
    
    2,516,563
    
    
    
    1,104,285
    
    
    
    1,998,919
    
    
    
    13,968
    
    
    
    1,104,285
    
    
    
    2,012,887
    
    
    
    3,117,172
    
    
    
    302,279
    
    
    
    1998
    
    
    40 YearsPontiac, MI
    
    
    2,412,952
    
    
    
    1,144,190
    
    
    
    1,808,955
    
    
    
    (113,506
    )
    
    
    1,144,190
    
    
    
    1,695,449
    
    
    
    2,839,639
    
    
    
    266,622
    
    
    
    1998
    
    
    40 YearsMt. Pleasant Shopping
Center, MI
    
    
    
    
    
    
    907,600
    
    
    
    8,081,968
    
    
    
    403,100
    
    
    
    907,600
    
    
    
    8,485,068
    
    
    
    9,392,668
    
    
    
    1,748,211
    
    
    
    1973
    
    
    40 YearsTulsa, OK
    
    
    
    
    
    
    1,100,000
    
    
    
    2,394,512
    
    
    
    
    
    
    
    1,100,000
    
    
    
    2,394,512
    
    
    
    3,494,512
    
    
    
    391,429
    
    
    
    1998
    
    
    40 YearsColumbia, MD
    
    
    3,348,181
    
    
    
    1,545,509
    
    
    
    2,093,700
    
    
    
    286,589
    
    
    
    1,545,509
    
    
    
    2,380,289
    
    
    
    3,925,798
    
    
    
    317,888
    
    
    
    1999
    
    
    40 YearsRochester, MI
    
    
    3,451,346
    
    
    
    2,438,740
    
    
    
    2,188,050
    
    
    
    1,949
    
    
    
    2,438,740
    
    
    
    2,189,999
    
    
    
    4,628,739
    
    
    
    301,101
    
    
    
    1999
    
    
    40 Years
 F - 24




---



##### Table of Contents



Agree Realty Corporation Schedule III - Real Estate and Accumulated Depreciation
December 31, 2004 Column A
    
    Column B
    
    
    Column C
    
    
    Column D
    
    
    Column E
    
    
    Column F
    
    
    Column G
    
    
    Column HLife on WhichCosts
    
    
    Gross Amount at Which Carried
    
    
    
    
    
    
    
    
    
    
    Depreciation inInitial Cost
    
    
    Capitalized
    
    
    at Close of Period
    
    
    
    
    
    
    
    
    
    
    Latest IncomeBuildings and
    
    
    Subsequent to
    
    
    
    
    
    
    Buildings and
    
    
    
    
    
    
    Accumulated
    
    
    Date of
    
    
    StatementDescription
    
    Encumbrance
    
    
    Land
    
    
    Improvements
    
    
    Acquisition
    
    
    Land
    
    
    Improvements
    
    
    Total
    
    
    Depreciation
    
    
    Construction
    
    
    is ComputedYpsilanti, MI
    
    
    3,117,234
    
    
    
    2,050,000
    
    
    
    2,222,097
    
    
    
    29,624
    
    
    
    2,050,000
    
    
    
    2,251,721
    
    
    
    4,301,721
    
    
    
    281,509
    
    
    
    1999
    
    
    40 YearsGermantown, MD
    
    
    3,148,460
    
    
    
    1,400,000
    
    
    
    2,288,890
    
    
    
    45,000
    
    
    
    1,400,000
    
    
    
    2,333,890
    
    
    
    3,733,890
    
    
    
    291,806
    
    
    
    2000
    
    
    40 YearsPetoskey, MI
    
    
    2,168,286
    
    
    
    
    
    
    
    2,332,473
    
    
    
    (1,721
    )
    
    
    
    
    
    
    2,330,752
    
    
    
    2,330,752
    
    
    
    272,720
    
    
    
    2000
    
    
    40 YearsFlint, MI
    
    
    3,270,512
    
    
    
    2,026,625
    
    
    
    1,879,700
    
    
    
    (1,201
    )
    
    
    2,026,625
    
    
    
    1,878,499
    
    
    
    3,905,124
    
    
    
    187,852
    
    
    
    2000
    
    
    40 YearsFlint, MI
    
    
    2,814,122
    
    
    
    1,477,680
    
    
    
    2,241,293
    
    
    
    
    
    
    
    1,477,680
    
    
    
    2,241,293
    
    
    
    3,718,973
    
    
    
    217,124
    
    
    
    2001
    
    
    40 YearsNew Baltimore, MI
    
    
    2,400,787
    
    
    
    1,250,000
    
    
    
    2,285,781
    
    
    
    (16,502
    )
    
    
    1,250,000
    
    
    
    2,269,279
    
    
    
    3,519,279
    
    
    
    191,645
    
    
    
    2001
    
    
    40 YearsFlint, MI
    
    
    
    
    
    
    1,729,851
    
    
    
    1,798,091
    
    
    
    
    
    
    
    1,729,851
    
    
    
    1,798,091
    
    
    
    3,527,942
    
    
    
    121,752
    
    
    
    2002
    
    
    40 YearsOklahoma City, OK
    
    
    4,051,484
    
    
    
    1,914,859
    
    
    
    2,057,034
    
    
    
    
    
    
    
    1,914,859
    
    
    
    2,057,034
    
    
    
    3,971,893
    
    
    
    112,687
    
    
    
    2002
    
    
    40 YearsOmaha, NE
    
    
    3,717,665
    
    
    
    1,530,000
    
    
    
    2,237,702
    
    
    
    
    
    
    
    1,530,000
    
    
    
    2,237,702
    
    
    
    3,767,702
    
    
    
    122,561
    
    
    
    2002
    
    
    40 YearsIndianapolis, IN
    
    
    1,173,102
    
    
    
    180,000
    
    
    
    1,117,617
    
    
    
    
    
    
    
    180,000
    
    
    
    1,117,617
    
    
    
    1,297,617
    
    
    
    61,270
    
    
    
    2002
    
    
    40 YearsBig Rapids, MI
    
    
    
    
    
    
    1,201,675
    
    
    
    2,014,107
    
    
    
    (2,000
    )
    
    
    1,201,675
    
    
    
    2,012,107
    
    
    
    3,213,782
    
    
    
    88,068
    
    
    
    2003
    
    
    40 YearsFlint, MI
    
    
    865,674
    
    
    
    
    
    
    
    1,310,787
    
    
    
    (45,210
    )
    
    
    
    
    
    
    1,265,577
    
    
    
    1,285,577
    
    
    
    93,318
    
    
    
    2003
    
    
    20 YearsAnn Arbor, MI
    
    
    7,333,400
    
    
    
    1,727,590
    
    
    
    6,009,488
    
    
    
    
    
    
    
    1,727,590
    
    
    
    6,009,488
    
    
    
    7,737,078
    
    
    
    301,976
    
    
    
    2003
    
    
    40 YearsTulsa, OK
    
    
    
    
    
    
    2,000,000
    
    
    
    2,740,507
    
    
    
    
    
    
    
    2,000,000
    
    
    
    2,740,507
    
    
    
    4,740,507
    
    
    
    90,793
    
    
    
    2003
    
    
    40 YearsCanton Twp., MI
    
    
    
    
    
    
    1,550,000
    
    
    
    2,132,096
    
    
    
    23,020
    
    
    
    1,550,000
    
    
    
    2,155,116
    
    
    
    3,705,116
    
    
    
    58,318
    
    
    
    2003
    
    
    40 YearsFlint, MI
    
    
    
    
    
    
    1,537,400
    
    
    
    1,961,674
    
    
    
    
    
    
    
    1,537,400
    
    
    
    1,961,674
    
    
    
    3,499,074
    
    
    
    40,951
    
    
    
    2004
    
    
    40 YearsWebster, NY
    
    
    
    
    
    
    1,600,000
    
    
    
    2,438,781
    
    
    
    
    
    
    
    1,600,000
    
    
    
    2,438,781
    
    
    
    4,038,781
    
    
    
    48,268
    
    
    
    2004
    
    
    40 YearsAlbion, NY
    
    
    
    
    
    
    1,900,000
    
    
    
    3,037,864
    
    
    
    
    
    
    
    1,900,000
    
    
    
    3,037,864
    
    
    
    4,937,864
    
    
    
    9,493
    
    
    
    2004
    
    
    40 YearsFlint, MI
    
    
    
    
    
    
    1,029,000
    
    
    
    2,165,463
    
    
    
    
    
    
    
    1,029,000
    
    
    
    2,165,463
    
    
    
    3,194,463
    
    
    
    6,708
    
    
    
    2004
    
    
    40 YearsLansing, MI
    
    
    
    
    
    
    785,000
    
    
    
    348,501
    
    
    
    
    
    
    
    785,000
    
    
    
    348,501
    
    
    
    1,133,501
    
    
    
    4,353
    
    
    
    2004
    
    
    40 YearsBoynton Beach, FL
    
    
    
    
    
    
    1,569,000
    
    
    
    2,363,524
    
    
    
    108,651
    
    
    
    1,569,000
    
    
    
    2,472,175
    
    
    
    4,041,175
    
    
    
    65,606
    
    
    
    2004
    
    
    40 YearsAnn Arbor, MI
    
    
    
    
    
    
    1,700,000
    
    
    
    8,308,854
    
    
    
    150,000
    
    
    
    1,700,000
    
    
    
    8,458,854
    
    
    
    10,158,854
    
    
    
    149,976
    
    
    
    2004
    
    
    40 YearsSubTotal
    
    
    93,008,689
    
    
    
    62,636,987
    
    
    
    174,126,781
    
    
    
    6,469,134
    
    
    
    62,636,987
    
    
    
    180,595,915
    
    
    
    243,232,902
    
    
    
    41,727,987Retail FacilitiesUnder DevelopmentWaterford, MI
    
    
    
    
    
    
    800,081
    
    
    
    368,661
    
    
    
    
    
    
    
    800,081
    
    
    
    368,661
    
    
    
    1,168,742
    
    
    
    
    
    
    
    N/A
    
    
    
    N/ALivonia, MI
    
    
    
    
    
    
    1,200,000
    
    
    
    94,707
    
    
    
    
    
    
    
    1,200,000
    
    
    
    94,706
    
    
    
    1,294,706
    
    
    
    
    
    
    
    N/A
    
    
    
    N/AMidland, MI
    
    
    
    
    
    
    2,350,000
    
    
    
    709,008
    
    
    
    
    
    
    
    2,350,000
    
    
    
    709,008
    
    
    
    3,059,008
    
    
    
    
    
    
    
    N/A
    
    
    
    N/AGrand Rapids, MI
    
    
    
    
    
    
    1,450,000
    
    
    
    555,700
    
    
    
    
    
    
    
    1,450,000
    
    
    
    555,700
    
    
    
    2,005,700
    
    
    
    
    
    
    
    N/A
    
    
    
    N/ADelta Twp., MI
    
    
    
    
    
    
    2,075,000
    
    
    
    376,478
    
    
    
    
    
    
    
    2,075,000
    
    
    
    376,478
    
    
    
    2,451,478
    
    
    
    
    
    
    
    N/A
    
    
    
    N/AOther
    
    
    
    
    
    
    80,000
    
    
    
    
    
    
    
    
    
    
    
    80,000
    
    
    
    
    
    
    
    80,000
    
    
    
    
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    7,955,081
    
    
    
    2,104,554
    
    
    
    
    
    
    
    7,955,081
    
    
    
    2,104,553
    
    
    
    10,059,634
    
    
    
    Total
    
    $
    93,008,689
    
    
    $
    70,592,068
    
    
    $
    176,231,335
    
    
    $
    6,469,134
    
    
    $
    70,592,068
    
    
    $
    182,700,468
    
    
    $
    253,292,536
    
    
    $
    41,727,987
 F - 25




---



##### Table of Contents



Agree Realty Corporation Notes to Schedule III
December 31, 2004 1) Reconciliation of Real Estate Properties The following table reconciles the Real Estate Properties from January 1, 2002 to December 31,
2004: 2004
    
    
    2003
    
    
    2002Balance at January 1
    
    $
    221,224,629
    
    
    $
    210,985,666
    
    
    $
    196,485,828Construction and acquisition costs
    
    
    34,736,096
    
    
    
    20,686,947
    
    
    
    14,499,838Sale of real estate asset
    
    
    (2,668,189
    )
    
    
    (10,447,984
    )
    
    
    Balance at December 31
    
    $
    253,292,536
    
    
    $
    221,224,629
    
    
    $
    210,985,666
 2) Reconciliation of Accumulated Depreciation The following table reconciles the accumulated depreciation from January 1, 2002 to December
31, 2004: 2004
    
    
    2003
    
    
    2002Balance at January 1
    
    $
    38,475,767
    
    
    $
    37,456,301
    
    
    $
    33,634,461Current year depreciation expense
    
    
    4,372,362
    
    
    
    4,145,898
    
    
    
    3,821,840Sale of real estate asset
    
    
    (1,120,142
    )
    
    
    (3,126,432
    )
    
    
    Balance at December 31
    
    $
    41,727,987
    
    
    $
    38,475,767
    
    
    $
    37,456,301
 3) Tax Basis of Buildings and Improvements   F - 26




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##### Table of Contents



EXHIBIT INDEX ExhibitNumber
    
    
    
    Description10.25
    
    * +
    
    The Companys 2005 Equity Incentive Plan21.1
    
    *
    
    Subsidiaries of Agree Realty Corporation23
    
    *
    
    Consent of BDO Seidman, LLP31.1
    
    *
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Richard Agree, Chief Executive Officer32.2
    
    *
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Kenneth R. Howe, Chief Financial Officer32.1
    
    *
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Richard Agree, Chief Executive Officer32.2
    
    *
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Kenneth R. Howe, Chief Financial Officer
   *
    
    Filed herewith+
    
    Management contract or compensatory plan or arrangement