UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


FORM
10-K





ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
fiscal year ended December 31, 2008





Commission File Number
1-12928





AGREE
REALTY CORPORATION


(Exact
name of Registrant as specified in its charter)





Maryland
                (State
      or other jurisdiction of
                incorporation
      or organization)
              38-3148187
                (I.R.S.
      Employer
                Identification
      No.)31850
      Northwestern Highway
                Farmington
      Hills, Michigan
                (Address
      of principal executive offices)
              48334
                (Zip
      code)(248)
      737-4190
                (Registrant’s
      telephone number, including area
code)





Securities
Registered Pursuant to Section 12(b) of the Act:





Title of each class
                Common
      Stock, $.0001 par value
              Name of each exchange on which
      registered
                New
      York Stock Exchange





Securities Registered Pursuant to
Section 12(g) of the Act:None





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes  ̈ No x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes  ̈ No x





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes x No  ̈





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (Section 229.405) is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.   ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.  (Check one):




Large accelerated filer  ̈
                    Accelerated filer x
                    Non-accelerated filer  ̈
                    Smaller reporting company  ̈(Do not check if a smaller reporting company)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).    Yes  ̈ No x





The
aggregate market value of the Registrant’s shares of common stock held by
non-affiliates was approximately $173,435,000 as of June 30, 2008, based on the
closing price of $22.05 on the NYSE on that date.





At
February 27, 2009, there were 7,931,030 shares of common stock, $.0001 par value
per share, outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE




Portions
of the registrant’s proxy statement for the annual stockholder meeting to be
held in 2009 are incorporated by reference into Part III of this Form
10-K.









TABLE
OF CONTENTS




Part
      IItem 1.
                              
                              Business
                              
                              2Item
      1A.
                              
                              Risk
      Factors
                              
                              4Item
      1B.
                              
                              Unresolved
      Staff Comments
                              
                              9Item
      2.
                              
                              Properties
                              
                              10Item
      3.
                              
                              Legal
      Proceedings
                              
                              16Item
      4.
                              
                              Submission
      of Matters to a Vote of Security Holders
                              
                              17Part
      IIItem
      5.
                              
                              Market
      for Registrant’s Common Equity,  Related Stockholder Matters and
      Issuer Purchases of Equity Securities
                              
                              17Item
      6.
                              
                              Selected
      Financial Data
                              
                              18Item
      7.
                              
                              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                              
                              19Item
      7A
                              
                              Quantitative
      and Qualitative Disclosures about Market Risk
                              
                              26Item
      8
                              
                              Financial
      Statements and Supplementary Data
                              
                              27Item
      9
                              
                              Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
                              
                              27Item
      9A
                              
                              Controls
      and Procedures
                              
                              27Item
      9B.
                              
                              Other
      Information
                              
                              29Part
      IIIItem
      10.
                              
                              Directors,
      Executive Officers and Corporate Governance
                              
                              30Item
      11.
                              
                              Executive
      Compensation
                              
                              30Item
      12.
                              
                              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                              
                              30Item
      13.
                              
                              Certain
      Relationships and Related Transactions, and Director
      Independence
                              
                              30Item
      14.
                              
                              Principal
      Accountant Fees and Services
                              
                              30Part
      IVItem
      15.
                              
                              Exhibits
      and Financial Statement Schedules
                              
                              31Signatures
                              
                              34









Part
I




FORWARD LOOKING STATEMENTS




Management
has included herein certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities and Exchange Act of 1934, as amended (Exchange Act). These
forward-looking statements represent our expectations, plans or beliefs
concerning future events and may be identified by terminology such as
“anticipate,” “estimate,” “should,” “expect,” “believe,” “intend” and similar
expressions. Although the forward-looking statements made in this report are
based on good faith beliefs, reasonable assumptions and our best judgment
reflecting current information, certain factors could cause actual results to
differ materially from such forward–looking statements, including but not
limited to: the ongoing U.S. recession, the existing global credit and
financial crisis and other changes in general economic, financial and real
estate market conditions; risks that our acquisition and development projects
will fail to perform as expected; financing risks, such as the inability to
obtain debt or equity financing on favorable terms or at all; the level and
volatility of interest rates; loss or bankruptcy of one or more of our major
retail tenants; a failure of our properties to generate additional income to
offset increases in operating expenses; and other factors discussed in Item
1A. “Risk Factors” and elsewhere in this report and in subsequent filings with
the Securities and Exchange Commission.  Given these uncertainties,
you should not place undue reliance on our forward-looking
statements.  Except as required by law, we assume no obligation to
update these forward–looking statements, even if new information becomes
available in the future.




Item
1. BUSINESS




General




Agree
Realty Corporation, a Maryland corporation, is a fully-integrated,
self-administered and self-managed real estate investment trust
(REIT).  The terms “Registrant”, “Company”, “we”, “our” or “us” refer
to Agree Realty Corporation and/or its majority owned operating partnership,
Agree Limited Partnership (Operating Partnership), and/or its majority owned and
controlled subsidiaries, including its qualified taxable REIT subsidiary (TRS),
as the context may require.  Our assets are held by and all of our
operations are conducted through, directly or indirectly, the Operating
Partnership, of which we are the sole general partner and in which we held a
92.85% interest as of December 31, 2008.  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. Our headquarters are located at 31850 Northwestern
Highway, Farmington Hills, MI  48334 and our telephone number is (248)
737-4190.




The
Company is focused primarily on the ownership, development, acquisition and
management of retail properties net leased to national tenants.  We
were formed in December 1993 to continue and expand the business founded in 1971
by our current President, Chief Executive Officer and Chairman, Richard
Agree.  We specialize in developing retail properties for national
tenants who have executed long-term net leases prior to the commencement of
construction.  As of December 31, 2008, approximately 89% of our
annualized base rent was derived from national tenants.  All of our
freestanding property tenants and the majority of our community shopping center
tenants have triple-net leases, which require the tenant to be responsible for
property operating expenses including property taxes, insurance and
maintenance.  We believe this strategy provides a generally consistent
source of income and cash for distributions.




At
December 31, 2008, our portfolio consisted of 68 properties, located in 16
states containing an aggregate of approximately 3.4 million square feet of gross
leasable area (GLA).  As of December 31, 2008, our portfolio included
56 freestanding net leased properties and 12 community shopping centers that
were 99.2% leased with a weighted average lease term of approximately 10.6 years
remaining.  As of December 31, 2008, approximately 68% of our
annualized base rent was derived from our top three tenants:  Borders
Group, Inc. (Borders) – 30%, Walgreen Co. (Walgreen) – 26% and Kmart Corporation
(Kmart) - 12%.  See Item 2. “Properties” for a summary of our
developments and acquisitions in 2008, as well as other information regarding
our tenants, leases and properties as of December 31, 2008.









We expect
to continue to grow our asset base primarily through the development of retail
properties that are pre-leased on a long-term basis to national
tenants.  We focus on development because we believe, based on our
historical returns we have been able to achieve, it generally provides us a
higher return on investment than the acquisition of similarly located properties
and does not entail the risk associated with speculative development. Since our
initial public offering in 1994, we have developed 55 of our 68 properties,
including 43 of our 56 freestanding properties and all 12 of our community
shopping centers.  As of December 31, 2008, the properties that we
developed accounted for approximately 85% of our annualized base
rent.  We expect to continue to expand our tenant relationships and
diversify our tenant base to include other quality national
tenants.




Growth
Strategy




Development.  Our
growth strategy is to develop retail properties pre-leased on a long-term
basis to national tenants.  We believe that this strategy produces
superior risk adjusted returns.  Our development process commences
with the identification of a land parcel we believe is situated in an attractive
retail location. The location must be in a concentrated retail corridor and have
high traffic counts, good visibility and demographics compatible with the needs
of a particular retail tenant.  After assessing the feasibility of
development, we propose to the tenants that we execute long-term net leases for
the finished development on that site.




Upon the
execution of the leases, we purchase the land and pursue all the necessary
approvals to begin development.  We direct all aspects of the
development, including construction, design, leasing and
management.  Property management and the majority of the leasing
activities are handled directly by our personnel.  We believe that
this approach enhances our ability to maximize the long-term value of our
properties and results in an efficient use of our capital
resources.




Acquisitions.  We
selectively acquire single tenant properties when we have determined that a
potential acquisition meets our return on investment criteria and such
acquisition will diversify our rental income.




Financing
Strategy




The
majority of our mortgage indebtedness is fixed rate, non-recourse and long-term
in nature.  Whenever feasible, we enter into long-term financing for
our properties to match the underlying long-term leases.  As of
December 31, 2008, the average weighted maturity of our long-term debt was 8.5
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 consider refinancing this floating rate debt with fixed rate,
non-recourse debt.  As of December 31, 2008, our total debt was
approximately $100.6 million, consisting of approximately $43.0 million of fixed
rate debt with a weighted average interest rate of 6.64%, and $66.6 million of
floating rate debt, consisting of a mortgage in the amount of $24.6 million that
bears interest at 150 basis points over LIBOR (2.695% as of December 31, 2008)
and the credit facilities, at a weighted average interest rate of
2.82%.  We intend to maintain a ratio of total indebtedness (including
construction and acquisition financing) to market capitalization of 65% or
less.  At December 31, 2008, our ratio of indebtedness to market
capitalization assuming the conversion of our operating partnership units, was
approximately 65.4%.  The increase in our ratio of indebtedness to
market capitalization from 2007 to 2008 was primarily the result of a
significant decline in the market price of our commons stock.




We are
evaluating our borrowing policies on an on-going basis in light of current
economic conditions, relative costs of debt and equity capital, market value of
properties, growth and acquisition opportunities and other
factors.  There is no contractual limit or any limit in our
organizational documents on our ratio of total indebtedness to total market
capitalization, and accordingly, we may modify our borrowing policy and may
increase or decrease our ratio of debt to market capitalization without
stockholder approval.




Property
Management




We
maintain a proactive leasing and capital improvement program that, combined with
the quality and locations of our properties, has made our properties attractive
to tenants.  We intend to continue to hold our properties for
long-term investment and, accordingly, place a strong emphasis on quality
construction and an on-going program of regular maintenance.  Our
properties are designed and built to require minimal capital improvements other
than renovations or expansions paid for by tenants.  At our 12
community shopping centers properties, we sub-contract on-site functions such as
maintenance, landscaping, snow removal and sweeping and the cost of these
functions is generally reimbursed by our tenants.  Personnel from our
corporate headquarters conduct regular inspections of each property and maintain
regular contact with major tenants.




2




We have a
management information system designed to provide management with the operating
data necessary to make informed business decisions on a timely
basis.  This computer system provides us rapid access to store
availability, lease data, tenants’ sales history, cash flow budgets and
forecasts, and enables us to maximize cash flow from operations and closely
monitor corporate expenses.




Major
Tenants




As of
December 31, 2008, approximately 68% of our gross leasable area was leased to
Borders, Walgreen, and Kmart and approximately 68% of our total annualized base
rents was attributable to these tenants.  At December 31, 2008,
Borders occupied approximately 28% of our gross leasable area and accounted for
approximately 30% of the annualized base rent.  At December 31, 2008,
Walgreen occupied approximately 10% of our gross leasable area and accounted for
approximately 26% of the annualized base rent.  At December 31, 2008,
Kmart occupied approximately 29% of our gross leasable area and accounted for
approximately 12% of the annualized base rent.  No other tenant
accounted for more than 10% of gross leasable area or annualized base rent in
2008.  The loss of any of these anchor tenants or a significant number
of their stores, or the inability of any of them to pay rent, would have a
material adverse effect on our business.




Tax
Status




We have
operated and intend to operate in a manner to qualify as a REIT under Sections
856 through 860 of the Internal Revenue Code.  In order to maintain
qualification as a REIT, we must, among other things, distribute at least 90% of
our REIT 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 our income
that meets certain criteria and is distributed annually to the
stockholders.




In
October 2007, we established a taxable REIT subsidiary (the ”TRS”) pursuant to
the provisions of the REIT Modernization Act.  Our TRS is able to
engage in activities resulting in income that previously would have been
disqualified from being eligible REIT income under the federal income tax
regulations.  As a result, certain activities of the Company which
occur within its TRS entity are subject to federal and state income
taxes.




Competition




The
United States commercial real estate investment market continues to be highly
competitive.  We actively compete with many other entities engaged in
the development, acquisition and operation of commercial
properties.  As such, we compete for a limited supply of properties
and financing for these properties.  Investors include large
institutional investors, insurance companies, credit companies, pension funds,
private individuals, investment companies and other REITs, many of which have
greater financial and other resources than we do.  There can be no
assurance that we will be able to compete successfully with such entities in our
development, acquisition and leasing activities in
the  future.




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 of our properties 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.




3




We
conducted Phase I environmental studies on the properties we developed in 2008.
The results of these Phase I studies indicated that no further action was
required on any of the properties, including no further soil sampling or ground
water analysis.  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 27, 2009, we employed eleven persons.  Employee
responsibilities include accounting, construction, leasing, property
coordination and administrative functions for the properties.  Our
employees are not covered by a collective bargaining agreement, and we consider
our employee relations to be satisfactory.




Financial
Information About Industry Segments




We are in
the business of development, acquisition and management of freestanding net
leased properties and community shopping centers.  We consider our
activities to consist of a single industry segment.  See the
Consolidated Financial Statements and Notes thereto included in this Annual
Report on Form 10-K.




Available
Information




Our
headquarters are located at 31850 Northwestern Highway, Farmington Hills,
MI  48334 and our telephone number is (248) 737-4190.  Our
web site address is www.agreerealty.com.  Agree
Realty Corporation’s reports electronically filed with or furnished to the SEC
can be accessed through this site, free of charge, as soon as reasonably
practicable after we electronically file or furnish such
reports.  These filings are also available on the SEC’s website at
www.sec.gov.




ITEM
      1A.
            RISK
      FACTORS




General




We rely significantly on three major
tenants.  As of December 31, 2008, we derived approximately 68%
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.  In addition, a
significant portion of our 2008 development projects were for
Walgreen.  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.




We could be adversely affected by a
tenant’s bankruptcy.  If a tenant becomes bankrupt or
insolvent, that could diminish the income we receive from that tenant’s
leases.  We may not be able to evict a tenant solely because of its
bankruptcy.  On the other hand, a bankruptcy court might authorize the
tenant to terminate its leases with us.  If that happens, our claim
against the bankrupt tenant for unpaid future rent would be an unsecured
prepetition claim subject to statutory limitations, and therefore such amounts
received in bankruptcy are likely to be substantially less than the remaining
rent we otherwise were owed under the leases.  In addition, any claim
we have for unpaid past rent could be substantially less than the amount
owed.  Circuit City, a tenant who occupies one location in our
portfolio filed for bankruptcy protection in December 2008 and is in the process
of liquidation.




4




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.  We may also experience difficulty
and/or a significant delay in re-leasing such property.




Risks associated with borrowing,
including loss of properties in the event of a foreclosure.  At
December 31, 2008, our ratio of indebtedness to market capitalization
(assuming conversion of Operating Partnership units) was approximately
65.4%.  This ratio increased from 32.5% in 2007 as a result of a
significant decline in the market value of our common stock.  The use
of leverage presents an additional element of risk in the event that (1) the
cash flow from lease payments on our properties is insufficient to meet debt
obligations, (2) we are unable to refinance our debt obligations as necessary or
on as favorable terms or (3) there is an increase in interest
rates.  If a property is mortgaged to secure payment of indebtedness
and we are unable to meet mortgage payments, the property could be foreclosed
upon with a consequent loss of income and asset value to us.  Under
the “cross-default” provisions contained in mortgages encumbering some of our
properties, our default under a mortgage with a lender would result in our
default under mortgages held by the same lender on other properties resulting in
multiple foreclosures.




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




Risks associated with our
development and acquisition activities. We intend to continue
development of new properties and to consider possible acquisitions of existing
properties.  We anticipate that our new developments will be financed
under lines of credit or other forms of construction financing that will result
in a risk that permanent financing on newly developed projects might not be
available or would be available only on disadvantageous terms. In addition, new
project development is subject to a number of risks, including risks of
construction delays or cost overruns that may increase project costs, risks that
the properties will not achieve anticipated occupancy levels or sustain
anticipated rent levels, and new project commencement risks such as receipt of
zoning, occupancy and other required governmental permits and authorizations and
the incurrence of development costs in connection with projects that are not
pursued to completion.  If permanent debt or equity financing are 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.




The recent global economic and
financial market crisis has had and may continue to have a negative effect on
our business and operations.The recent global economic and
financial market crisis has caused, among other things, a general tightening in
the credit markets, lower levels of liquidity, increases in the rates of default
and bankruptcy, lower consumer and business spending, and lower consumer
confidence and net worth, all of which has had and may continue to have a
negative effect on our business, results of operations, financial condition and
liquidity. Many of our tenants have been affected by the current economic
turmoil. Current or potential tenants may delay or postpone entering into
long-term net leases with us which could continue to lead to reduced demand for
commercial real estate.  We are also limited in our ability to reduce
costs to offset the results of a prolonged or severe economic downturn given
certain fixed costs and commitments associated with our operations.




The timing and nature of any recovery
in the credit and financial markets remains uncertain, and there can be no
assurance that market conditions will improve in the near future or that our
results will not continue to be materially and adversely affected. Such
conditions make it very difficult to forecast operating results, make business
decisions and identify and address material business risks. The foregoing
conditions may also impact the valuation of certain long-lived or intangible
assets that are subject to impairment testing, potentially resulting in
impairment charges which may be material to our financial condition or results
of operations.




5




Capital markets are currently
experiencing a period of dislocation and instability, which has had and could
continue to have a negative impact on the availability and cost of
capital.The general disruption in the U.S. capital markets
has impacted the broader worldwide financial and credit markets and reduced the
availability of debt and equity capital for the market as a whole. These
conditions could persist for a prolonged period of time or worsen in the future.
Our ability to access the capital markets may be restricted at a time when we
would like, or need, to access those markets, which could have an impact on our
flexibility to react to changing economic and business conditions. The resulting
lack of available credit, lack of confidence in the financial sector, increased
volatility in the financial markets and reduced business activity could
materially and adversely affect our business, financial condition, results of
operations and our ability to obtain and manage our liquidity. In addition, the
cost of debt financing and the proceeds of equity financing may be materially
adversely impacted by these market conditions.




Credit market developments may
reduce availability under our credit agreements.Due to the
current volatile state of the credit markets, there is risk that lenders, even
those with strong balance sheets and sound lending practices, could fail or
refuse to honor their legal commitments and obligations under existing credit
commitments, including but not limited to: extending credit up to the maximum
permitted by a credit facility, allowing access to additional credit features
and/or honoring loan commitments. If our lender(s) fail to honor their legal
commitments under our credit facilities, it could be difficult in the current
environment to replace our credit facilities on similar terms. Although we
believe that our operating cash flow and existing credit facilities will give us
the ability to satisfy our liquidity needs for at least the next 12 months,
the failure of any of the lenders under our credit facility may impact our
ability to finance our operating or investing activities.




Our portfolio has limited geographic
diversification.  Our properties are located primarily in the
Midwestern United States and in particular, Michigan (with 39
properties).  The concentration of our properties in a limited number
of geographic regions creates the risk that, should these regions experience an
economic difficulties relative to other regions, our operations may be adversely
affected in comparison to other real estate companies with properties in such
other regions.




Certain of our tenants at our
community shopping centers have the right to terminate their leases if other
tenants cease to occupy a property.  In the event that certain
tenants cease to occupy a property, although under most circumstances such a
tenant would remain liable for its lease payments, such an action may result in
certain other tenants at our community shopping centers having the right to
terminate their leases at the affected property, which could adversely affect
the future income from that property.  As of December 31, 2008, each
of our 12 community shopping centers had tenants with those provisions in their
leases.




Dependence on key
personnel.  We are dependent on the efforts of our executive
officers.  The loss of one or more of our executive officers 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 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.




6





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.




·
            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.




The
current global economic and financial market crisis has exacerbated many of the
foregoing risks. If a tenant fails to perform on its lease covenants, that
would not excuse us from meeting any mortgage debt obligation secured by the
property and could require us to fund reserves in favor of our mortgage lenders,
thereby reducing funds available for payment of cash dividends on our shares of
common stock.




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




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 environmental liabilities, 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.  In the event of
a substantial unreimbursed loss, we would, nevertheless, 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 or
operation of the real estate.  If unidentified environmental problems
arise, we may have to make substantial payments, which could adversely affect
our cash flow and our ability to make distributions to our
stockholders.  This potential liability results from the
following:




7




·
            As
      owner we may have to pay for property damage and for investigation and
      clean-up costs incurred in connection with the
    contamination.




·
            The
      law may impose clean-up responsibility and liability regardless of whether
      the owner or operator knew of or caused the
  contamination.




·
            Even
      if more than one person is responsible for the contamination, each person
      who shares legal liability under environmental laws may be held
      responsible for all of the clean-up
costs.




·
            Governmental
      entities and third parties may sue the owner or operator of a contaminated
      site for damages and costs.




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




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,
especially in light of the current global economic and financial market
crisis.  We may be required to invest in the restoration or
modification of a property before we can sell it.




Tax
Risks




We will
be subject to increased taxation if we fail to qualify as a REIT for federal
income tax purposes.  Although we believe that we are organized and
operate in such a manner so as to qualify as a REIT under the Internal Revenue
Code of 1986, as amended (the Code), no assurance can be given that we will
remain so qualified.  Qualification as a REIT involves the application
of highly technical and complex Code provisions for which there are only limited
judicial or administrative interpretations.  The complexity of these
provisions and applicable Treasury Regulations is also increased in the context
of a REIT that holds its assets in partnership form.  The
determination of various factual matters and circumstances not entirely within
our control may affect our ability to qualify as a REIT.  A REIT
generally is not taxed at the corporate level on income it distributes to its
stockholders, as long as it distributes annually at least 100% of its taxable
income to its stockholders.  We have not requested and do not plan to
request a ruling from the Internal Revenue Service that we qualify as a
REIT.




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




·
            We
      would not be allowed a deduction for dividends paid to stockholders in
      computing our taxable income and would be subject to federal income tax at
      regular corporate rates.




8




·
            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 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.
Subject to certain mitigation provisions, if we fail to meet any such test at
the end of any calendar quarter, we will cease to qualify as a
REIT.




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




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.




ITEM
      1B.
            UNRESOLVED
      STAFF COMMENTS




None




9




ITEM
      2.
            PROPERTIES




Our
properties consist of 56 freestanding net leased properties and 12 community
shopping centers, that as of December 31, 2008 were 99.2% leased, with a
weighted average lease term of 10.6 years.  Approximately 89% of our
annualized base rent was attributable to national retailers.  Among
these retailers are Borders, Walgreen and Kmart which, at December 31, 2008,
collectively represented approximately 68% 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 43 of our 56 freestanding properties
and all 12 of our community shopping centers.  Five of our
freestanding properties were acquired as part of our relationship with
Borders.  Properties we have developed (including our community
shopping centers) account for approximately 85% of our annualized base rent as
of December 31, 2008.  Our 56 freestanding properties are comprised of
55 retail locations and Borders’ corporate headquarters.  See Notes 3
and 4 to the Consolidated Financial Statements included herein for information
regarding mortgage debt and other debt related to our properties.




A
substantial portion of our income consists of rent received under net
leases.  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 $15,396, $37,111 and $53,550
for the fiscal years 2008, 2007 and 2006, respectively, and these amounts
represented 0.1%, 0.1% and 0.2%, respectively, of our total revenue for these
periods.  Included in those amounts were percentage rents from Kmart
of $-0-, $10,221 and $13,695 for fiscal years 2008, 2007 and 2006,
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
2008, we completed the following developments and redevelopments:




Tenant(s)
                
                Location
                
                CostWalgreen
      (drug store)/Chase (retail bank)
                
                Macomb
      Township, Michigan
                
                $6.1
      millionWalgreen
      (drug store)
                
                Ypsilanti,
      Michigan
                
                $4.9
      millionWalgreen
      (drug store)
                
                Shelby
      Township, Michigan
                
                $2.6
      millionWalgreen
      (drug store)
                
                Marion
      County, Florida
                
                $3.1
      millionMC
      Sporting Goods and Peebles (redevelopment)
                
                Big
      Rapids, Michigan
                
                $1.8
      million




During
2008, we commenced the following developments:




Tenant(s)
                
                Location
                
                Budgeted
      Cost
                
                Anticipated
      CompletionWalgreen
      (drug store)
                
                Marion
      County, Florida
                
                $4.8
      million
                
                First
      quarter 2009Walgreen
      (drug store)
                
                Brighton,
      Michigan
                
                $4.1
      million
                
                First
      quarter 2009Walgreen
      (drug store)
                
                Brevard
      County, Florida
                
                $4.8
      million
                
                Second
      quarter 2009Walgreen
      (drug store)
                
                Lowell,
      Michigan
                
                $3.6
      million
                
                Third
      quarter 2009





We did
not complete or commence any acquisitions in 2008.  We did not sell
any properties in 2008.




Major
Tenants




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




Number
                    of
      Leases
                
                
                Annualized
      Base
                    Rent
      as of
                    December
      31, 2008
                
                
                Percent
      of Total
                    Annualized
      Base Rent as
                    of
      December 31, 2008Borders
                
                
                18
                
                
                $
                9,957,608
                
                
                
                30
                %Walgreen
                
                
                24
                
                
                
                8,774,599
                
                
                
                26Kmart
                
                
                12
                
                
                
                3,847,911
                
                
                
                12Total
                
                
                54
                
                
                $
                22,580,118
                
                
                
                68
                %




10




Borders
Group, Inc. trades on the New York Stock Exchange under the symbol
“BGP”.  Borders is the second
largest operator of book, music and movie superstores and the largest operator
of mall-based bookstores in the world based upon both sales and number of
stores.  At February 2, 2008, the Company operated 541 superstores
under the Borders name, including 509 in the United States.  The
Company also operated 490 mall-based and other bookstores, including stores
operated under the Waldenbooks, Borders Express and Borders Outlet names as well
as Borders-branded airport stores.  Borders employed approximately
29,500 people worldwide as of such date.  Borders has reported that
its annual revenues for its 2007 fiscal year ended February 2, 2008 were
approximately $3.8 billion, its annual net (loss) for 2007 was approximately
($157 million) and its total stockholders’ equity at fiscal year end 2007 was
approximately of $477 million.




Walgreen
is a leader of the U.S. chain drugstore industry and trades on the New York
Stock Exchange under the symbol “WAG”.  Walgreen operated 6,934
locations in 49 states, the District of Columbia, Puerto Rico and Guam and had
total assets of approximately $22.4 billion as of August 31, 2008.  As
of January 21, 2009, Walgreen’s long-term debt had a Standard and Poor’s rating
of A+ and a Moody’s rating of A2 . For its fiscal year ended August 31, 2008,
Walgreen reported that its annual net sales were $59.0 billion, its annual net
income was $2.2 billion and it had shareholders’ equity of $12.9
billion.




Kmart is
a mass merchandising company that offers customers quality products through a
portfolio of brands and labels. As of November 1, 2008, Kmart operated
approximately 1,400 stores across 49 states, Guam, Puerto Rico and the U.S.
Virgin Islands.  Kmart is a wholly-owned subsidiary of Sears Holdings
Corporation (Sears), which trades on the Nasdaq stock market under the symbol
“SHLD”.  Sears is a broadline retailer with approximately 2,300
full-line and 1,200 specialty retail stores in the United States operating
through Kmart and Sears and approximately 380 full-line and specialty retail
stores in Canada operating through Sears Canada, Inc. (Sears Canada), a
72%-owned subsidiary.  As of November 1, 2008, Sears had total assets
of $28.0 billion, total liabilities of $18.1 billion and shareholders equity of
$9.9 billion.  All of our Kmart properties are in the traditional
Kmart format and these Kmart properties average 85,000 square feet per
property.




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 2007 fiscal years and the quarterly
report on form 10-Q filed by Sears Holdings Corporation with the SEC with
respect to the third quarter of 2008.  Additional information
regarding Borders, Walgreen or Kmart may be found in their respective public
filings.  These filings can be accessed at www.sec.gov.  We
are unable to confirm, and make no representations with respect to, the accuracy
of these reports and therefore you should not place undue reliance on such
information as it pertains to the Company’s operations.




Location
of Properties in the Portfolio




State
              
              Number
                  of
                  Properties
              
              
              Total
      Gross
                  Leasable
      Area
                  (Sq.
      feet)
              
              
              Percent
      of GLA Leased
                  on
      December 31, 2008California
              
              
              1
              
              
              
              38,015
              
              
              
              100
              %Florida
              
              
              5
              
              
              
              273,613
              
              
              
              100Georgia
              
              
              1
              
              
              
              14,820
              
              
              
              100Illinois
              
              
              1
              
              
              
              20,000
              
              
              
              100Indiana
              
              
              2
              
              
              
              15,844
              
              
              
              100Kansas
              
              
              2
              
              
              
              45,000
              
              
              
              100Kentucky
              
              
              1
              
              
              
              116,212
              
              
              
              100Maryland
              
              
              2
              
              
              
              53,000
              
              
              
              100Michigan
              
              
              39
              
              
              
              2,097,984
              
              
              
              99Nebraska
              
              
              2
              
              
              
              55,000
              
              
              
              100New
      Jersey
              
              
              1
              
              
              
              10,118
              
              
              
              100New
      York
              
              
              2
              
              
              
              27,626
              
              
              
              100


11
  State
                
                Number
                    of
                    Properties
                
                
                Total
      Gross
                    Leasable
      Area
                    (Sq.
      feet)
                
                
                Percent
      of GLA Leased
                    on
      December 31, 2008Ohio
                
                
                1
                
                
                
                21,000
                
                
                
                100Oklahoma
                
                
                4
                
                
                
                99,282
                
                
                
                100Pennsylvania
                
                
                1
                
                
                
                28,604
                
                
                
                100Wisconsin
                
                
                3
                
                
                
                523,036
                
                
                
                99Total/Average
                
                
                68
                
                
                
                3,439,154
                
                
                
                99
                %




Lease
Expirations




The
following table shows lease expirations for our community shopping centers and
wholly-owned freestanding properties, assuming that none of the tenants exercise
renewal options.




December
      31, 2008Gross
      Leasable Area
                
                
                Annualized
      Base RentExpiration
      Year
                
                Number
                    of
      Leases
                    Expiring
                
                
                Square
                    Footage
                
                
                Percent
                    Of
      Total
                
                
                Amount
                
                
                Percent
                    Of
      Total2009
                
                
                14
                
                
                
                203,685
                
                
                
                6.0
                %
                
                $
                908,058
                
                
                
                2.7
                %2010
                
                
                22
                
                
                
                312,757
                
                
                
                9.2
                %
                
                
                1,869,226
                
                
                
                5.6
                %2011
                
                
                28
                
                
                
                235,834
                
                
                
                6.9
                %
                
                
                1,739,358
                
                
                
                5.3
                %2012
                
                
                15
                
                
                
                78,660
                
                
                
                2.3
                %
                
                
                626,599
                
                
                
                1.9
                %2013
                
                
                19
                
                
                
                316,613
                
                
                
                9.3
                %
                
                
                1,726,197
                
                
                
                5.2
                %2014
                
                
                5
                
                
                
                179,358
                
                
                
                5.3
                %
                
                
                873,006
                
                
                
                2.6
                %2015
                
                
                12
                
                
                
                653,042
                
                
                
                19.1
                %
                
                
                4,681,462
                
                
                
                14.1
                %2016
                
                
                5
                
                
                
                80,945
                
                
                
                2.4
                %
                
                
                1,664,513
                
                
                
                5.0
                %2017
                
                
                3
                
                
                
                22,844
                
                
                
                0.7
                %
                
                
                312,807
                
                
                
                0.9
                %2018
                
                
                13
                
                
                
                240,032
                
                
                
                7.0
                %
                
                
                4,371,681
                
                
                
                13.2
                %Thereafter
                
                
                39
                
                
                
                1,088,011
                
                
                
                31.8
                %
                
                
                14,351,860
                
                
                
                43.5
                %Total
                
                
                175
                
                
                
                3,411,781
                
                
                
                100.0
                %
                
                $
                33,124,767
                
                
                
                100.0
                %




We have
made preliminary contact with the 14 tenants whose leases expire in
2009.  Of those tenants, seven tenants, at their option, have the
right to extend their lease term and seven tenants have leases expiring in
2009.  We expect two tenants, including our only Circuit City store,
to terminate their leases in 2009 and 12 tenants to extend their leases or enter
into lease extensions.




12




Annualized
Base Rent of our Properties




The
following is a breakdown of base rents in place at December 31, 2008 for each
type of retail tenant:




Type
      of Tenant
                  
                  Annualized
                      Base
      Rent
                  
                  
                  Percent
      of
                      Annualized
                      Base
      RentNational(1)
                  
                  $
                  29,358,646
                  
                  
                  
                  89
                  %Regional(2)
                  
                  
                  2,640,792
                  
                  
                  
                  8Local
                  
                  
                  1,125,329
                  
                  
                  
                  3Total
                  
                  $
                  33,124,767
                  
                  
                  
                  100
                  %








(1)
            Includes
      the following national tenants:  Borders, Walgreen, Kmart,
      Wal-Mart, Eckerd Drugs, Fashion Bug, Rite Aid, JC Penney, Avco Financial,
      GNC Group, Radio Shack, Super Value, Maurices, Payless Shoes, Blockbuster
      Video, Family Dollar, H&R Block, Sally Beauty, Jo Ann Fabrics,
      Staples, Best Buy, Dollar Tree, TGI Friday’s, Circuit City and Pier 1
      Imports.




(2)
            Includes
      the following regional tenants: Roundy’s Foods, Dunham’s Sports,
      Christopher Banks and Beall’s Department
Stores.




Freestanding
Properties




56 of our
properties are freestanding properties which at December 31, 2008 were leased to
Walgreen (23), Borders (18),  Rite Aid (5), Kmart (2), Eckerd Drugs
(2), Circuit City Stores (1), Fajita Factory (1), Citizens Bank (1), Lake
Lansing RA Associates, LLC (1),  Meijer (1) and Wal-Mart (Sam’s Club)
(1). Our freestanding properties provided $22,839,459, or approximately 68.9%,
of our annualized base rent as of December 31, 2008, at an average base rent per
square foot of $14.50.  These properties contain, in the aggregate,
1,576,498 square feet of gross leasable area or approximately 46.0% of our total
gross leasable area as of December 31, 2008.  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.  Forty-three (43) of our 56 freestanding properties were
developed by us.  Five of our 56 freestanding properties, although not
developed by us, were acquired as part of our relationship with
Borders.  As of December 31, 2008, our freestanding properties have a
weighted average lease term of 13.1 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
(4), Georgia (1), Indiana (2), Kansas (2), Maryland (2), Michigan (33), Nebraska
(2), New Jersey (1), New York (2), Ohio (1), Oklahoma (4) and Pennsylvania
(1).




Freestanding
Properties




Tenant/Location
                  
                  Year
      Completed/
                      Expanded
                  
                  
                  Total
      GLA
                  
                  Lease
      Expiration(2)
                      (Option
      expiration)Borders,
      Aventura, FL (1)
                  
                  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,
      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)







13


Tenant/Location
                    
                    Year
      Completed/
                        Expanded
                    
                    
                    Total
      GLA
                    
                    Lease
      Expiration(2)
                        (Option
      expiration)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
                    
                    Apr
      30, 2009Citizens
      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
                    
                    
                    Note
                    (3)
                    Aug
      31, 2014 (2032)Lake
      Lansing RA Associates, LLC, East Lansing, MI
                    
                    2004
                    
                    
                    Note
                    (4)
                    Dec
      31, 2028 (2078)Kmart,
      Grayling, MI
                    
                    1984
                    
                    
                    
                    52,320
                    
                    Sep
      30, 2009 (2059)Kmart,
      Oscoda, MI
                    
                    1984/1990
                    
                    
                    
                    90,470
                    
                    Sep
      30, 2009 (2059)Meijer,
      Plainfield, IN
                    
                    2007
                    
                    
                    Note
                    (5)
                    Nov
      5, 2027 (2047)Rite
      Aid, Canton Twp, MI
                    
                    2003
                    
                    
                    
                    11,180
                    
                    Oct
      31, 2019 (2049)Rite
      Aid, Roseville, MI
                    
                    2005
                    
                    
                    
                    11,060
                    
                    June
      30, 2025 (2050)Rite
      Aid, Mt Pleasant, MI
                    
                    2005
                    
                    
                    
                    11,095
                    
                    Nov
      30, 2025 (2065)Rite
      Aid, N Cape May, NJ
                    
                    2005
                    
                    
                    
                    10,118
                    
                    Nov
      30, 2025 (2065)Rite
      Aid, Summit Twp, MI
                    
                    2006
                    
                    
                    
                    11,060
                    
                    Oct
      31, 2019 (2039)Sam’s
      Club, Roseville, MI
                    
                    2002
                    
                    
                    Note
                    (6)
                    Aug
      4, 2022 (2082)Walgreen,
      Waterford, MI
                    
                    1997
                    
                    
                    
                    13,905
                    
                    Feb
      28, 2018 (2058)Walgreen,
      Chesterfield, MI
                    
                    1998
                    
                    
                    
                    13,686
                    
                    July
      31, 2018 (2058)Walgreen,
      Pontiac, MI
                    
                    1998
                    
                    
                    
                    13,905
                    
                    Oct
      31, 2018 (2058)Walgreen,
      Grand Blanc, MI
                    
                    1998
                    
                    
                    
                    13,905
                    
                    Feb
      28, 2019 (2059)Walgreen,
      Rochester, MI
                    
                    1998
                    
                    
                    
                    13,905
                    
                    June
      30, 2019 (2059)Walgreen,
      Ypsilanti, MI
                    
                    1999
                    
                    
                    
                    15,120
                    
                    Dec
      31, 2019 (2059)Walgreen,
      Petoskey, MI (1)
                    
                    2000
                    
                    
                    
                    13,905
                    
                    Apr
      30, 2020 (2060)Walgreen,
      Flint, MI
                    
                    2000
                    
                    
                    
                    14,490
                    
                    Dec
      31, 2020 (2060)Walgreen,
      Flint, MI
                    
                    2001
                    
                    
                    
                    15,120
                    
                    Feb
      28, 2021 (2061)Walgreen,
      N Baltimore, MI
                    
                    2001
                    
                    
                    
                    14,490
                    
                    Aug
      31, 2021 (2061)Walgreen,
      Flint, MI
                    
                    2002
                    
                    
                    
                    14,490
                    
                    Apr
      30, 2027 (2077)Walgreen,
      Big Rapids, MI
                    
                    2003
                    
                    
                    
                    13,560
                    
                    Apr
      30, 2028 (2078)Walgreen,
      Flint, MI
                    
                    2004
                    
                    
                    
                    14,560
                    
                    Feb
      28, 2029 (2079)Walgreen,
      Flint, MI
                    
                    2004
                    
                    
                    
                    13,650
                    
                    Oct
      31, 2029 (2079)Walgreen,
      Midland, MI
                    
                    2005
                    
                    
                    
                    14,820
                    
                    July
      31, 2030 (2080)Walgreen,
      Grand Rapids, MI
                    
                    2005
                    
                    
                    
                    14,820
                    
                    Aug
      30, 2030 (2080)Walgreen,
      Delta Township, MI
                    
                    2005
                    
                    
                    
                    14,559
                    
                    Nov
      30, 2030 (2080)Walgreen
      and Retail space Livonia, MI
                    
                    2007
                    
                    
                    
                    19,390
                    
                    June
      30, 2032 (2082)Walgreen,
      Barnesville, GA
                    
                    2007
                    
                    
                    
                    14,820
                    
                    Nov
      30, 2032 (2082)Walgreen
      and Chase Bank, Macomb Township, MI
                    
                    2008
                    
                    
                    
                    14,820
                    
                    Mar
      31, 2033 (2083)Walgreen,
      Ypsilanti, MI
                    
                    2008
                    
                    
                    
                    13,650
                    
                    Mar
      31, 2032 (2082)




14


Tenant/Location
                    
                    Year
      Completed/
                        Expanded
                    
                    
                    Total
      GLA
                    
                    Lease
      Expiration(2)
                        (Option
      expiration)Walgreen,
      Marion County, FL
                    
                    2008
                    
                    
                    
                    14,820
                    
                    Apr
      30, 2032 (2082)Walgreen,
      Shelby Township, MI (1)
                    
                    2008
                    
                    
                    
                    14,820
                    
                    Jul
      31, 2033 (2083)Total
                    
                    
                    
                    
                    
                    
                    1,584,898




(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, Petoskey, MI 2074 and Shelby Township, MI 2084), the
      land together with all improvements revert to the land owner. We have an
      option to purchase the Petoskey property after August 7, 2019 and the
      Shelby property after July 5, 2018.




(2)
            At
      the expiration of tenant’s initial lease term, each tenant (except
      Citizens Bank) has an option, subject to certain requirements, to extend
      its lease for an additional period of
time.




(3)
            This
      2.03 acre property is leased from us by Fajita Factory, LLC pursuant to a
      ground lease.  The tenant occupies a 5,448 square foot
      building.




(4)
            This
      11.3 acre property is leased from us by Lake Lansing RA Associates, LLC
      pursuant to a ground lease.  The land owner has constructed a
      14,564 square foot building.




(5)
            This
      32.5 acre property is leased from us by Meijer pursuant to a ground
      lease.  Meijer expects to construct an estimated 210,000 square
      foot super center.




(6)
            This
      12.68 acre property is leased from us by Wal-Mart pursuant to a ground
      lease.  Wal-Mart has constructed a Sam’s Club retail building
      containing approximately 132,332 square
feet.




Community
Shopping Centers




12 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 (6)
and Wisconsin (3). Our community shopping centers tend to be located in high
traffic, market dominant centers in which customers of our tenants purchase
day-to-day necessities. Our community shopping centers are anchored by national
tenants.




The
location, general character and primary occupancy information with respect to
the community shopping centers as of December 31, 2008 are set forth
below:




Property
      Location
              
              Year
                  Completed/
                  Expanded
              
              
              Gross
                  Leasable
                  Area
                Sq.
      Ft.
              
              
              Annualized
                Base
      Rent (2)
              
              
              Average
                  Base
                  Rent
      per
                  Sq.
      Ft.(3)
              
              
              Percent
                  Occupied
      at
                  December
      31,
                  2008
              
              
              Percent
                  Leased
      at
                December
      31,
                2008
      (4)
              
              Anchor
      Tenants (Lease
                  expiration/Option
      period
                  expiration)
      (5)Capital
      Plaza,(1)
              
              
              1978/
      2006
              
              
              
              116,212
              
              
              $
              563,000
              
              
              $
              4.84
              
              
              
              100
              %
              
              
              100
              %
              Kmart(2013/2053)Frankfort,
      KY
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              Walgreen
      (2031/2052)Fashion
      Bug (2010/2025)Charlevoix
      Commons
              
              1991
              
              
              
              137,375
              
              
              
              686,495
              
              
              
              5.00
              
              
              
              100
              %
              
              
              100
              %
              Kmart
      (2015/2065)Charlevoix,
      MI
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              Roundy’s
      (2011/2031)Chippewa
      Commons
              
              1991
              
              
              
              168,311
              
              
              
              962,756
              
              
              
              5.72
              
              
              
              100
              %
              
              
              100
              %
              Kmart
      (2014/2064)Chippewa
      Falls, WI
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              Roundy’s
      (2011/2031)Fashion
      Bug (2011/2021)Ironwood
      Commons
              
              1991
              
              
              
              185,535
              
              
              
              940,418
              
              
              
              5.07
              
              
              
              100
              %
              
              
              100
              %
              Kmart
      (2015/2065)Ironwood,
      MI
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              Super
      Value (2011/2036)Fashion
      Bug (2012/2022)




15


Property
      Location
                
                Year
                    Completed/
                    Expanded
                
                
                Gross
                    Leasable
                    Area
                  Sq.
      Ft.
                
                
                Annualized
                  Base
      Rent (2)
                
                
                Average
                    Base
                    Rent
      per
                    Sq.
      Ft.(3)
                
                
                Percent
                    Occupied
      at
                    December
      31,
                    2008
                
                
                Percent
                    Leased
      at
                  December
      31,
                  2008
      (4)
                
                Anchor
      Tenants (Lease
                    expiration/Option
      period
                    expiration)
      (5)Marshall
      Plaza
                
                1990
                
                
                
                119,279
                
                
                
                670,959
                
                
                
                5.72
                
                
                
                98
                %
                
                
                98
                %
                Kmart
      (2015/2065)Marshall,
      MIMt.
      Pleasant Shopping Center
                
                
                1973/
      1997
                
                
                
                241,458
                
                
                
                1,072,582
                
                
                
                4.54
                
                
                
                98
                %
                
                
                98
                %
                Kmart
      (2008/2048)Mt.
      Pleasant, MI
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                J.C.
      Penney Co. (2010/2020)Staples,
      Inc. (2010/2025)Fashion
      Bug (2010/2025)North
      Lakeland Plaza
                
                1987
                
                
                
                171,334
                
                
                
                1,297,243
                
                
                
                7.65
                
                
                
                99
                %
                
                
                99
                %
                Best
      Buy (2013/2028)Lakeland,
      FL
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                Beall’s
      (2015/2025)Petoskey
      Town Center
                
                1990
                
                
                
                174,870
                
                
                
                1,093,873
                
                
                
                6.26
                
                
                
                100
                %
                
                
                100
                %
                Kmart
      (2015/2065)Petoskey,
      MI
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                Roundy’s
      (2010/2030)Fashion
      Bug (2012/2022)Plymouth
      Commons
                
                1990
                
                
                
                162,031
                
                
                
                856,369
                
                
                
                5.51
                
                
                
                96
                %
                
                
                96
                %
                Kmart
      (2015/2065)Plymouth,
      WI
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                Roundy’s
      (2010/2030)Fashion
      Bug (2010/2020)Rapids
      Associates
                
                1990
                
                
                
                173,557
                
                
                
                982,411
                
                
                
                5.97
                
                
                
                95
                %
                
                
                95
                %
                Kmart
      (2015/2065)Big
      Rapids, MI
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                MC
      Sports (2018/2033)Fashion
      Bug (2011/2021)Shawano
      Plaza
                
                1990
                
                
                
                192,694
                
                
                
                1,013,202
                
                
                
                5.26
                
                
                
                100
                %
                
                
                100
                %
                Kmart
      (2014/2064)Shawano,
      WI
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                Roundy’s
      (2010/2030)J.C.
      Penney Co. (2010/2025)Fashion
      Bug (2010/2021)West
      Frankfort Plaza
                
                1982
                
                
                
                20,000
                
                
                
                146,000
                
                
                
                7.30
                
                
                
                100
                %
                
                
                100
                %
                Fashion
      Bug (2012)West
      Frankfort, ILTotal/Average
                
                
                
                
                
                
                1,862,656
                
                
                $
                10,285,308
                
                
                $
                5.60
                
                
                
                99
                %
                
                
                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,
    2008.




(3)
            Calculated
      as total annualized base rents, divided by gross leaseable area actually
      leased as of December 31,
2008.




(4)
            Roundy’s
      has sub-leased the space it leases at Charlevoix Commons (35,896 square
      feet, rented at a rate of $5.97 per square foot). The Charlevoix lease
      expires in 2011 (assuming it is 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




We are
not presently involved in any 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.




16




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
2008.




Part
II




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




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




QuarterEnded
                    
                    High
                    
                    
                    Low
                    
                    
                    Dividends Declared Per
                      CommonShareMarch
      31, 2008
                    
                    $
                    31.02
                    
                    
                    $
                    26.74
                    
                    
                    $
                    0.50June
      30, 2008
                    
                    $
                    29.14
                    
                    
                    $
                    21.48
                    
                    
                    $
                    0.50September
      30, 2008
                    
                    $
                    29.25
                    
                    
                    $
                    23.05
                    
                    
                    $
                    0.50December
      31, 2008
                    
                    $
                    27.49
                    
                    
                    $
                    9.48
                    
                    
                    $
                    0.50March
      31, 2007
                    
                    $
                    36.00
                    
                    
                    $
                    32.30
                    
                    
                    $
                    0.49June
      30, 2007
                    
                    $
                    35.04
                    
                    
                    $
                    30.12
                    
                    
                    $
                    0.49September
      30, 2007
                    
                    $
                    33.95
                    
                    
                    $
                    27.29
                    
                    
                    $
                    0.49December
      31, 2007
                    
                    $
                    34.00
                    
                    
                    $
                    28.32
                    
                    
                    $
                    0.50




At
February 27, 2009, there were 7,931,030 shares of our common stock issued and
outstanding which were held by approximately 200 stockholders of
record.  The number of stockholders of record does not reflect persons
or entities who held their shares in nominee or “street” name.  In
addition, at December 31, 2008 there were 605,413 Operating Partnership units
outstanding held by limited partners other than the Company.  The
units are exchangeable into common stock on a one for one basis. We intend
to continue to declare quarterly dividends to our
stockholders.  However, our distributions are determined by our board
of directors and will depend on a number of factors, including the amount of our
funds from operations, the financial and other condition of our properties, our
capital requirements, restrictions in our debt instruments, our annual
distribution requirements under the provisions of the Internal Revenue Code
applicable to REITs and such other factors as our board of directors deems
relevant.  We have historically paid cash dividends, although we may
choose to pay a portion in stock dividends in the future.  To qualify
as a REIT, we must distribute at least 90% of our REIT taxable income prior to
net capital gains to our stockholders, as well as meet certain other
requirements. We must pay these distributions in the taxable year the income is
recognized, or in the following taxable year if they are declared during the
last three months of the taxable year, payable to stockholders of record on a
specified date during such period and paid during January of the following year.
Such distributions are treated as paid by us and received by our stockholders on
December 31 of the year in which they are declared. In addition, at our
election, a distribution for a taxable year may be declared in the following
taxable year if it is declared before we timely file our tax return for such
year and if paid on or before the first regular dividend payment after such
declaration. These distributions qualify as dividends paid for the 90% REIT
distribution test for the previous year and are taxable to holders of our
capital stock in the year in which paid.




During
the year ended December 31, 2008, we did not sell any unregistered
securities.  During the fourth quarter of 2008, we did not repurchase
any of our equity securities.


17


ITEM 6.
            SELECTED
      FINANCIAL DATA




The
following table sets forth our selected financial information on a historical
basis and should be read in conjunction with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and all of the
financial statements and notes thereto included elsewhere in this Form
10-K.  Certain amounts have been reclassified to conform to the
current presentation of discontinued operations.  The balance sheet
for the periods ending December 31, 2004 through 2008 and operating data for
each of the periods presented were derived from our audited financial
statements.




Selected
Financial Data


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




Year
      Ended December 31,2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2005
                  
                  
                  2004Operating
      DataTotal
      Revenue
                  
                  $
                  35,654
                  
                  
                  $
                  34,468
                  
                  
                  $
                  32,908
                  
                  
                  $
                  31,579
                  
                  
                  $
                  28,940ExpensesProperty
      Expense (1)
                  
                  
                  4,448
                  
                  
                  
                  4,310
                  
                  
                  
                  4,219
                  
                  
                  
                  4,545
                  
                  
                  
                  4,220General
      and Administrative
                  
                  
                  4,361
                  
                  
                  
                  4,462
                  
                  
                  
                  4,019
                  
                  
                  
                  4,191
                  
                  
                  
                  2,849Interest
                  
                  
                  5,179
                  
                  
                  
                  4,896
                  
                  
                  
                  4,625
                  
                  
                  
                  4,159
                  
                  
                  
                  4,507Depreciation
      and Amortization
                  
                  
                  5,384
                  
                  
                  
                  5,017
                  
                  
                  
                  4,851
                  
                  
                  
                  4,637
                  
                  
                  
                  4,249Total
      Expenses
                  
                  
                  19,372
                  
                  
                  
                  18,685
                  
                  
                  
                  17,714
                  
                  
                  
                  17,532
                  
                  
                  
                  15,825Other
      Income (2)
                  
                  
                  -
                  
                  
                  
                  1,044
                  
                  
                  
                  -
                  
                  
                  
                  6
                  
                  
                  
                  217Income
      Before Minority Interest and DiscontinuedOperations
                  
                  
                  16,282
                  
                  
                  
                  16,827
                  
                  
                  
                  15,194
                  
                  
                  
                  14,053
                  
                  
                  
                  13,332Minority
      Interest
                  
                  
                  1,265
                  
                  
                  
                  1,345
                  
                  
                  
                  1,220
                  
                  
                  
                  1,145
                  
                  
                  
                  1,257Income
      Before Discontinued Operations
                  
                  
                  15,017
                  
                  
                  
                  15,482
                  
                  
                  
                  13,974
                  
                  
                  
                  12,908
                  
                  
                  
                  12,075Gain
      on Sale of Asset From Discontinued Operations
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,654
                  
                  
                  
                  523Income
      From Discontinued Operations
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  486
                  
                  
                  
                  525Net
      Income
                  
                  $
                  15,017
                  
                  
                  $
                  15,482
                  
                  
                  $
                  13,974
                  
                  
                  $
                  16,048
                  
                  
                  $
                  13,123Number
      of Properties
                  
                  
                  68
                  
                  
                  
                  64
                  
                  
                  
                  60
                  
                  
                  
                  59
                  
                  
                  
                  54Number
      of Square Feet
                  
                  
                  3,439
                  
                  
                  
                  3,385
                  
                  
                  
                  3,355
                  
                  
                  
                  3,363
                  
                  
                  
                  3,463Percentage
      Leased
                  
                  
                  99
                  %
                  
                  
                  99
                  %
                  
                  
                  99
                  %
                  
                  
                  99
                  %
                  
                  
                  99
                  %Per
      Share Data – DilutedIncome
      Before Discontinued Operations
                  
                  $
                  1.95
                  
                  
                  $
                  2.01
                  
                  
                  $
                  1.83
                  
                  
                  $
                  1.72
                  
                  
                  $
                  1.87Discontinued
      Operations
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  
                  .42
                  
                  
                  
                  .16Net
      Income
                  
                  $
                  1.95
                  
                  
                  $
                  2.01
                  
                  
                  $
                  1.83
                  
                  
                  $
                  2.14
                  
                  
                  $
                  2.03Weighted
      Average of Common Shares Outstanding – Diluted
                  
                  
                  7,718
                  
                  
                  
                  7,716
                  
                  
                  
                  7,651
                  
                  
                  
                  7,491
                  
                  
                  
                  6,475Cash
      Dividends
                  
                  $
                  2.00
                  
                  
                  $
                  1.97
                  
                  
                  $
                  1.96
                  
                  
                  $
                  1.96
                  
                  
                  $
                  1.95Balance
      Sheet DataReal
      Estate (before accumulated depreciation)
                  
                  $
                  311,343
                  
                  
                  $
                  289,074
                  
                  
                  $
                  268,248
                  
                  
                  $
                  258,232
                  
                  
                  $
                  252,427Total
      Assets
                  
                  $
                  256,897
                  
                  
                  $
                  239,348
                  
                  
                  $
                  223,515
                  
                  
                  $
                  223,460
                  
                  
                  $
                  214,837Total Debt, including accrued
      interest
                  
                  $
                  101,069
                  
                  
                  $
                  82,889
                  
                  
                  $
                  69,031
                  
                  
                  $
                  68,504
                  
                  
                  $
                  92,441





(1)
            Property
      expense includes real estate taxes, property maintenance, insurance,
      utilities and land lease expense.




(2)
            Other
      income is composed of development fee income, gain on land sales, and
      equity in net income of unconsolidated
entities.




(3)
            Net
      income per share has been computed by dividing the net income by the
      weighted average number of shares of common stock outstanding and the
      effect of dilutive securities outstanding. The per share amounts are
      presented in accordance with SFAS No. 128 “Earnings Per
      Share.”


18




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




Overview




We were
established to continue to operate and expand the retail property business of
our predecessor.  We commenced our operations in April
1994.  Our assets are held by and all operations are conducted
through, directly or indirectly, Agree Limited Partnership (Operating
Partnership), of which Agree Realty Corporation is the sole general partner and
held a 92.85% interest as of December 31, 2008.  We are operating so
as to qualify as a real estate investment trust (REIT) for federal income tax
purposes.




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




Recent
Accounting Pronouncements




In
September 2006, the FASB issued Statement No. 157. “Fair Value Measurements”(“SFAS No. 157”).  This Statement defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value
measurements.  This Statement applies to accounting pronouncements
that require or permit fair value measurements, except for share-based
compensation transactions under FASB Statement No. 123 (Revised) “Share Based
Payment.”  This Statement was effective for financial
statements issued for fiscal years beginning after November 15, 2007, except for
non-financial assets and liabilities for which this Statement will be effective
for years beginning after November 15, 2008.  The deferral to this
Statement applies to all nonfinancial assets and nonfinancial liabilities
including but not limited to initial measurements of fair value of: nonfinancial
assets and nonfinancial liabilities in a business combination or other new basis
event, asset retirement obligations, and nonfinancial liabilities for exit or
disposal activities, as well as impairment assessments of nonfinancial long
lived assets and goodwill. This Statement does not require any new fair value
measurements or remeasurements of previously reported fair values. The Company
will account for nonfinancial assets and nonfinancial liabilities under SFAS No.
157 beginning on January 1, 2009.





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements” (“SFAS
No. 160”), an amendment to Accounting Research Board
No. 51.  SFAS No. 160’s objective is to improve the relevance,
comparability and transparency of financial information that a reporting entity
provides in its consolidated financial statements. The key aspects of SFAS No.
160 are (i) the minority interests in subsidiaries should be presented in
the consolidated balance sheet within equity of the consolidated group, separate
from the parent’s shareholders’ equity, (ii) acquisitions or dispositions
of noncontrolling interests in a subsidiary that do not result in a change of
control should be accounted for as equity transactions, (iii) a parent
recognizes a gain or loss in net income when a subsidiary is deconsolidated,
measured using the fair value of the non-controlling equity investment,
(iv) the acquirer should attribute net income and each component of other
comprehensive income between controlling and noncontrolling interests based on
any contractual arrangements or relative ownership interests, and (v) a
reconciliation of beginning to ending total equity is required for both
controlling and noncontrolling interests. SFAS No. 160 is effective for fiscal
years beginning on or after December 15, 2008 and should be applied
prospectively. We expect SFAS No. 160 will require the disclosure of minority
interest as a separate item in the equity section of our balance sheet, once
adopted.  We do not expect SFAS No. 160 to have a material effect on
our financial statements.  The Company will account for minority
interest under SFAS No.160 beginning on January 1, 2009.  In March
2008, the SEC announced revisions to Topic No. D-98 “Classification and
Measurement of Redeemable Securities” that provide interpretive guidance on the
interaction on the interaction between Topic D-98 and Statement No.
160.




In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”(“SFAS
No. 141”). SFAS
No. 141(R) will significantly change the accounting for business
combinations.  Under SFAS No. 141(R), an acquiring entity will be
required to recognize all the assets acquired and liabilities assumed in a
transaction at the acquisition-date fair value with limited exceptions. 
SFAS No. 141(R) will change the accounting treatment for certain
specific acquisition related items including: (1) expensing acquisition
related costs as incurred; (2) valuing noncontrolling interests at fair
value at the acquisition date; and (3) expensing restructuring costs
associated with an acquired business.  SFAS No. 141(R) also
includes a substantial number of new disclosure requirements.  SFAS
No. 141(R) is to be applied prospectively to business combinations for
which the acquisition date is on or after January 1, 2009.  The
Company will account for business combinations under this Statement beginning on
January 1, 2009.


19





In March 2008,
the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”(“SFAS No. 161”). SFAS No. 161
requires enhanced disclosures about an entity’s derivative and hedging
activities. It clarifies (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under SFAS No.133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows.  SFAS No. 161 is effective
for fiscal years beginning after November 15, 2008.  The Company
will disclose hedging activities under SFAS No. 161 beginning on January 1, 2009
and do not expect SFAS No. 161 to have a material effect on our financial
statements since it pertains to disclosure only.




In May
2008, the FASB issued SFAS No. 162,“The Hierarchy of Generally
Accepted Accounting Principles,”(“SFAS No. 162”).The current hierarchy
of generally accepted accounting principles is set forth in the American
Institute of Certified Accountants (AICPA) Statement of Auditing Standards (SAS)
No. 69, “The meaning of
Present Fairly in Conformity With Generally Accepted Accounting
Principles.  SFAS No. 162 is intended to improve financial
reporting by identifying a consistent framework or hierarchy for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with U.S. generally accepted accounting principles for
nongovernmental entities.  This Statement is effective November 15,
2008.  The Company will adopt this Statement effective January 1, 2009
but does not anticipate that the Statement will have a material effect on the
Company’s results of operations or financial position, as theStatement does not
directly impact the accounting principles applied in the preparation of the
Company’s financial statements.





In June
2008, the FASB ratified FASB Staff Position No. EITF 03-6-01 “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities”(“FSP EITF 03-6-01”).FSP EITF 03-6-01
addresses whether instruments granted in share-based payment transactions are
participating securities prior to vesting and, therefore, need to be included in
the earnings allocation in computing earnings per share (“EPS”) under the
two-class method of SFAS 128.  It clarifies that unvested share-based
payment awards that contain nonforfeitable right to dividends or dividend
equivalents (whether paid or unpaid) are participating securities and shall be
included in the computation of EPS pursuant to the two-class
method.  FSP EITF 03-6-01 is effective for fiscal years beginning
after December 15, 2008.  The Company will account for instruments
granted in share-based payment transactions under this Statement beginning on
January 1, 2009, however we do not expect FSP EITF 06-6-01 to have a material
impact on our computation of EPS.





In
November 2008, the FASB ratified Emerging Issue Task Force Issue No. 08-6,
"Equity Method Investment
Accounting Considerations." EITF 08-6 addresses certain issues that arise
from a company's application of the equity method under Opinion 18 due to a
change in accounting for business combinations and consolidated subsidiaries
resulting from the issuance of Statement 141(R) and Statement 160. EITF 08-6
addresses issues regarding the initial carrying value of an equity method
investment, tests of impairment performed by the investor over an investee's
underlying assets, changes in ownership resulting from the issuance of shares by
an investee, and changes in an investment from the equity method to the cost
method. This Issue is effective and will be applied on a prospective basis in
fiscal years beginning on or after December 15, 2008, and interim periods within
those fiscal years, consistent with the effective dates of Statement 141(R) and
Statement 160. The Company will adopt this Statement effective January 1,
2009, however we do not expect Issue No. 08-6 to have a material impact on our
financial statements.





Critical
Accounting Policies




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


20




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




Real
estate assets are stated at cost less accumulated depreciation.  All
costs related to planning, development and construction of buildings prior to
the date they become operational, including interest and real estate taxes
during the construction period, are capitalized for financial reporting purposes
and recorded as property under development until construction has been
completed.  The viability of all projects under construction or
development are regularly evaluated under applicable accounting requirements,
including requirements relating to abandonment of assets or changes in use. To
the extent a project, or individual components of the project, are no longer
considered to have value, the related capitalized costs are charged against
operations.  Subsequent to completion of construction, expenditures
for property maintenance are charged to operations as incurred, while
significant renovations are capitalized.  Depreciation of the
buildings is recorded on the straight-line method using an estimated useful life
of forty years.





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





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




We have
elected to be taxed as a REIT under the 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.




In
October 2007, we established a taxable REIT subsidiary pursuant to the
provisions of the REIT Modernization Act.  Our TRS is able to engage
in activities resulting in income that previously would have been disqualified
from being eligible REIT income under the federal income tax
regulations.  As a result, certain activities of the Company which
occur within its TRS entity are subject to federal and state income
taxes.  As of December 31, 2008 the Company had accrued a deferred
income tax amount of $705,000 which was netted against the gain on
sale.




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




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


21




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




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




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




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




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




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




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




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




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




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




The
Company’s income before minority interest decreased $545,000, or 3%, to
$16,282,000 in 2008, from $16,827,000 in 2007 as a result of the foregoing
factors.




Comparison
of Year Ended December 31, 2007 to Year Ended December 31, 2006




Minimum
rental income increased $1,673,000, or 6%, to $31,636,000 in 2007, compared to
$29,963,000 in 2006.  The increase was the result of the development
of a Walgreen drug store at our Capital Plaza shopping center in December 2006,
the acquisition of a Rite Aid drug store in Summit Township, Michigan in
September 2006, the development of a Walgreen drug store in Livonia, Michigan in
June 2007, the development of a Walgreen drug store in Barnesville, Georgia in
October 2007, the development of a parcel of land located in East Lansing,
Michigan and the development of a parcel of land located in Plainfield, Indiana
in November 2007. Our revenue increase from these acquisitions and developments
amounted to $850,000.   In addition we received a lease
termination payment related to our Big Rapids, Michigan shopping center of
$608,000 and increased revenue from existing tenants of
$215,000.


22




Percentage
rents decreased $17,000, or 31%, to $37,000 in 2007, compared to $54,000 in
2006.  The decrease was primarily the result of decreased tenant
sales.




Operating
cost reimbursements decreased $88,000, or 3%, to $2,759,000 in 2007, compared to
$2,847,000 in 2006.  Operating cost reimbursements increased $62,000
due to the increase in property operating expenses as explained below, however
this increase was offset by an adjustment for insurance billed to one of our
tenants in the amount of $150,000.




Other
income decreased $9,000 to $35,000 in 2007, compared to $44,000 in
2006.




Real
estate taxes increased $28,000, or 2%, to $1,849,000 in 2007 compared to
$1,821,000 in 2006.  The increase is the result of general assessment
increases on the properties.




Property
operating expenses (shopping center maintenance, snow removal, insurance and
utilities) increased $148,000, or 9%, to $1,785,000 in 2007 compared to
$1,637,000 in 2006.  The increase was the result of an increase in
shopping center maintenance expenses of $30,000; increased snow removal costs of
$129,000; increased utility costs of $11,000; and decreased insurance costs of
($22,000) in 2007 versus 2006.




Land
lease payments decreased $84,000, or 11%, to $676,000 in 2007 compared to
$760,000 for 2006.  The decrease is the result of our purchase of the
fee interest in the land located at our Lawrence, Kansas property previously
leased.




General
and administrative expenses increased $443,000, or 11%, to $4,462,000 in 2007
compared to $4,019,000 in 2006.  The increase was the result of an
increase in compensation related expenses of $595,000; increased contracted
services to investigate development opportunities of $86,000 and increased
property management related expenses of $27,000.  These increases were
offset by a decrease in general business taxes of $90,000 and decreased
professional fees of $175,000.  General and administrative expenses as
a percentage of rental income increased from 13.4% for 2006 to 14.1% for
2007.  The increase in compensation related expenses was primarily the
result of employee bonus payments of $346,000 and the hiring of two additional
employees in 2007.




Depreciation
and amortization increased $166,000, or 3%, to $5,017,000 in 2007 compared to
$4,851,000 in 2006.  The increase was the result the development and
acquisition of four properties in 2007 and two properties in 2006.




Interest
expense increased $271,000, or 6%, to $4,896,000 in 2007, from $4,625,000 in
2006.  The increase in interest expense was the result of increased
borrowings to fund the development and acquisition of four properties in 2007
and two properties in 2006, as well as overall interest rate
increases.




In
October 2007, we completed the sale of our interest in two contracts to acquire
a 14.9 acre parcel of land to a national home improvement
superstore.  The transaction resulted in a gain of $1,044,000 net of
deferred income taxes of $705,000.  We established a taxable REIT
subsidiary to facilitate this transaction.  We expect to elect to
defer the recognition of the gain from the transaction for income tax purposes
by making an election under Section 1031 of the Code.  There were no
gains from property sales in 2006.




The
Company’s income before minority interest and discontinued operations increased
$1,633,000, or 11%, to $16,827,000 in 2007, from $15,194,000 in 2006 as a result
of the foregoing factors.




Liquidity
and Capital Resources




Our principal demands for liquidity are
operations, distributions to our stockholders, debt repayment, development of
new properties, redevelopment of existing properties and future property
acquisitions.  We intend to meet our short-term liquidity
requirements, including capital expenditures related to the leasing and
improvement of the properties, through cash flow provided by operations and the
Line of Credit and the Credit Facility.  We believe that adequate cash
flow will be available to fund our operations and pay dividends in accordance
with REIT requirements for at least the next 12 months.  We may obtain
additional funds for future development or acquisitions through other borrowings
or the issuance of additional shares of common stock, although current market
conditions have severely limited the availability of new sources of financing
and capital, which will likely have an impact on our ability to obtain
construction financing for planned new development projects in the near
term.  We 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.  As of December 31, 2008, our ratio of indebtedness to market
capitalization was approximately 65.4%.  We believe that these
financing sources will enable us to generate funds sufficient to meet both our
short-term and long-term capital needs.




23




During
the quarter ended December 31, 2008, we declared a quarterly dividend of $.50
per share.  The cash dividend was paid on January 6, 2009 to holders
of record on December 22, 2008.




Our cash
flows from operations increased $293,000 to $21,930,000 in 2008, compared to
$21,637,000 in 2007.  Cash used in investing activities increased
$3,411,000 to $21,419,000 in 2008, compared to $18,008,000 in
2007.  Cash used in financing activities decreased $3,162,000 to
$387,000 in 2008, compared to $3,549,000 in 2007.  Our cash and cash
equivalents increased by $124,000 to $669,000 as of December 31, 2008 as a
result of the foregoing factors.




As of
December 31, 2008, we had total mortgage indebtedness of
$67,623,697.  Of this total mortgage indebtedness, $43,010,397 is
fixed rate, self-amortizing debt with a weighted average interest rate of 6.64%
and the remaining mortgage debt of $24,613,300 has a maturity date of July 14,
2013, can be extended at our option for two additional years and bears interest
at 150 basis points over LIBOR (or 2.695% as of December 31,
2008).  The proceeds from this mortgage loan were used to reduce
amounts outstanding under our Credit Facility.  In February 2009 the
Company entered into an interest rate swap agreement that will fix the interest
rate during the initial term of the mortgage at 3.744%.




In
addition, the Operating Partnership has in place a $55 million credit facility
(the “Credit Facility”) with Bank of America, as the agent, which is guaranteed
by the Company.  The Credit Facility matures in November
2011.  Advances under the Credit Facility bear interest within a range
of one-month to twelve-month LIBOR plus 100 basis points to 150 basis points or
the lender’s prime rate, at our option, based on certain factors such as the
ratio of our indebtedness to the capital value of our properties.  The
Credit Facility generally is used to fund property acquisitions and development
activities.  As of February 16, 2009, $34,500,000 was outstanding
under the Credit Facility bearing a weighted average interest rate of
1.46%.




We also
have in place a $5 million line of credit (the “Line of Credit”), which matures
in November 2009, and can be extended at our option subject to specified
conditions for two additional one year periods.   The Line of
Credit bears interest at the lender’s prime rate less 75 basis points or 150
basis points in excess of the one-month to twelve month LIBOR rate, at our
option.  The purpose of the Line of Credit is to generally provide
working capital and fund land options and start-up costs associated with new
projects.  As of February 16, 2009, $300,000 was outstanding under the
Line of Credit bearing a weighted average interest rate of 2.50%.




The
following table outlines our contractual obligations (in thousands) as of
December 31, 2008:




Total
              
              
              Yr 1
              
              
              2-3 Yrs
              
              
              4-5 Yrs
              
              
              Over 5 YrsMortgages
      Payable
              
              $
              67,624
              
              
              $
              3,397
              
              
              $
              7,493
              
              
              $
              30,554
              
              
              $
              26,180Notes
      Payable
              
              
              32,945
              
              
              
              2,445
              
              
              
              30,500
              
              
              
              -
              
              
              
              -Land
      Lease Obligations
              
              
              13,928
              
              
              
              859
              
              
              
              1,797
              
              
              
              1,813
              
              
              
              9,459Other
      Long-Term Liabilities
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Estimated
      Interest Payments on Mortgages and Notes Payable
              
              
              21,843
              
              
              
              3,854
              
              
              
              6,878
              
              
              
              5,287
              
              
              
              5,824Total
              
              $
              136,340
              
              
              $
              10,555
              
              
              
              46,668
              
              
              $
              37,654
              
              
              $
              41,463




We have
four development projects under construction that will add an additional 57,570
square feet to our portfolio.  The projects are expected to be
completed during the first three quarters of 2009.  Additional funding
required to complete the projects is estimated to be $4,555,000, which is not
reflected in the table above, and is  expected to be provided by the
Credit Facility.


24




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




Off-Balance
Sheet Arrangements




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




Inflation




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




Funds
from Operations




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




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


25




The
following table provides a reconciliation of FFO and net income for the years
ended December 31, 2008, 2007 and 2006:




Year ended December 31,2008
              
              
              2007
              
              
              2006Net
      income
              
              $
              15,017,427
              
              
              $
              15,482,274
              
              
              $
              13,974,168Depreciation
      of real estate assets
              
              
              5,257,391
              
              
              
              4,905,361
              
              
              
              4,745,319Amortization
      of leasing costs
              
              
              58,771
              
              
              
              50,868
              
              
              
              44,423Minority
      interest
              
              
              1,264,611
              
              
              
              1,344,475
              
              
              
              1,220,113Gain
      on sale of assets
              
              
              -
              
              
              
              (1,043,675
              )
              
              
              -Funds
      from Operations
              
              $
              21,598,200
              
              
              $
              20,739,303
              
              
              $
              19,984,023Weighted
      average shares and OP
      Units outstandingBasic
              
              
              8,364,366
              
              
              
              8,328,418
              
              
              
              8,254,391Diluted
              
              
              8,376,259
              
              
              
              8,389,426
              
              
              
              8,324,973




ITEM 7A
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




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




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




2009
              
              
              2010
              
              
              2011
              
              
              2012
              
              
              2013
              
              
              Thereafter
              
              
              TotalFixed
      rate debt
              
              $
              2,938
              
              
              $
              3,138
              
              
              $
              3,351
              
              
              $
              3,580
              
              
              $
              3,824
              
              
              $
              26,180
              
              
              $
              43,011Average
      interest rate
              
              
              6.64
              %
              
              
              6.64
              %
              
              
              6.64
              %
              
              
              6.64
              %
              
              
              6.64
              %
              
              
              6.64
              %
              
              
              -Variable
      rate debt
              
              $
              2,904
              
              
              $
              487
              
              
              $
              31,017
              
              
              $
              548
              
              
              $
              22,602
              
              
              
              -
              
              
              $
              57,558Average
      interest rate
              
              
              3.12
              %
              
              
              3.74
              %
              
              
              3.12
              %
              
              
              3.74
              %
              
              
              3.74
              %
              
              
              -
              
              
              
              -




The fair
value (in thousands) is estimated at $43,949 and $57,558 for fixed rate debt and
variable rate debt, respectively, as of December 31, 2008.




The table
above incorporates those exposures that exist as of December 31, 2008; it does
not consider those exposures or positions, which could arise after that
date.  As a result, our ultimate realized gain or loss with respect to
interest rate fluctuations will depend on the exposures that arise during the
period and interest rates.




In
February 2009 the Company entered into an interest rate swap agreement in an
effort to manage our interest rate exposure on a $24.6 million floating rate
mortgage.  The interest rate swap agreement has a term of
approximately 4.5 years and bears interest at 3.744%.




As of
December 31, 2008, a 100 basis point increase in interest rates on the portion
of our debt bearing interest at variable rates would result in an increase in
interest expense of approximately $576,000.


26




ITEM 8
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA




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




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




Not
applicable.




ITEM 9A
            CONTROLS
      AND PROCEDURES




Disclosure
Controls and Procedures




Under the
supervision and with the participation of our management, including our chief
executive officer and chief 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”).  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.




Based on
this evaluation, and due to the material weakness in our internal control over
financial reporting (as described below in “Report of Management on Agree Realty
Corporation’s Internal Control over Financial Reporting”), our chief executive
officer and chief financial officer concluded that as of December 31, 2008, 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
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms, and that such information is
accumulated and communicated to management, including the chief executive
officer and chief financial officer, to allow timely decisions regarding
required disclosure.




Our audit
committee has engaged an independent third party consultant to perform periodic
reviews of our financial reporting process to help mitigate the material
weakness in our internal controls described in “Report of Management on Agree
Realty Corporation’s Internal Control over Financial Reporting”.




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 and financial information 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.


27


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.




The
following material weakness has been identified and reported to the audit
committee:




·
            We
      lack segregation of duties in the period-end financial reporting
      process.  Our chief financial officer and director of finance
      are the only employees with any significant knowledge of generally
      accepted accounting principles.  The chief financial officer and
      the director of finance are the only employees in charge of the general
      ledger (including the preparation of routine and non-routine journal
      entries and journal entries involving accounting estimates), the
      preparation of accounting reconciliations, the selection of accounting
      principles, and the preparation of interim and annual financial statements
      (including report combinations, consolidation entries and footnote
      disclosures) in accordance with generally accepted accounting
      principles.




We, under
the supervision of and with the participation of our management, including the
chief executive officer and chief financial officer, assessed the effectiveness
of our internal control over financial reporting as of December 31, 2008, 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
over financial reporting was not effective as of December 31, 2008.




The
effectiveness of our internal control over financial reporting has been audited
by Virchow, Krause & Company, our independent registered public accounting
firm, as stated in its report that is included herein.




Report
of Independent Registered Public Accounting Firm on Agree Realty Corporation’s
Internal Control Over Financial Reporting




To the
Shareholders, Audit Committee and Board of Directors


Agree
Realty Corporation


Farmington
Hills, Michigan





We have
audited Agree Realty Corporation’s internal control over financial reporting as
of December 31, 2008, 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, included in the accompanying Report of Management on Agree
Realty Corporation’s Internal Control Over Financial Reporting included in
Item 9A Controls and Procedures.  Our responsibility is to express an
opinion the effectiveness of Agree Realty Corporation’s internal control over
financial reporting based on our audit.





We
conducted our audit 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
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.


28


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 and financial information 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 Agree Realty Corporation; (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 Agree Realty
Corporation are being made only in accordance with authorizations of management
and directors of Agree Realty Corporation; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of Agree Realty Corporation’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 lacks segregation of duties in the period-end financial reporting
      process.  Our chief financial officer and director of finance
      are the only employees with any significant knowledge of generally
      accepted accounting principles.  The chief financial officer and
      the director of finance are the only employees in charge of the general
      ledger (including the preparation of routine and non-routine journal
      entries and journal entries involving accounting estimates), the
      preparation of accounting reconciliations, the selection of accounting
      principles, and the preparation of interim and annual financial statements
      (including report combinations, consolidation entries and footnote
      disclosures) in accordance with generally accepted accounting
      principles.




The
material weakness was considered in determining the nature, timing, and extent
of audit tests applied in our audit of the 2008 financial statements, and this
report does not affect our report dated March 3, 2009 on those financial
statements.





In our
opinion, because of the effect of the material weaknesses 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, 2008, based on the COSO Criteria.





We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Agree Realty
Corporation as of December 31, 2008 and 2007 and the related consolidated
statements of operations, stockholders’ equity and cash flows for the three-year
period ended December 31, 2008 and our report dated March 3, 2009, expressed an
unqualified opinion thereon.





/s/
Virchow, Krause & Company




Chicago,
Illinois


March 3,
2009




Changes
in Internal Control over Financial Reporting




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




ITEM 9B
            OTHER
      INFORMATION




Not applicable.


29




PART
III




ITEM
      10.
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE




Incorporated
herein by reference to our definitive proxy statement with respect to our 2009
Annual Meeting of Stockholders.




ITEM 11.
            EXECUTIVE
      COMPENSATION




Incorporated
herein by reference to our definitive proxy statement with respect to our 2009
Annual Meeting of Stockholders.




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




The
following table summarizes the equity compensation plan under which the
Company’s common stock may be issued as of December 31, 2008.




Plan category
                    
                    Number of securities to be
                        issued upon exercise of
                        outstanding options,
                        warrants and rights
                        (a)
                    
                    Weighted average exercise
                        price of outstanding
                        options, warrants and
                        rights
                        (b)
                    
                    Number of securities
                        remaining available for
                        future issuance under
                        equity compensation plans
                        (excluding securities
                        reflected in column (a))
                        (c)Equity
      compensation plans approved by security  holders
                    
                    ─
                    
                    ─
                    
                    
                    805,416
                    (1)Equity
      compensation plans not approved by security holders
                    
                    ─
                    
                    ─
                    
                    ─Total
                    
                    ─
                    
                    ─
                    
                    
                    805,416








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




Additional
information is incorporated herein by reference to our definitive proxy
statement with respect to our 2009 Annual Meeting of Stockholders.




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




Incorporated
herein by reference to our definitive proxy statement with respect to our 2009
Annual Meeting of Stockholders.




ITEM14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES




Incorporated
herein by reference to our definitive proxy statement with respect to our 2009
Annual Meeting of Stockholders.


30




PART
IV




ITEM 15.
            EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES




15(a)
                  The
      following documents are filed as part of this Report:(1)
      (2)
                  The
      financial statements and supplementary data are listed in the Index to
      Financial Statements and Financial Statement Schedules appearing on Page
      F-1 of this Form
10-K.




(3)  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)3.2
                                        
                                        Articles
      Supplementary, establishing the terms of the Series A Preferred Stock
      (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed
      on December 9, 2008)3.3
                                        
                                        Articles
      Supplementary, classifying additional shares of Common Stock and Excess
      Stock (incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K
      filed on December 9, 2008)3.4
                                        
                                        Bylaws
      of the Company (incorporated by reference to Exhibit 3.2 to the Company’s
      Form 10-K for the year ended December 31, 2006)4.1
                                        
                                        Second
      Amendment to Rights Agreement, dated as of December 8, 2008, by and
      between Agree Realty Corporation, a Maryland corporation, and
      Computershare Trust Company, N.A., f/k/a EquiServe Trust Company, N.A., a
      national banking association, as successor rights agent to BankBoston,
      N.A., a national banking association (incorporated by reference to Exhibit
      4.1 to the Company’s Form 8-K filed on December 9,
2008)4.2
                                        
                                        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 Form 10-K for
      the year ended December 31, 1994)4.3
                                        
                                        Amended
      and Restated $50 million Line of Credit agreement dated November 5, 2003,
      among Agree Realty Corporation, Standard Federal Bank and Bank One
      (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for
      the quarter ended September 30, 2003)4.4
                                        
                                        Third
      Amended and Restated Line of Credit Agreement by and between the Company,
      and LaSalle Bank Midwest National Association Individually and as Agent
      for the Lenders and together with Fifth Third Bank (incorporated by
      reference to Exhibit 10.28 to the Company’s Form 10-K for the year ended
      December 31, 2006)4.5
                                        
                                        Loan
      Agreement dated as of July 14, 2008 by and between Agree Limited
      Partnership, as Borrower, and The Financial Institutions party thereto, as
      Co-Lenders, and LaSalle Bank Midwest National Association, as Agent
      (incorporated by reference to Exhibit 4.1 to the Company’s Form 10-Q for
      the quarter ended June 30, 2008)4.6
                                        
                                        Commercial
      Mortgage dated as of July 14, 2008 executed by Agree Limited Partnership
      to and for the benefit of LaSalle Bank Midwest National Association and
      Raymond James Bank, FSB  (incorporated by reference to Exhibit
      4.2 to the Company’s Form 10-Q for the quarter ended June 30,
      2008)


31




4.7
                                            
                                            Continuing
      Unconditional Guaranty dated as of July 14, 2008 by Agree Realty
      Corporation for the benefit of La Salle Bank Midwest National Association
      (incorporated by reference to Exhibit 4.3 to the Company’s Form 10-Q for
      the quarter ended June 30, 2008)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 Company’s Form 10-K for the year ended December 31,
      1996)10.2
                                            
                                            Contribution
      Agreement, dated as of April 21, 1994, by and among the Company, Richard
      Agree, Edward Rosenberg and the co-partnerships named therein
      (incorporated by reference to Exhibit 10.10 to the Company’s Form 10-K for
      the year ended December 31, 1996)10.3+
                                            
                                            Agree
      Realty Corporation Profit Sharing Plan (incorporated by reference to
      Exhibit 10.13 to the Company’s Form 10-K for the year ended December 31,
      1996)10.4+
                                            
                                            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 Form
      10-Q for the quarter ended June 30, 2004)10.5+
                                            
                                            Employment
      Agreement, dated July 1, 2004, by and between the Company, and Kenneth R.
      Howe (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q
      for the quarter ended June 30, 2004)10.6+
                                            
                                            Employment
      Agreement, dated January 10, 2000, by and between the Company, and David
      J. Prueter (incorporated by reference to Exhibit 10.1 to the Company’s
      Form 10-Q for the quarter ended March 31, 2000)10.7+
                                            
                                            The
      Company’s 2005 Equity Incentive Plan (incorporated by reference to Exhibit
      10.25 to the Company’s Form 10-K for the year ended December 31,
      2004)10.8+
                                            
                                            Form
      of Restricted Stock Agreement (incorporated by reference to Exhibit 10.9
      to the Company’s Form 10-K for the year ended December 31,
      2007)10.9+
                                            
                                            Summary
      of Director Compensation (incorporated by reference to Exhibit 10.10 to
      the Company’s Form 10-K for the year ended December 31,
    2007)21*
                                            
                                            Subsidiaries
      of Agree Realty Corporation23*
                                            
                                            Consent
      of Virchow, Krause & Company, LLP31.1*
                                            
                                            Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Richard Agree,
      President, Chief Executive Officer and Chairman of the Board of
      Directors31.2*
                                            
                                            Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Kenneth R.
      Howe, Vice President, Finance32.1*
                                            
                                            Certification
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Richard Agree,
      President, Chief Executive Officer and Chairman of the Board of
      Directors32.2*
                                            
                                            Certification
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Kenneth R.
      Howe, Vice President,
Finance


32





*
            Filed
      herewith




+
            Management
      contract or compensatory plan or
arrangement





Pursuant
to Item 601(b)(4)(iii) of Regulation S-K, the registrant has not filed debt
instruments relating to long-term debt that is not registered and for which the
total amount of securities authorized thereunder does not exceed 10% of total
assets of the registrant and its subsidiaries on a consolidated basis as of
December 31, 2008.  The registrant agrees to furnish a copy of such
agreements to the SEC upon request.




15(b)
                  The
      Exhibits listed in Item 15(a)(3) are hereby filed with this
      Report.15(c)
                  The
      financial statement schedule listed at Item 15(a)(2) is hereby filed with
      this Report.


33


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,
      Chief Executive Officer and Chairman ofthe
      Board of DirectorsDate:
                  March
      13, 2009





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 13th day of March 2009.




By:
                /s/
      Richard Agree
                
                By:
                /s/
      Farris G. KalilRichard
      Agree
                
                
                Farris
      G. KalilPresident,
      Chief Executive Officer and Chairman of the Board of
    Directors
                
                
                Director(Principal
      Executive Officer)By:
                /s/
      Michael RotchfordMichael
      Rotchford
                  DirectorBy:
                /s/
      Kenneth R. Howe
                
                By:
                /s/William
      S. RubenfaerKenneth
      R. Howe
                  Vice
      President, Finance andSecretary
                  (Principal
      Financial andAccounting
      Officer)
                
                
                William
      S. Rubenfaer
                  DirectorBy:
                /s/
      Gene SilvermanGene
      Silverman
                  DirectorBy:
                /s/
      Leon M. SchurginLeon
      M. Schurgin
                  Director


34





Agree
Realty Corporation





Index





PageReports
      of Independent Registered Public Accounting Firm
              F-2Financial
      StatementsConsolidated
      Balance Sheets
              F-3Consolidated
      Statements of Income
              F-5Consolidated
      Statements of Stockholders’ Equity
              F-6Consolidated
      Statements of Cash Flows
              F-7Notes
      to Consolidated Financial Statements
              F-9Schedule
      III - Real Estate and Accumulated Depreciation
              F-26




F-1




Report
of Independent Registered Public Accounting Firm





To the
Stockholders, Audit Committee and Board of Directors


Agree
Realty Corporation


Farmington
Hills, MI





We have
audited the accompanying consolidated balance sheets of Agree Realty Corporation
as of December 31, 2008 and 2007, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 2008.  These consolidated financial
statements are the responsibility of the company's management.  Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management as well as
evaluating the overall consolidated financial statement
presentation.  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 as
of December 31, 2008 and 2007 and the results of their operations, their
stockholders’ equity and their cash flows for each of the three years in the
period ended December 31, 2008, in conformity with U.S. generally accepted
accounting principles.





Our
audits were made for the purpose of forming an opinion on the basic 2008, 2007
and 2006 consolidated financial statements of the Company taken as a whole. The
consolidated supplemental schedule III is presented for purposes of complying
the Securities Exchange Commission's rules and is not a part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in our audits of the 2008, 2007 and 2006 basic
consolidated financial statements and, in our opinion, is fairly stated in all
materials respects in relation to the basic consolidated financial statements
taken as a whole.





We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Agree Realty Corporation's
internal control over financial reporting as of December 31, 2008, 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 March 3, 2009 expressed an adverse opinion on the effectiveness of
internal control over financial reporting.





/s/
Virchow, Krause & Company, LLP





Chicago,
Illinois


March 3,
2009




F-2




Agree
Realty Corporation





Consolidated
Balance Sheets





December
      31,
                                    
                                    2008
                                    
                                    
                                    2007AssetsReal Estate Investments
      (Notes 3 and 4)Land
                                    
                                    $
                                    87,309,289
                                    
                                    
                                    $
                                    87,233,715Buildings
                                    
                                    
                                    210,650,491
                                    
                                    
                                    
                                    197,033,867Property under
      development
                                    
                                    
                                    13,383,102
                                    
                                    
                                    
                                    4,806,114311,342,882
                                    
                                    
                                    
                                    289,073,696Less accumulated
      depreciation
                                    
                                    
                                    (58,502,384
                                    )
                                    
                                    
                                    (53,250,564
                                    )Net
      Real Estate Investments
                                    
                                    
                                    252,840,498
                                    
                                    
                                    
                                    235,823,132Cash
      and Cash Equivalents
                                    
                                    
                                    668,677
                                    
                                    
                                    
                                    544,639Accounts Receivable - Tenants,net of allowance of $195,000
                                      and $20,000 for possible
      losses at December 31, 2008 and 2007,
                                      respectively
                                    
                                    
                                    964,802
                                    
                                    
                                    
                                    770,365Unamortized
      Deferred ExpensesFinancing
      costs, net of accumulated amortization of $4,838,098and
      $4,665,144 at December 31, 2008 and 2007, respectively
                                    
                                    
                                    951,745
                                    
                                    
                                    
                                    837,033Leasing
      costs, net of accumulated amortization of $775,450and
      $716,679 at December 31, 2008 and 2007, respectively
                                    
                                    
                                    484,781
                                    
                                    
                                    
                                    424,002Other
      Assets
                                    
                                    
                                    986,332
                                    
                                    
                                    
                                    948,335$
                                    256,896,835
                                    
                                    
                                    $
                                    239,347,506


See
accompanying notes to consolidated financial statements.




F-3




Agree
Realty Corporation





Consolidated
Balance Sheets





December
      31,
                                        
                                        2008
                                        
                                        
                                        2007Liabilities
      and Stockholders’ EquityMortgages Payable (Note
      3)
                                        
                                        $
                                        67,623,697
                                        
                                        
                                        $
                                        45,760,168Notes Payable (Note
      4)
                                        
                                        
                                        32,945,000
                                        
                                        
                                        
                                        36,800,000Dividends and Distributions
      Payable (Note 5)
                                        
                                        
                                        4,233,232
                                        
                                        
                                        
                                        4,211,827Deferred Revenue(Note
      14)
                                        
                                        
                                        10,724,854
                                        
                                        
                                        
                                        11,414,404Accrued
      Interest Payable
                                        
                                        
                                        500,796
                                        
                                        
                                        
                                        329,171Accounts
      PayableCapital
    expenditures
                                        
                                        
                                        850,225
                                        
                                        
                                        
                                        1,069,734Operating
                                        
                                        
                                        1,261,810
                                        
                                        
                                        
                                        1,483,127Deferred Income Taxes(Note 6)
                                        
                                        
                                        705,000
                                        
                                        
                                        
                                        705,000Tenant
      Deposits
                                        
                                        
                                        70,077
                                        
                                        
                                        
                                        64,085Total
      Liabilities
                                        
                                        
                                        118,914,691
                                        
                                        
                                        
                                        101,837,516Minority
      Interest (Note 7)
                                        
                                        
                                        5,346,741
                                        
                                        
                                        
                                        5,896,180Stockholders’ Equity
      (Note 5)Common
      stock, $.0001 par value; 20,000,000shares
      authorized; 7,863,930 and 7,754,246shares
      issued and outstanding
                                        
                                        
                                        786
                                        
                                        
                                        
                                        775Additional paid-in
      capital
                                        
                                        
                                        143,892,158
                                        
                                        
                                        
                                        142,260,659Deficit
                                        
                                        
                                        (11,257,541
                                        )
                                        
                                        
                                        (10,647,624
                                        )Total
      Stockholders’ Equity
                                        
                                        
                                        132,635,403
                                        
                                        
                                        
                                        131,613,810$
                                        256,896,835
                                        
                                        
                                        $
                                        239,347,506


See
accompanying notes to consolidated financial statements.




F-4




Agree
Realty Corporation





Consolidated
Statements of Income





Year
      Ended December 31,
                                                
                                                2008
                                                
                                                
                                                2007
                                                
                                                
                                                2006RevenuesMinimum rents
                                                
                                                $
                                                32,850,345
                                                
                                                
                                                $
                                                31,636,497
                                                
                                                
                                                $
                                                29,963,363Percentage rents
                                                
                                                
                                                15,396
                                                
                                                
                                                
                                                37,111
                                                
                                                
                                                
                                                53,550Operating cost
      reimbursement
                                                
                                                
                                                2,783,938
                                                
                                                
                                                
                                                2,759,365
                                                
                                                
                                                
                                                2,846,775Other income
                                                
                                                
                                                3,849
                                                
                                                
                                                
                                                34,979
                                                
                                                
                                                
                                                43,938Total
      Revenues
                                                
                                                
                                                35,653,529
                                                
                                                
                                                
                                                34,467,952
                                                
                                                
                                                
                                                32,907,626Operating
      ExpensesReal estate taxes
                                                
                                                
                                                1,866,551
                                                
                                                
                                                
                                                1,848,949
                                                
                                                
                                                
                                                1,821,372Property operating
      expenses
                                                
                                                
                                                1,812,522
                                                
                                                
                                                
                                                1,785,323
                                                
                                                
                                                
                                                1,637,192Land lease
payments
                                                
                                                
                                                766,848
                                                
                                                
                                                
                                                675,700
                                                
                                                
                                                
                                                759,831General and
      administrative
                                                
                                                
                                                4,361,419
                                                
                                                
                                                
                                                4,462,423
                                                
                                                
                                                
                                                4,018,836Depreciation and
      amortization
                                                
                                                
                                                5,384,737
                                                
                                                
                                                
                                                5,016,718
                                                
                                                
                                                
                                                4,851,343Total
      Operating Expenses
                                                
                                                
                                                14,192,077
                                                
                                                
                                                
                                                13,789,113
                                                
                                                
                                                
                                                13,088,574Income
      From Continuing Operations
                                                
                                                
                                                21,461,452
                                                
                                                
                                                
                                                20,678,839
                                                
                                                
                                                
                                                19,819,052Other
      Income (Expense)Interest expense,
    net
                                                
                                                
                                                (5,179,415
                                                )
                                                
                                                
                                                (4,895,765
                                                )
                                                
                                                
                                                (4,624,771
                                                )Gain
      on sale of asset, net of tax of $705,000
                                                
                                                
                                                -
                                                
                                                
                                                
                                                1,043,675
                                                
                                                
                                                
                                                -Total
      Other Expense
                                                
                                                
                                                (5,179,415
                                                )
                                                
                                                
                                                (3,852,090
                                                )
                                                
                                                
                                                (4,624,771
                                                )Income
      Before Minority Interest
                                                
                                                
                                                16,282,037
                                                
                                                
                                                
                                                16,826,749
                                                
                                                
                                                
                                                15,194,281Minority
      Interest
                                                
                                                
                                                1,264,611
                                                
                                                
                                                
                                                1,344,475
                                                
                                                
                                                
                                                1,220,113Net
      Income
                                                
                                                $
                                                15,017,427
                                                
                                                
                                                $
                                                15,482,274
                                                
                                                
                                                $
                                                13,974,168Basic
      Earnings Per Share (Note 2)
                                                
                                                $
                                                1.95
                                                
                                                
                                                $
                                                2.02
                                                
                                                
                                                $
                                                1.84Dilutive
      Earnings Per Share (Note 2)
                                                
                                                $
                                                1.95
                                                
                                                
                                                $
                                                2.01
                                                
                                                
                                                $
                                                1.83Dividend
      Declared Per Common Share
                                                
                                                $
                                                2.00
                                                
                                                
                                                $
                                                1.97
                                                
                                                
                                                $
                                                1.96


See
accompanying notes to consolidated financial statements.




F-5




Agree
Realty Corporation





Consolidated
Statements of Stockholders’ Equity





Additional
                          
                          
                          
                          
                          
                          UnearnedCommon
      Stock
                          
                          
                          Paid-In
                          
                          
                          
                          
                          
                          Compensation
      -Shares
                          
                          
                          Amount
                          
                          
                          Capital
                          
                          
                          Deficit
                          
                          
                          Restricted
      StockBalance, January 1,
      2006
                          
                          
                          7,706,846
                          
                          
                          $
                          772
                          
                          
                          $
                          143,138,497
                          
                          
                          $
                          (9,717,471
                          )
                          
                          $
                          (2,794,738
                          )Reclassify
      unearned compensation
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (2,794,738
                          )
                          
                          
                          
                          
                          
                          
                          2,794,738Issuance
      of shares under the EquityIncentive
      Plan
                          
                          
                          43,650
                          
                          
                          
                          3
                          
                          
                          
                          95,547
                          
                          
                          
                          -
                          
                          
                          
                          -Vesting
      of restricted stock
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          837,457
                          
                          
                          
                          -
                          
                          
                          
                          -Dividends
      declared, $1.96 per share
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (15,115,635
                          )
                          
                          
                          -Net
      income
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          13,974,168
                          
                          
                          
                          -Balance, December 31,
      2006
                          
                          
                          7,750,496
                          
                          
                          
                          775
                          
                          
                          
                          141,276,763
                          
                          
                          
                          (10,858,938
                          )
                          
                          
                          -Issuance
      of shares under the EquityIncentive
      Plan
                          
                          
                          3,750
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Vesting
      of restricted stock
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          983,896
                          
                          
                          
                          -
                          
                          
                          
                          -Dividends
      declared, $1.97 per share
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (15,270,960
                          )
                          
                          
                          -Net
      income
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          15,482,274
                          
                          
                          
                          -Balance, December 31,
      2007
                          
                          
                          7,754,246
                          
                          
                          
                          775
                          
                          
                          
                          142,260,659
                          
                          
                          
                          (10,647,624
                          )
                          
                          
                          -Issuance
      of shares under the EquityIncentive
      Plan
                          
                          
                          46,350
                          
                          
                          
                          4
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Forfeiture
      of Shares
                          
                          
                          (4,800
                          )Conversion
      of OP Units
                          
                          
                          68,134
                          
                          
                          
                          7
                          
                          
                          
                          501,025
                          
                          
                          
                          -
                          
                          
                          
                          -Vesting
      of restricted stock
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          1,130,474
                          
                          
                          
                          -
                          
                          
                          
                          -Dividends
      declared, $2.00 per share
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (15,627,334
                          )
                          
                          
                          -Net
      income
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          15,017,427
                          
                          
                          
                          -Balance, December 31,
      2008
                          
                          
                          7,863,930
                          
                          
                          $
                          786
                          
                          
                          $
                          143,892,158
                          
                          
                          $
                          (11,257,541
                          )
                          
                          $
                          -


See
accompanying notes to consolidated financial statements.




F-6





Agree
Realty Corporation





Consolidated
Statements of Cash Flows





Year
      Ended December 31,
                              
                              2008
                              
                              
                              2007
                              
                              
                              2006Cash
      Flows From Operating ActivitiesNet income
                              
                              $
                              15,017,427
                              
                              
                              $
                              15,482,274
                              
                              
                              $
                              13,974,168Adjustments to reconcile net
      income to netcash
      provided by operating activitiesDepreciation
                              
                              
                              5,320,394
                              
                              
                              
                              4,958,300
                              
                              
                              
                              4,799,370Amortization
                              
                              
                              237,297
                              
                              
                              
                              241,290
                              
                              
                              
                              190,001Stock-based
      compensation
                              
                              
                              1,130,474
                              
                              
                              
                              983,896
                              
                              
                              
                              837,457Gain on sale of
      assets
                              
                              
                              -
                              
                              
                              
                              (1,043,675
                              )
                              
                              
                              -Minority
interests
                              
                              
                              1,264,611
                              
                              
                              
                              1,344,475
                              
                              
                              
                              1,220,113(Increase) in accounts
      receivable
                              
                              
                              (194,437
                              )
                              
                              
                              (38,224
                              )
                              
                              
                              (1,535
                              )(Increase) decrease in other
      assets
                              
                              
                              (112,144
                              )
                              
                              
                              (33,734
                              )
                              
                              
                              160,596(Decrease) increase in accounts
      payable
                              
                              
                              (221,317
                              )
                              
                              
                              342,510
                              
                              
                              
                              (159,799
                              )Decrease in deferred
      revenue
                              
                              
                              (689,550
                              )
                              
                              
                              (689,550
                              )
                              
                              
                              (689,550
                              )Increase (decrease) in accrued
      interest
                              
                              
                              171,625
                              
                              
                              
                              89,853
                              
                              
                              
                              (42,762
                              )Increase in tenant
      deposits
                              
                              
                              5,992
                              
                              
                              
                              -
                              
                              
                              
                              10,023Net
      Cash Provided By Operating Activities
                              
                              
                              21,930,372
                              
                              
                              
                              21,637,415
                              
                              
                              
                              20,298,082Cash
      Flows From Investing ActivitiesAcquisition
      of real estate investments (includingcapitalized
      interest of $557,645 in 2008, $556,000in
      2007 and $198,000 in 2006)
                              
                              
                              (21,418,961
                              )
                              
                              
                              (19,756,255
                              )
                              
                              
                              (9,305,661
                              )Net
      proceeds from sale of assets, lessamounts
      held in escrow
                              
                              
                              -
                              
                              
                              
                              1,748,675
                              
                              
                              
                              -Net
      Cash Used In Investing Activities
                              
                              
                              (21,418,961
                              )
                              
                              
                              (18,007,580
                              )
                              
                              
                              (9,305,661
                              )




See
accompanying notes to consolidated financial statements.




F-7




Agree
Realty Corporation





Consolidated
Statements of Cash Flows





Year
      Ended December 31,
                              
                              2008
                              
                              
                              2007
                              
                              
                              2006Cash
      Flows From Financing ActivitiesMortgage
      proceeds
                              
                              
                              24,800,000
                              
                              
                              
                              -
                              
                              
                              
                              -Line-of-credit net (payments)
      borrowings
                              
                              
                              (3,855,000
                              )
                              
                              
                              16,300,000
                              
                              
                              
                              3,000,000Dividends and limited partners’
      distributions paid
                              
                              
                              (16,918,952
                              )
                              
                              
                              (16,497,828
                              )
                              
                              
                              (16,413,226
                              )Payments of mortgages
      payable
                              
                              
                              (2,936,471
                              )
                              
                              
                              (2,531,079
                              )
                              
                              
                              (2,430,673
                              )Payments of payables for capital
      expenditures
                              
                              
                              (1,069,734
                              )
                              
                              
                              (766,378
                              )
                              
                              
                              (112,687
                              )Payments for financing
      costs
                              
                              
                              (287,666
                              )
                              
                              
                              -
                              
                              
                              
                              (305,897
                              )Payments of leasing
      costs
                              
                              
                              (119,550
                              )
                              
                              
                              (53,641
                              )
                              
                              
                              (76,298
                              )Exercise of stock
      options
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              95,550Net
      Cash Used In Financing Activities
                              
                              
                              (387,373
                              )
                              
                              
                              (3,548,926
                              )
                              
                              
                              (16,243,231
                              )Net
      Increase (Decrease) In Cash and Cash Equivalents
                              
                              
                              124,038
                              
                              
                              
                              80,909
                              
                              
                              
                              (5,250,810
                              )Cash and Cash
      Equivalents, beginning of year
                              
                              
                              544,639
                              
                              
                              
                              463,730
                              
                              
                              
                              5,714,540Cash and Cash
      Equivalents, end of year
                              
                              $
                              668,677
                              
                              
                              $
                              544,639
                              
                              
                              $
                              463,730Supplemental
      Disclosure of Cash Flow InformationCash paid for interest (net of
      amounts capitalized)
                              
                              $
                              4,835,277
                              
                              
                              $
                              4,629,948
                              
                              
                              $
                              4,530,740Supplemental
      Disclosure of Non-Cash TransactionsDividends and limited partners’
      distributionsDeclared
      and unpaid
                              
                              $
                              4,233,232
                              
                              
                              $
                              4,211,827
                              
                              
                              $
                              4,111,807Shares issued under Stock
      Incentive Plan
                              
                              $
                              1,364,459
                              
                              
                              $
                              116,688
                              
                              
                              $
                              1,310,766Real estate investments financed
      with accountspayable
                              
                              $
                              850,225
                              
                              
                              $
                              1,069,734
                              
                              
                              $
                              766,378


See
accompanying notes to consolidated financial statements.




F-8


Agree
Realty Corporation
 
 Notes
to Consolidated Financial Statements
 
 1.
                        The
      Company
                        
                        Agree
      Realty Corporation (the Company) is a self-administered, self-managed real
      estate investment trust (REIT), which develops, acquires, owns and
      operates properties, which are primarily leased to national and regional
      retail companies under net leases. At December 31, 2008, the Company's
      properties are comprised of 56 single tenant retail facilities and 12
      community shopping centers located in 16 states. During the year ended
      December 31, 2008, approximately 97% of the Company's annual base rental
      revenues was received from national and regional tenants under long-term
      leases, including approximately 30% from Borders Group, Inc., 26% from
      Walgreen Co., and 12% from Kmart Corporation, a wholly-owned subsidiary of
      Sears Holdings Corporation.2.
                        Summary
      of Significant Accounting Policies
                        
                        Principles
      of ConsolidationThe
      consolidated financial statements of Agree Realty Corporation include the
      accounts of the Company, its majority-owned partnership, Agree Limited
      Partnership (the Operating Partnership), and its wholly-owned
      subsidiaries. The Company controlled, as the sole general partner, 92.85%
      and 92.01% of the Operating Partnership as of December 31, 2008 and
      2007, respectively. All material intercompany accounts and transactions
      are eliminated.Use
      of EstimatesThe
      preparation of financial statements in conformity with accounting
      principles generally accepted in the United States of America, requires
      management to make estimates and assumptions that affect the reported
      amounts of (1) assets and liabilities and the disclosure of contingent
      assets and liabilities as of the date of the financial statements, and (2)
      revenues and expenses during the reporting period. Actual results could
      differ from those estimates.Fair
      Values of Financial InstrumentsEffective
      January 1, 2008, the Company adopted FASB Statement No. 157, Fair Value
      Measurements (“SFAS No. 157”), which provides a framework for measuring,
      reporting and disclosing fair value under generally accepted accounting
      principles.  SFAS No. 157 applies to all assets and liabilities
      that are measured, reported and/or disclosed on a fair value
      basis.
  F-9
 Agree
Realty Corporation
 
 Notes
to Consolidated Financial Statements
  As
      defined in SFAS No. 157, fair value is the price that would be received to
      sell an asset or paid to transfer a liability in an orderly transaction
      between market participants at the measurement date.  In
      determining fair value, the Company uses various valuation methods
      including the market, income and cost approaches.  The
      assumptions used in the application of these valuation methods are
      developed from the perspective of market participants, pricing the asset
      or liability.  Inputs used in the valuation methods can be
      either readily observable, market corroborated, or generally unobservable
      inputs.  Whenever possible the Company attempts to utilize
      valuation methods that maximize the uses of observable inputs and
      minimizes the use of unobservable inputs.  Based on the
      operability of the inputs used in the valuation methods the Company is
      required to provide the following information according to the fair value
      hierarchy.  The fair value hierarchy ranks the quality and
      reliability of the information used to determine fair
      values.  Assets and liabilities measured, reported and/or
      disclosed at fair value will be classified and disclosed in one of the
      following three categories:
                        
                        Level
      1 – Quoted Market prices in active markets for identical assets of
      liabilities.
                        
                        Level
      2 – Observable market based inputs or unobservable inputs that are
      corroborated by market date.
                        
                        Level
      3 – Unobservable inputs that are not corroborated by market
      data.
                        
                        The
      carrying amounts of the Company's financial instruments, which consist of
      cash, cash equivalents, receivables, and accounts payable approximate
      their fair values.  The fair value of the Company’s mortgages
      and notes payable is estimated at $68,562 and $32,945 as of December 31,
      2008.  To determine fair value the Company calculates the
      present value of future mortgage and note payments based on estimated
      current market interest rates, which are considered Level 2
      inputs.  The carrying value of these liabilities as of December
      31, 2008 is $67,624 and $32,945
respectively.
 Investments
      in Real Estate – Carrying Value of AssetsReal
      estate assets are stated at cost less accumulated depreciation. All costs
      related to planning, development and construction of buildings prior to
      the date they become operational, including interest and real estate taxes
      during the construction period, are capitalized for financial reporting
      purposes and recorded as “Property under development” until construction
      has been completed.
                      
                      The
      Company allocates the cost of an acquisition based upon the estimated fair
      value of the net assets acquired.  The Company also estimates
      the fair value of intangibles related to its acquisitions.  The
      valuation of the fair value of the intangibles primarily involves
      estimates related to market conditions, probability of lease renewals and
      the current market value of leases.
  F-10
 Agree
Realty Corporation
 
 Notes
to Consolidated Financial Statements
  Subsequent
      to completion of construction, expenditures for property maintenance are
      charged to operations as incurred, while significant renovations are
      capitalized.Depreciation
      and AmortizationDepreciation
      expense is computed using a straight-line method and estimated useful
      lives for buildings and improvements of twenty to forty years and
      equipment and fixtures of five to ten years.Investment
      in Real Estate – Impairment evaluationReal
      estate investments are evaluated for impairment when events or changes in
      circumstances indicate that the carrying amount of the assets may not be
      recoverable through the estimated undiscounted future cash flows from the
      use and eventual disposition of these assets. When any such impairment
      exists, the related assets will be written down to fair value. No
      impairment loss recognition has been required as of December 31,
      2008.
 
 Cash
      and Cash EquivalentsThe
      Company considers all highly liquid investments with a maturity of three
      months or less when purchased to be cash equivalents.  The
      Company maintains its cash and cash equivalents at a financial
      institution.  The account balances periodically exceed the
      Federal Deposit Insurance Corporation (“FDIC”) insurance coverage, and as
      a result, there is a concentration of credit risk related to amounts on
      deposit in excess of FDIC insurance
coverage.
  Accounts
      Receivable – TenantsAccounts
      receivable from tenants are unsecured and reflect primarily reimbursement
      of specified common area expenses. The Company determines its allowance
      for uncollectible accounts based on historical trends, existing economic
      conditions, and known financial position of its tenants. Tenant accounts
      receivable are written-off by the Company in the year when receipt is
      determined to be remote.
  F-11
 Agree
Realty Corporation
 
 Notes
to Consolidated Financial Statements
  Unamortized
      Deferred ExpensesDeferred
      expenses are stated net of total accumulated amortization. The nature and
      treatment of these capitalized costs are as follows: (1) financing costs,
      consisting of expenditures incurred to obtain long-term financing, are
      being amortized using the interest method over the term of the related
      loan, and (2) leasing costs, which are amortized on a straight-line
      basis over the term of the related lease.  The Company incurred
      expenses of $231,725, $233,740 and $182,451 for the years ended December
      31, 2008, 2007 and 2006, respectively.Other
      AssetsThe
      Company records prepaid expenses, deposits, vehicles, furniture and
      fixtures, leasehold improvements, acquisition advances and miscellaneous
      receivables as other assets in the accompanying balance
      sheets.Accounts
      Payable - Capital ExpendituresIncluded
      in accounts payable are amounts related to the construction of buildings.
      Due to the nature of these expenditures, they are reflected in the
      statements of cash flows as a non-cash financing
  activity.
 
 Minority
      InterestThis
      amount represents the limited partners' interest (OP Units) of 7.15% and
      7.99% (convertible into 605,413 and 673,547 shares) in the Operating
      Partnership as of December 31, 2008 and 2007,
      respectively.Revenue
      RecognitionMinimum
      rental income attributable to leases is recorded when due from tenants.
      Certain leases provide for additional percentage rents based on tenants'
      sales volume. These percentage rents are recognized when determinable by
      the Company. In addition, leases for certain tenants contain rent
      escalations and/or free rent during the first several months of the lease
      term; however, such amounts are not material.Taxes
      Collected and Remitted to Governmental AuthoritiesThe
      Company reports taxes, collected from tenants that are to be remitted to
      governmental authorities, on a net basis and therefore does not include
      the taxes in revenue.Operating
      Cost ReimbursementSubstantially
      all of the Company's leases contain provisions requiring tenants to pay as
      additional rent a proportionate share of operating expenses such as real
      estate taxes, repairs and maintenance, insurance, etc. The related revenue
      from tenant billings is recognized as operating cost reimbursement in the
      same period the expense is
recorded.
  F-12
  Agree
Realty Corporation
  Notes
to Consolidated Financial Statements
  Income
      TaxesThe
      Company has made an election to be taxed as a REIT under Sections 856
      through 860 of the Internal Revenue Code of 1986, as amended and related
      regulations.  The Company generally will not be subject to
      federal income taxes on amounts distributed to stockholders, providing it
      distributes 100 percent of it real estate investment trust taxable income
      and meets certain other requirements for qualifying as a
      REIT.  For each of the years in the three-year period ended
      December 31, 2008, the Company believes it has qualified as a
      REIT.  Notwithstanding the Company’s qualification for taxation
      as a REIT, the Company is subject to certain state taxes on its income and
      real estate.
                            
                            The
      Company and its taxable REIT subsidiary have made a timely TRS election
      pursuant to the provisions of the REIT Modernization Act.  A TRS
      is able to engage in activities resulting in income that previously would
      have been disqualified from being eligible REIT income under the federal
      income tax regulations.  As a result, certain activities of the
      Company which occur within its TRS entity are subject to federal and state
      income taxes (See Note 6).  All provisions for federal income
      taxes in the accompanying consolidated financial statements are
      attributable to the Company’s taxable REIT subsidiary.DividendsThe
      Company declared dividends of $2.00, $1.97 and $1.96 per share during the
      years ended December 31, 2008, 2007, and 2006; the dividends have been
      reflected for federal income tax purposes as
  follows:
  December
      31,
                                                    
                                                    2008
                                                    
                                                    
                                                    2007
                                                    
                                                    
                                                    2006Ordinary
      income
                                                    
                                                    $
                                                    1.96
                                                    
                                                    
                                                    $
                                                    1.93
                                                    
                                                    
                                                    $
                                                    1.80Return
      of capital
                                                    
                                                    
                                                    .04
                                                    
                                                    
                                                    
                                                    .04
                                                    
                                                    
                                                    
                                                    .16Total
                                                    
                                                    $
                                                    2.00
                                                    
                                                    
                                                    $
                                                    1.97
                                                    
                                                    
                                                    $
                                                    1.96
  The
      aggregate federal income tax basis of Real Estate Investments is
      approximately $22.2 million less than the financial statement
      basis.
 F-13
  Agree
Realty Corporation
 
 Notes
to Consolidated Financial Statements
 Earnings
      Per ShareEarnings
      per share have been computed by dividing the net income by the weighted
      average number of common shares outstanding.  The per-share
      amounts reflected in the consolidated statements of income are presented
      in accordance with SFAS No. 128 “Earnings Per
      Share”.  Diluted earnings per share is computed by
      dividing net income by the weighted average common and potential dilutive
      common shares outstanding in accordance with the treasury stock
      method.The
      following is a reconciliation of the denominator of the basic net earnings
      per common share computation to the denominator of the diluted net
      earnings per common share computation for each of the periods
      presented:
 
 Year
      Ended December 31,
                                    
                                    2008
                                    
                                    
                                    2007
                                    
                                    
                                    2006Weighted
      Average number of commonShares
      outstanding
                                    
                                    
                                    7,810,692
                                    
                                    
                                    
                                    7,751,321
                                    
                                    
                                    
                                    7,711,964Unvested
      restricted stock
                                    
                                    
                                    104,050
                                    
                                    
                                    
                                    96,450
                                    
                                    
                                    
                                    131,120Weighted
      average number of commonshares
      outstanding used in basic earningsper
      share
                                    
                                    
                                    7,706,642
                                    
                                    
                                    
                                    7,654,871
                                    
                                    
                                    
                                    7,580,844Weighted
      average number of common shares outstanding used in basic earnings per
      share
                                    
                                    
                                    7,706,642
                                    
                                    
                                    
                                    7,654,871
                                    
                                    
                                    
                                    7,580,844Effect
      of dilutive securitiesRestricted
      stock
                                    
                                    
                                    11,893
                                    
                                    
                                    
                                    61,160
                                    
                                    
                                    
                                    70,582Weighted
      average number of common shares outstanding used in diluted earnings per
      share
                                    
                                    
                                    7,718,535
                                    
                                    
                                    
                                    7,716,031
                                    
                                    
                                    
                                    7,651,426
  Stock
      Based CompensationOn
      January 1, 2006, we adopted the provisions of SFAS No. 123R, Shares-Based
      Payments (SFAS 123R), under the modified prospective
      method.  Under the modified prospective method, compensation
      cost is recognized for all awards, granted after the adoption of this
      standard and for the unvested portion of previously granted awards that
      are outstanding as of that date.  In accordance with SFAS 123R,
      we will estimate fair vale of restricted stock and stock option grants at
      the date of grant and amortize those amounts into expense on a
      straight-line basis or amount vested, if greater, over the appropriate
      vesting period.  No stock options were issued or vested during
      2008, 2007 or 2006.
  F-14
  Agree
Realty Corporation
  Notes
to Consolidated Financial Statements
 Recent
      Accounting PronouncementsIn
      September 2006, the FASB issued Statement No. 157. “Fair Value Measurements”(“SFAS No. 157”).  This Statement defines fair value,
      establishes a framework for measuring fair value in generally accepted
      accounting principles and expands disclosures about fair value
      measurements.  This Statement applies to accounting
      pronouncements that require or permit fair value measurements, except for
      share-based compensation transactions under FASB Statement No. 123
      (Revised) “Share Based
      Payment.”  This Statement was effective for financial
      statements issued for fiscal years beginning after November 15, 2007,
      except for non-financial assets and liabilities for which this Statement
      will be effective for years beginning after November 15,
      2008.  The deferral to this Statement applies to all
      nonfinancial assets and nonfinancial liabilities including but not limited
      to initial measurements of fair value of: nonfinancial assets and
      nonfinancial liabilities in a business combination or other new basis
      event, asset retirement obligations, and nonfinancial liabilities for exit
      or disposal activities, as well as impairment assessments of nonfinancial
      long lived assets and goodwill. This Statement does not require any new
      fair value measurements or remeasurements of previously reported fair
      values. The Company will account for nonfinancial assets and nonfinancial
      liabilities under SFAS No. 157 beginning on January 1,
    2009.
  In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements”
      (“SFAS No. 160”), an amendment to Accounting Research Board
      No. 51.  SFAS No. 160’s objective is to improve the
      relevance, comparability and transparency of financial information that a
      reporting entity provides in its consolidated financial statements. The
      key aspects of SFAS No. 160 are (i) the minority interests in
      subsidiaries should be presented in the consolidated balance sheet within
      equity of the consolidated group, separate from the parent’s shareholders’
      equity, (ii) acquisitions or dispositions of noncontrolling interests
      in a subsidiary that do not result in a change of control should be
      accounted for as equity transactions, (iii) a parent recognizes a
      gain or loss in net income when a subsidiary is deconsolidated, measured
      using the fair value of the non-controlling equity investment,
      (iv) the acquirer should attribute net income and each component of
      other comprehensive income between controlling and noncontrolling
      interests based on any contractual arrangements or relative ownership
      interests, and (v) a reconciliation of beginning to ending total
      equity is required for both controlling and noncontrolling interests. SFAS
      No. 160 is effective for fiscal years beginning on or after
      December 15, 2008 and should be applied prospectively. We expect SFAS
      No. 160 will require the disclosure of minority interest as a separate
      item in the equity section of our balance sheet, once
      adopted.  We do not expect SFAS No. 160 to have a material
      effect on our financial statements.  The Company will account
      for minority interest under SFAS No. 160 beginning on January 1,
      2009.  In March 2008, the SEC announced revisions to Topic No.
      D-98 “Classification and Measurement of Redeemable Securities” that
      provide interpretive guidance on the interaction on the interaction
      between Topic D-98 and Statement No.
160.
  F-15


Agree
Realty Corporation
  Notes
to Consolidated Financial Statements
  In
      December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”(“SFAS No. 141”). SFAS No. 141(R) will significantly change the
      accounting for business combinations.  Under SFAS No. 141(R), an
      acquiring entity will be required to recognize all the assets acquired and
      liabilities assumed in a transaction at the acquisition-date fair value
      with limited exceptions.  SFAS No. 141(R) will change the
      accounting treatment for certain specific acquisition related items
      including: (1) expensing acquisition related costs as incurred;
      (2) valuing noncontrolling interests at fair value at the acquisition
      date; and (3) expensing restructuring costs associated with an
      acquired business.  SFAS No. 141(R) also includes a
      substantial number of new disclosure requirements.  SFAS
      No. 141(R) is to be applied prospectively to business
      combinations for which the acquisition date is on or after January 1,
      2009.  The Company will account for business combinations under this
      Statement beginning on January 1, 2009.In March 2008,
      the FASB issued SFAS No. 161, “Disclosures about Derivative
      Instruments and Hedging Activities”(“SFAS No. 161”). SFAS
      No. 161 requires enhanced disclosures about an entity’s derivative
      and hedging activities. It clarifies (a) how and why an entity
      uses derivative instruments, (b) how derivative instruments and related
      hedged items are accounted for under SFAS No.133 and its related
      interpretations, and (c) how derivative instruments and related hedged
      items affect an entity’s financial position, financial performance, and
      cash flows.  SFAS No. 161 is effective for fiscal years beginning
      after November 15, 2008.  The Company will disclose hedging
      activities under SFAS No. 161 beginning on January 1, 2009 and do not
      expect SFAS No. 161 to have a material effect on our financial statements
      since it pertains to disclosure
only.
  F-16
 Agree
Realty Corporation
  Notes
to Consolidated Financial Statements
 In
      May 2008, the FASB issued SFAS No. 162,“The Hierarchy of Generally
      Accepted Accounting Principles,”(“SFAS No. 162”).The current
      hierarchy of generally accepted accounting principles is set forth in the
      American Institute of Certified Accountants (AICPA) Statement of Auditing
      Standards (SAS) No. 69, “The meaning of Present Fairly
      in Conformity With Generally Accepted Accounting
      Principles.  SFAS No. 162 is intended to improve
      financial reporting by identifying a consistent framework or hierarchy for
      selecting accounting principles to be used in preparing financial
      statements that are presented in conformity with U.S. generally accepted
      accounting principles for nongovernmental entities.  This
      Statement is effective November 15, 2008.  The Company will
      adopt this Statement effective January 1, 2009 but does not anticipate
      that the Statement will have a material effect on the Company’s results of
      operations or financial position, as theStatement does
      not directly impact the accounting principles applied in the preparation
      of the Company’s financial
statements.
 
 In
      June 2008, the FASB ratified FASB Staff Position No. EITF 03-6-01 “Determining Whether
      Instruments Granted in Share-Based Payment Transactions Are Participating
      Securities”(“FSP EITF 03-6-01”).FSP EITF
      03-6-01 addresses whether instruments granted in share-based payment
      transactions are participating securities prior to vesting and, therefore,
      need to be included in the earnings allocation in computing earnings per
      share (“EPS”) under the two-class method of SFAS 128.  It
      clarifies that unvested share-based payment awards that contain
      nonforfeitable right to dividends or dividend equivalents (whether paid or
      unpaid) are participating securities and shall be included in the
      computation of EPS pursuant to the two-class method.  FSP EITF
      03-6-01 is effective for fiscal years beginning after December 15,
      2008.  The Company will account for instruments granted in
      share-based payment transactions under this Statement beginning on January
      1, 2009, however we do not expect FSP EITF 06-6-01 to have a material
      impact on our computation of EPS.In
      November 2008, the FASB ratified Emerging Issue Task Force Issue No. 08-6,
      "Equity Method
      Investment Accounting Considerations." EITF 08-6 addresses certain
      issues that arise from a company's application of the equity method under
      Opinion 18 due to a change in accounting for business combinations and
      consolidated subsidiaries resulting from the issuance of Statement 141(R)
      and Statement 160. EITF 08-6 addresses issues regarding the initial
      carrying value of an equity method investment, tests of impairment
      performed by the investor over an investee's underlying assets, changes in
      ownership resulting from the issuance of shares by an investee, and
      changes in an investment from the equity method to the cost method. This
      Issue is effective and will be applied on a prospective basis in fiscal
      years beginning on or after December 15, 2008, and interim periods within
      those fiscal years, consistent with the effective dates of Statement
      141(R) and Statement 160.  The Company will adopt this Statement
      effective January 1, 2009, however we do not expect Issue No. 08-6 to have
      a material impact on our financial
statements.
  F-17
 Agree
Realty Corporation
  Notes
to Consolidated Financial Statements
 3.     Mortgages
      Payable
                Mortgages
      payable consisted of the
following:
 
 December 31,
                                      
                                      2008
                                      
                                      
                                      2007Note
      payable in monthly   installments of $37,340 plus interest
      at 150 basis points over LIBOR (2.695% at December 31, 2008).  A
      final balloon payment in the amount of $22,318,478 is due on July 1, 2013
      unless extended for a two year period at the option of the
      Company
                                      
                                      $
                                      24,613,300
                                      
                                      
                                      $
                                      -Note
      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
                                      
                                      
                                      14,274,218
                                      
                                      
                                      
                                      15,104,016
 
 Note
      payable in monthly installments of $128,205 including interest at 6.20%
      per annum, with a final monthly payment due November 2018; collateralized
      by related real estate and tenants’ leases
                  
                  
                  11,374,994
                  
                  
                  
                  12,180,878Note
      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
                  
                  
                  7,521,293
                  
                  
                  
                  8,193,427Note
      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
                  
                  
                  6,367,177
                  
                  
                  
                  6,632,703
 
 Note
      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
                                            
                                            
                                            2,597,032
                                            
                                            
                                            
                                            2,705,377
 Note
      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
                                  
                                  
                                  875,683
                                  
                                  
                                  
                                  943,767Total
                                  
                                  $
                                  67,623,697
                                  
                                  
                                  $
                                  45,760,168
  F-18
 Agree
Realty Corporation
  Notes
to Consolidated Financial Statements
 Future
      scheduled annual maturities of mortgages payable for years ending
      December 31 are as follows: 2009 - $3,396,566; 2010 - $3,624,642;
      2011 - $3,868,220; 2012 - $4,128,165; 2013 - $26,426,271 and $26,179,833
      thereafter.  The weighted average interest rate at December 31,
      2008 and 2007 was 5.59% and 6.64%,
respectively.
 4.     Notes
      Payable
                The
      Operating Partnership has in place a $55 million line-of-credit agreement,
      which is guaranteed by the Company up to the maximum amount and for the
      full term. The agreement expires in November
      2011.   Advances under the Credit Facility bear interest
      within a range of one-month to twelve-month LIBOR plus 100 basis points to
      150 basis points or the bank's prime rate, at the option of the Company,
      based on certain factors such as the ratio of our indebtedness to the
      capital value of our properties.  In addition, we must maintain
      certain leverage and debt service coverage ratios, maintain our adjusted
      net worth at a minimum level, maintain our tax status as a REIT, and
      distribute no more than 95% of our adjusted funds from operations. The
      facility also requires that we pay a non-use fee of .125% of the unfunded
      balance if our outstanding balance is greater than $25 million or .20% of
      the unfunded balance if our outstanding balance is less than $25
      million.  The Credit Facility is used to fund property
      acquisitions and development activities. At December 31, 2008 and
      2007, $30,500,000 and $36,000,000, respectively, was outstanding under
      this facility with a weighted average interest rate of 2.32% and 5.63%,
      respectively.  The Credit Facility’s covenants were all complied
      with through December 31,
2008.
  F-19
  Agree
Realty Corporation
  Notes
to Consolidated Financial Statements
 
 In
      addition, the Company maintains a $5,000,000 line-of-credit agreement that
      matures in November 2009 and can be extended at our option subject to
      specified conditions for two additional one year
      periods.  Monthly interest payments are required, either at the
      bank's prime rate less 75 basis points, or 150 basis points in excess of
      the one-month to twelve month LIBOR rate, at the option of the
      Company.  At December 31, 2008 and 2007, $2,445,000 and
      $800,000, respectively, was outstanding under this agreement with a
      weighted average interest rate of 2.50% and 6.50%,
      respectively.5.     Dividends
      and Distributions Payable
                
                On
      December 8, 2008 the Company declared a dividend of $.50 per share
      for the quarter ended December 31, 2008. The holders of OP Units were
      entitled to an equal distribution per OP Unit held as of December 31,
      2008. The dividends and distributions payable are recorded as liabilities
      in the Company's consolidated balance sheet at December 31, 2008. 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,
      2009.
 
 6.     Income
      Taxes
                In
      June 2006, the FASB issued FIN 48 which clarifies the accounting for
      uncertainty in income taxes recognized in a company’s financial statements
      in accordance with SFAS No. 109, “Accounting for Income
      Taxes.”  The
      interpretation prescribes a recognition threshold and measurement
      attribute for the financial statement recognition and measurement of a tax
      position taken or expected to be taken in a tax return.  The
      interpretation also provides guidance on de-recognition, classification,
      interest and penalties, accounting in interim periods, disclosure and
      transition.The
      Company is subject to the provisions of FIN 48 as of January 1, 2007, and
      has analyzed its various federal and state filing
      positions.  The Company believes that its income tax filing
      positions and deductions are documented and
      supported.  Additionally the Company believes that its accruals
      for tax liabilities are adequate.  Therefore, no reserves for
      uncertain income tax positions have been recorded pursuant to FIN
      48.  In addition, the Company did not record a cumulative effect
      adjustment related to the adoption of FIN 48.  Our Federal
      income tax returns are open for examination by taxing authorities for all
      tax years after December 31,
2004.
  F-20
 Agree
Realty Corporation
  Notes
to Consolidated Financial Statements
 For
      income tax purposes, the Company has a taxable REIT subsidiary (TRS) that
      was established in October 2007 and which certain real estate activities
      are conducted.As
      of December 31, 2008, the Company has a deferred income tax liability in
      the amount of $705,000.  This balance represents the federal and
      state tax effect of deferring income tax in 2007 on the sale of an asset
      under section 1031 of the Internal Revenue Code.  This
      transaction accrued within the TRS described
  above.
 
 7.     Minority
      Interest
                The
      following summarizes the changes in minority interest since
      January 1, 2006:
 
 Minority
      Interest at January 1, 2006
                                            
                                            $
                                            5,978,635Minority
      interests’ share of income for the year
                                            
                                            
                                            1,220,113Distributions for the year
                                            
                                            
                                            (1,320,155
                                            )Minority
      Interest at December 31, 2006
                                            
                                            
                                            5,878,593Minority
      interests’ share of income for the year
                                            
                                            
                                            1,344,475Distributions for the year
                                            
                                            
                                            (1,326,888
                                            )Minority
      Interest at December 31, 2007
                                            
                                            
                                            5,896,180Minority
      interests’ share of income for the year
                                            
                                            
                                            1,264,611Distributions
      for the year
                                            
                                            
                                            (1,313,025
                                            )Conversion of OP Units
                                            
                                            
                                            (501,025
                                            )Minority Interest at December 31,
      2008
                                            
                                            $
                                            5,346,741
 
 8.     Stock
      Incentive Plan
                The
      Company established a stock incentive plan in 1994 (the 1994 Plan) under
      which options were granted.   The options, had an exercise
      price equal to the initial public offering price ($19.50/share), could be
      exercised in increments of 25% on each anniversary of the date of the
      grant, and expire upon employment termination. All options granted under
      the 1994 Plan have been exercised.  In 2005, our stockholders
      approved the 2005 Equity Incentive Plan (the 2005 Plan), which replaced
      the 1994 Plan.  The 2005 Plan authorizes the issuance of a
      maximum of one million shares of common stock. No options were granted
      during 2008, 2007 or 2006.
  F-21
 Agree
Realty Corporation
  Notes
to Consolidated Financial Statements
 9.     Stock
      Based Compensation
                As
      part of the Company's 2005 Equity Incentive Plan, restricted common shares
      are granted to certain employees. As of December 31, 2008, there was
      $2,597,669 of total unrecognized compensation costs related to the
      outstanding restricted shares, which is expected to be recognized over a
      weighted average period of 3.1 years.  We used 0% for both the
      discount factor and forfeiture rate for determining the fair value of
      restricted stock.  The forfeiture rate was based on historical
      results and trends and we do not consider discount rates to be
      material.  Pursuant to SFAS 123R, the Company reversed the
      previously recorded deferred compensation of $2,794,738 at December 31,
      2005 during the year ended December 31, 2006.  The impact did
      not change stockholders’ equity or reported net income.
                  
                  The
      holder of a restricted share award is generally entitled at all times on
      and after the date of issuance of the restricted shares to exercise the
      rights of a shareholder of the Company, including the right to vote the
      shares and the right to receive dividends on the shares.  We
      granted 46,350 shares of restricted stock in 2008 to employees under the
      2005 Equity Incentive Plan.  The restricted shares vest over a 5
      year period based on continued service to the
      Company.  Restricted share activity is summarized as
      follows:
 
 Shares
                    Outstanding
                  
                  
                  Weighted
                    Average
                    Grant Date
                    Fair ValueNon-vested restricted shares at January1, 2006
                  
                  
                  131,120
                  
                  
                  $
                  24.92Restricted
      shares granted
                  
                  
                  3,750
                  
                  
                  $
                  31.12Restricted
      shares vested
                  
                  
                  (38,420
                  )
                  
                  $
                  25.61Restricted
      shares forfeited
                  
                  
                  -
                  
                  
                  
                  -Non-vested
      restricted shares at December31,
      2007
                  
                  
                  96,450
                  
                  
                  $
                  24.89Restricted
      shares granted
                  
                  
                  46,350
                  
                  
                  $
                  29.44Restricted
      shares vested
                  
                  
                  (33,950
                  )
                  
                  $
                  28.57Restricted
      shares forfeited
                  
                  
                  (4,800
                  )
                  
                  $
                  31.03Non-vested
      restricted shares at December31,
      2008
                  
                  
                  104,050
                  
                  
                  $
                  30.57
  F-22
 Agree
Realty Corporation
  Notes
to Consolidated Financial Statements
 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 2008, 2007 or
      2006.11.   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.  The weighted average remaining lease term is 10.6
      years.As
      of December 31, 2008, the future minimum rentals for the next five years
      from rental property under the terms of all noncancellable tenant leases,
      assuming no new or renegotiated leases are executed for such premises, are
      as follows (in thousands):
 
 2009
                                    
                                    $
                                    33,0062010
                                    
                                    
                                    31,9172011
                                    
                                    
                                    29,8522012
                                    
                                    
                                    28,2782013
                                    
                                    
                                    26,971Thereafter
                                    
                                    
                                    203,953Total
                                    
                                    $
                                    353,977
 
 Of
      these future minimum rentals, approximately 43% of the total is
      attributable to Walgreen, approximately 28% of the total is attributable
      to Borders Group, Inc. and approximately 9% is attributable to Kmart
      Corporation a wholly-owned subsidiary of Sears Holdings
      Corporation.  Walgreen operates in the national drugstore chain
      industry, Borders is a major operator of book superstores in the United
      States and Kmart’s principal business is general merchandise retailing
      through a chain of discount department stores. The loss of any of these
      anchor tenants or the inability of any of them to pay rent could have an
      adverse effect on the Company’s business.
                  
                  Our
      properties are located primarily in the Midwestern United States and in
      particular Michigan. 39 of our 68 properties are located in
      Michigan.
  F-23
 Agree
Realty Corporation
  Notes
to Consolidated Financial Statements
 12.   Lease
      Commitments
                    The
      Company has entered into certain land lease agreements for four of its
      properties. As of December 31, 2008, future annual lease commitments
      under these agreements are as
follows:
 
 For the Year ending December 31,2009
                                                                  
                                                                  $
                                                                  859,2002010
                                                                  
                                                                  
                                                                  890,6002011
                                                                  
                                                                  
                                                                  906,3002012
                                                                  
                                                                  
                                                                  906,3002013
                                                                  
                                                                  
                                                                  906,300Thereafter
                                                                  
                                                                  
                                                                  9,459,222Total
                                                                  
                                                                  $
                                                                  13,927,922
 
 The
      Company leases its executive offices from a limited liability company
      controlled by our Chief Executive Officer’s children.  Under the
      terms of the lease, which expires December 31, 2009, the Company is
      required to pay an annual rental of $90,000 and is responsible for the
      payment of real estate taxes, insurance and maintenance expenses relating
      to the building.
 
 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, 2007 through December 31, 2008. Certain amounts
      have been reclassified to conform to the current presentation of
      discontinued
operations:
 
 Three Months Ended2008
                                                                                      
                                                                                      March 31,
                                                                                      
                                                                                      
                                                                                      June 30,
                                                                                      
                                                                                      
                                                                                      September 30,
                                                                                      
                                                                                      
                                                                                      December 31,Revenues
                                                                                      
                                                                                      $
                                                                                      8,768
                                                                                      
                                                                                      
                                                                                      $
                                                                                      8,789
                                                                                      
                                                                                      
                                                                                      $
                                                                                      9,029
                                                                                      
                                                                                      
                                                                                      $
                                                                                      9,068Net Income
                                                                                      
                                                                                      $
                                                                                      3,579
                                                                                      
                                                                                      
                                                                                      $
                                                                                      3,766
                                                                                      
                                                                                      
                                                                                      $
                                                                                      3,849
                                                                                      
                                                                                      
                                                                                      $
                                                                                      3,823Earnings Per Share –
Diluted
                                                                                      
                                                                                      $
                                                                                      .47
                                                                                      
                                                                                      
                                                                                      $
                                                                                      .49
                                                                                      
                                                                                      
                                                                                      $
                                                                                      .50
                                                                                      
                                                                                      
                                                                                      $
                                                                                      .49Three Months Ended2007
                                                                                      
                                                                                      March 31,
                                                                                      
                                                                                      
                                                                                      June 30,
                                                                                      
                                                                                      
                                                                                      September 30,
                                                                                      
                                                                                      
                                                                                      December 31,Revenues
                                                                                      
                                                                                      $
                                                                                      8,463
                                                                                      
                                                                                      
                                                                                      $
                                                                                      8,378
                                                                                      
                                                                                      
                                                                                      $
                                                                                      8,450
                                                                                      
                                                                                      
                                                                                      $
                                                                                      9,177Income before discontinued
      operations
                                                                                      
                                                                                      $
                                                                                      3,605
                                                                                      
                                                                                      
                                                                                      $
                                                                                      3,603
                                                                                      
                                                                                      
                                                                                      $
                                                                                      3,613
                                                                                      
                                                                                      
                                                                                      $
                                                                                      4,661Earnings Per Share –
Diluted
                                                                                      
                                                                                      $
                                                                                      .47
                                                                                      
                                                                                      
                                                                                      $
                                                                                      .47
                                                                                      
                                                                                      
                                                                                      $
                                                                                      .47
                                                                                      
                                                                                      
                                                                                      $
                                                                                      .60
  F-24
 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
      Events
                In
      January 2009, the Company granted 67,100 shares of restricted stock to
      employees and associates under the 2005 Equity Incentive
      Plan.  The restricted shares vest over a five year period based
      on continued service to the Company.
                  
                  In
      February 2009, the Company entered into an interest rate swap agreement in
      an effort to manage our interest rate exposure on a $24.6 million floating
      rate mortgage.  The interest rate swap agreement has a term of
      approximately 4.5 years and bears interest at
  3.744%.
  F-25
 Agree
Realty Corporation
 Schedule
III – Real Estate and Accumulated Depreciation
 December
31, 2008
 Column A
                            
                            Column B
                            
                            
                            Column C
                            
                            
                            Column D
                            
                            
                            Column E
                            
                            
                            Column F
                            
                            Column G
                            
                            Column HLife on WhichCosts
                            
                            
                            Gross Amount at Which Carried
                            
                            
                            
                            
                            
                            
                            Depreciation inInitial Cost
                            
                            
                            Capitalized
                            
                            
                            At Close of Period
                            
                            
                            
                            
                            
                            
                            Latest IncomeBuildings and
                            
                            
                            Subsequent to
                            
                            
                            
                            
                            
                            Buildings and
                            
                            
                            
                            
                            
                            Accumulated
                            
                            Date of
                            
                            StatementDescription
                            
                            Encumbrance
                            
                            
                            Land
                            
                            
                            Improvements
                            
                            
                            Acquisition
                            
                            
                            Land
                            
                            
                            Improvements
                            
                            
                            Total
                            
                            
                            Depreciation
                            
                            Construction
                            
                            is ComputedCompleted
      Retail FacilitiesSam’s Club,
      MI
                            
                            $
                            997,680
                            
                            
                            $
                            550,000
                            
                            
                            $
                            562,404
                            
                            
                            $
                            1,087,596
                            
                            
                            $
                            550,000
                            
                            
                            $
                            1,650,000
                            
                            
                            $
                            2,200,000
                            
                            
                            $
                            1,370,525
                            
                            1977
                            
                            40
      YearsCapital Plaza,
      KY
                            
                            
                            -
                            
                            
                            
                            7,379
                            
                            
                            
                            2,240,607
                            
                            
                            
                            3,336,764
                            
                            
                            
                            7,379
                            
                            
                            
                            5,577,371
                            
                            
                            
                            5,584,750
                            
                            
                            
                            2,038,663
                            
                            1978
                            
                            40
      YearsCharlevoix Common,
      MI
                            
                            
                            -
                            
                            
                            
                            305,000
                            
                            
                            
                            5,152,992
                            
                            
                            
                            106,718
                            
                            
                            
                            305,000
                            
                            
                            
                            5,259,710
                            
                            
                            
                            5,564,710
                            
                            
                            
                            2,372,761
                            
                            1991
                            
                            40
      YearsChippewa Commons,
      WI
                            
                            
                            -
                            
                            
                            
                            1,197,150
                            
                            
                            
                            6,367,560
                            
                            
                            
                            439,818
                            
                            
                            
                            1,197,150
                            
                            
                            
                            6,807,378
                            
                            
                            
                            8,004,528
                            
                            
                            
                            3,055,418
                            
                            1990
                            
                            40
      YearsGrayling Plaza,
      MI
                            
                            
                            -
                            
                            
                            
                            200,000
                            
                            
                            
                            1,778,657
                            
                            
                            
                            -
                            
                            
                            
                            200,000
                            
                            
                            
                            1,778,657
                            
                            
                            
                            1,978,657
                            
                            
                            
                            1,103,985
                            
                            1984
                            
                            40
      YearsIronwood Commons,
      MI
                            
                            
                            -
                            
                            
                            
                            167,500
                            
                            
                            
                            8,181,306
                            
                            
                            
                            332,545
                            
                            
                            
                            167,500
                            
                            
                            
                            8,513,851
                            
                            
                            
                            8,681,351
                            
                            
                            
                            3,688,034
                            
                            1991
                            
                            40
      YearsMarshall Plaza Two,
      MI
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            4,662,230
                            
                            
                            
                            115,294
                            
                            
                            
                            -
                            
                            
                            
                            4,777,524
                            
                            
                            
                            4,777,524
                            
                            
                            
                            2,102,942
                            
                            1990
                            
                            40
      YearsNorth Lakeland Plaza,
      FL
                            
                            
                            4,434,416
                            
                            
                            
                            1,641,879
                            
                            
                            
                            6,364,379
                            
                            
                            
                            1,772,138
                            
                            
                            
                            1,641,879
                            
                            
                            
                            8,136,517
                            
                            
                            
                            9,778,396
                            
                            
                            
                            3,841,849
                            
                            1987
                            
                            40
      YearsOscoda Plaza,
      MI
                            
                            
                            -
                            
                            
                            
                            183,295
                            
                            
                            
                            1,872,854
                            
                            
                            
                            -
                            
                            
                            
                            183,295
                            
                            
                            
                            1,872,854
                            
                            
                            
                            2,056,149
                            
                            
                            
                            1,158,478
                            
                            1984
                            
                            40
      YearsPetoskey Town Center,
      MI
                            
                            
                            -
                            
                            
                            
                            875,000
                            
                            
                            
                            8,895,289
                            
                            
                            
                            314,411
                            
                            
                            
                            875,000
                            
                            
                            
                            9,209,700
                            
                            
                            
                            10,084,700
                            
                            
                            
                            4,044,545
                            
                            1990
                            
                            40
      YearsPlymouth Commons,
      WI
                            
                            
                            -
                            
                            
                            
                            535,460
                            
                            
                            
                            5,667,504
                            
                            
                            
                            282,915
                            
                            
                            
                            535,460
                            
                            
                            
                            5,950,419
                            
                            
                            
                            6,485,879
                            
                            
                            
                            2,674,624
                            
                            1990
                            
                            40
      YearsRapids Associates,
      MI
                            
                            
                            -
                            
                            
                            
                            705,000
                            
                            
                            
                            6,854,790
                            
                            
                            
                            1,869,223
                            
                            
                            
                            705,000
                            
                            
                            
                            8,724,013
                            
                            
                            
                            9,429,013
                            
                            
                            
                            3,165,144
                            
                            1990
                            
                            40
      YearsShawano Plaza,
      WI
                            
                            
                            -
                            
                            
                            
                            190,000
                            
                            
                            
                            9,133,934
                            
                            
                            
                            253,763
                            
                            
                            
                            190,000
                            
                            
                            
                            9,387,697
                            
                            
                            
                            9,577,697
                            
                            
                            
                            4,286,617
                            
                            1990
                            
                            40
      YearsWest Frankfort Plaza,
      IL
                            
                            
                            -
                            
                            
                            
                            8,002
                            
                            
                            
                            784,077
                            
                            
                            
                            143,258
                            
                            
                            
                            8,002
                            
                            
                            
                            927,335
                            
                            
                            
                            935,337
                            
                            
                            
                            557,848
                            
                            1982
                            
                            40
      YearsOmaha,
      NE
                            
                            
                            1,705,755
                            
                            
                            
                            1,705,619
                            
                            
                            
                            2,053,615
                            
                            
                            
                            2,152
                            
                            
                            
                            1,705,619
                            
                            
                            
                            2,055,767
                            
                            
                            
                            3,761,386
                            
                            
                            
                            674,540
                            
                            1995
                            
                            40
      YearsWichita,
      KS
                            
                            
                            1,249,144
                            
                            
                            
                            1,039,195
                            
                            
                            
                            1,690,644
                            
                            
                            
                            24,666
                            
                            
                            
                            1,039,195
                            
                            
                            
                            1,715,310
                            
                            
                            
                            2,754,505
                            
                            
                            
                            562,762
                            
                            1995
                            
                            40
      YearsSanta Barbara,
      CA
                            
                            
                            2,538,929
                            
                            
                            
                            2,355,423
                            
                            
                            
                            3,240,557
                            
                            
                            
                            2,650
                            
                            
                            
                            2,355,423
                            
                            
                            
                            3,243,207
                            
                            
                            
                            5,598,630
                            
                            
                            
                            1,064,167
                            
                            1995
                            
                            40
      YearsMonroeville,
      PA
                            
                            
                            -
                            
                            
                            
                            6,332,158
                            
                            
                            
                            2,249,724
                            
                            
                            
                            -
                            
                            
                            
                            6,332,158
                            
                            
                            
                            2,249,724
                            
                            
                            
                            8,581,882
                            
                            
                            
                            681,694
                            
                            1996
                            
                            40
      YearsNorman,
      OK
                            
                            
                            -
                            
                            
                            
                            879,562
                            
                            
                            
                            1,626,501
                            
                            
                            
                            -
                            
                            
                            
                            879,562
                            
                            
                            
                            1,626,501
                            
                            
                            
                            2,506,063
                            
                            
                            
                            497,927
                            
                            1996
                            
                            40
      YearsColumbus,
      OH
                            
                            
                            -
                            
                            
                            
                            826,000
                            
                            
                            
                            2,336,791
                            
                            
                            
                            -
                            
                            
                            
                            826,000
                            
                            
                            
                            2,336,791
                            
                            
                            
                            3,162,791
                            
                            
                            
                            754,587
                            
                            1996
                            
                            40
      YearsAventura,
      FL
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            3,173,121
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            3,173,121
                            
                            
                            
                            3,173,121
                            
                            
                            
                            1,008,127
                            
                            1996
                            
                            40
      YearsBoyton Beach,
      FL
                            
                            
                            1,832,637
                            
                            
                            
                            1,534,942
                            
                            
                            
                            2,043,122
                            
                            
                            
                            -
                            
                            
                            
                            1,534,942
                            
                            
                            
                            2,043,122
                            
                            
                            
                            3,578,064
                            
                            
                            
                            617,005
                            
                            1996
                            
                            40
      YearsLawrence,
      KS
                            
                            
                            2,597,030
                            
                            
                            
                            981,331
                            
                            
                            
                            3,000,000
                            
                            
                            
                            349,127
                            
                            
                            
                            981,331
                            
                            
                            
                            3,349,127
                            
                            
                            
                            4,330,458
                            
                            
                            
                            908,232
                            
                            1997
                            
                            40
      YearsWaterford,
      MI
                            
                            
                            1,811,127
                            
                            
                            
                            971,009
                            
                            
                            
                            1,562,869
                            
                            
                            
                            135,390
                            
                            
                            
                            971,009
                            
                            
                            
                            1,698,259
                            
                            
                            
                            2,669,268
                            
                            
                            
                            465,986
                            
                            1997
                            
                            40
      YearsChesterfield
      Township,
      MI
                            
                            
                            1,988,630
                            
                            
                            
                            1,350,590
                            
                            
                            
                            1,757,830
                            
                            
                            
                            (46,164
                            )
                            
                            
                            1,350,590
                            
                            
                            
                            1,711,666
                            
                            
                            
                            3,062,256
                            
                            
                            
                            449,893
                            
                            1998
                            
                            40
      YearsGrand Blanc,
      MI
                            
                            
                            1,899,879
                            
                            
                            
                            1,104,285
                            
                            
                            
                            1,998,919
                            
                            
                            
                            13,968
                            
                            
                            
                            1,104,285
                            
                            
                            
                            2,012,887
                            
                            
                            
                            3,117,172
                            
                            
                            
                            503,567
                            
                            1998
                            
                            40
      YearsPontiac,
      MI
                            
                            
                            1,821,657
                            
                            
                            
                            1,144,190
                            
                            
                            
                            1,808,955
                            
                            
                            
                            (113,506
                            )
                            
                            
                            1,144,190
                            
                            
                            
                            1,695,449
                            
                            
                            
                            2,839,639
                            
                            
                            
                            436,166
                            
                            1998
                            
                            40
      YearsMt. Pleasant ShoppingCenter,
      MI
                            
                            
                            -
                            
                            
                            
                            907,600
                            
                            
                            
                            8,081,968
                            
                            
                            
                            579,287
                            
                            
                            
                            907,600
                            
                            
                            
                            8,661,255
                            
                            
                            
                            9,568,855
                            
                            
                            
                            2,891,816
                            
                            1973
                            
                            40
      YearsTulsa,
      OK
                            
                            
                            -
                            
                            
                            
                            1,100,000
                            
                            
                            
                            2,394,512
                            
                            
                            
                            -
                            
                            
                            
                            1,100,000
                            
                            
                            
                            2,394,512
                            
                            
                            
                            3,494,512
                            
                            
                            
                            637,010
                            
                            1998
                            
                            40
      YearsColumbia,
      MD
                            
                            
                            2,669,710
                            
                            
                            
                            1,545,509
                            
                            
                            
                            2,093,700
                            
                            
                            
                            286,589
                            
                            
                            
                            1,545,509
                            
                            
                            
                            2,380,289
                            
                            
                            
                            3,925,798
                            
                            
                            
                            562,013
                            
                            1999
                            
                            40
      YearsRochester,
      MI
                            
                            
                            2,860,555
                            
                            
                            
                            2,438,740
                            
                            
                            
                            2,188,050
                            
                            
                            
                            1,949
                            
                            
                            
                            2,438,740
                            
                            
                            
                            2,189,999
                            
                            
                            
                            4,628,739
                            
                            
                            
                            520,101
                            
                            1999
                            
                            40
      Years
  F-26
 Agree
Realty Corporation
 Schedule
III – Real Estate and Accumulated Depreciation
 December
31, 2008
 Column A
                                              
                                              Column B
                                              
                                              
                                              Column C
                                              
                                              
                                              Column D
                                              
                                              
                                              Column E
                                              
                                              
                                              Column F
                                              
                                              Column G
                                              
                                              Column HLife on WhichCosts
                                              
                                              
                                              Gross Amount at Which Carried
                                              
                                              
                                              
                                              
                                              
                                              
                                              Depreciation inInitial Cost
                                              
                                              
                                              Capitalized
                                              
                                              
                                              at Close of Period
                                              
                                              
                                              
                                              
                                              
                                              
                                              Latest IncomeBuildings and
                                              
                                              
                                              Subsequent to
                                              
                                              
                                              
                                              
                                              
                                              Buildings and
                                              
                                              
                                              
                                              
                                              
                                              Accumulated
                                              
                                              Date of
                                              
                                              StatementDescription
                                              
                                              Encumbrance
                                              
                                              
                                              Land
                                              
                                              
                                              Improvements
                                              
                                              
                                              Acquisition
                                              
                                              
                                              Land
                                              
                                              
                                              Improvements
                                              
                                              
                                              Total
                                              
                                              
                                              Depreciation
                                              
                                              Construction
                                              
                                              is ComputedYpsilanti,
      MI
                                              
                                              
                                              2,583,635
                                              
                                              
                                              
                                              2,050,000
                                              
                                              
                                              
                                              2,222,097
                                              
                                              
                                              
                                              29,624
                                              
                                              
                                              
                                              2,050,000
                                              
                                              
                                              
                                              2,251,721
                                              
                                              
                                              
                                              4,301,721
                                              
                                              
                                              
                                              506,681
                                              
                                              1999
                                              
                                              40
      YearsGermantown,
      MD
                                              
                                              
                                              2,510,460
                                              
                                              
                                              
                                              1,400,000
                                              
                                              
                                              
                                              2,288,890
                                              
                                              
                                              
                                              45,000
                                              
                                              
                                              
                                              1,400,000
                                              
                                              
                                              
                                              2,333,890
                                              
                                              
                                              
                                              3,733,890
                                              
                                              
                                              
                                              531,169
                                              
                                              2000
                                              
                                              40
      YearsPetoskey,
      MI
                                              
                                              
                                              1,797,125
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              2,332,473
                                              
                                              
                                              
                                              (1,721
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              2,330,752
                                              
                                              
                                              
                                              2,330,752
                                              
                                              
                                              
                                              505,796
                                              
                                              2000
                                              
                                              40
      YearsFlint,
      MI
                                              
                                              
                                              2,710,676
                                              
                                              
                                              
                                              2,026,625
                                              
                                              
                                              
                                              1,879,700
                                              
                                              
                                              
                                              (1,201
                                              )
                                              
                                              
                                              2,026,625
                                              
                                              
                                              
                                              1,878,499
                                              
                                              
                                              
                                              3,905,124
                                              
                                              
                                              
                                              375,704
                                              
                                              2000
                                              
                                              40
      YearsFlint,
      MI
                                              
                                              
                                              2,332,409
                                              
                                              
                                              
                                              1,477,680
                                              
                                              
                                              
                                              2,241,293
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,477,680
                                              
                                              
                                              
                                              2,241,293
                                              
                                              
                                              
                                              3,718,973
                                              
                                              
                                              
                                              441,252
                                              
                                              2001
                                              
                                              40
      YearsNew
      Baltimore, MI
                                              
                                              
                                              1,989,827
                                              
                                              
                                              
                                              1,250,000
                                              
                                              
                                              
                                              2,285,781
                                              
                                              
                                              
                                              (16,502
                                              )
                                              
                                              
                                              1,250,000
                                              
                                              
                                              
                                              2,269,279
                                              
                                              
                                              
                                              3,519,279
                                              
                                              
                                              
                                              418,573
                                              
                                              2001
                                              
                                              40
      YearsFlint,
      MI
                                              
                                              
                                              1,600,190
                                              
                                              
                                              
                                              1,729,851
                                              
                                              
                                              
                                              1,798,091
                                              
                                              
                                              
                                              660
                                              
                                              
                                              
                                              1,729,851
                                              
                                              
                                              
                                              1,798,751
                                              
                                              
                                              
                                              3,528,602
                                              
                                              
                                              
                                              301,628
                                              
                                              2002
                                              
                                              40
      YearsOklahoma
      City, OK
                                              
                                              
                                              3,230,497
                                              
                                              
                                              
                                              1,914,859
                                              
                                              
                                              
                                              2,057,034
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,914,859
                                              
                                              
                                              
                                              2,057,034
                                              
                                              
                                              
                                              3,971,893
                                              
                                              
                                              
                                              323,657
                                              
                                              2002
                                              
                                              40
      YearsOmaha,
      NE
                                              
                                              
                                              2,964,322
                                              
                                              
                                              
                                              1,530,000
                                              
                                              
                                              
                                              2,237,702
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,530,000
                                              
                                              
                                              
                                              2,237,702
                                              
                                              
                                              
                                              3,767,702
                                              
                                              
                                              
                                              352,062
                                              
                                              2002
                                              
                                              40
      YearsIndianapolis,
      IN
                                              
                                              
                                              875,683
                                              
                                              
                                              
                                              180,000
                                              
                                              
                                              
                                              1,117,617
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              180,000
                                              
                                              
                                              
                                              1,117,617
                                              
                                              
                                              
                                              1,297,617
                                              
                                              
                                              
                                              175,894
                                              
                                              2002
                                              
                                              40
      YearsBig
      Rapids, MI
                                              
                                              
                                              1,457,422
                                              
                                              
                                              
                                              1,201,675
                                              
                                              
                                              
                                              2,014,107
                                              
                                              
                                              
                                              (2,000
                                              )
                                              
                                              
                                              1,201,675
                                              
                                              
                                              
                                              2,012,107
                                              
                                              
                                              
                                              3,213,782
                                              
                                              
                                              
                                              289,280
                                              
                                              2003
                                              
                                              40
      YearsFlint,
      MI
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              471,272
                                              
                                              
                                              
                                              (201,809
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              269,463
                                              
                                              
                                              
                                              269,463
                                              
                                              
                                              
                                              44,910
                                              
                                              2003
                                              
                                              20
      YearsAnn
      Arbor, MI
                                              
                                              
                                              6,367,177
                                              
                                              
                                              
                                              1,727,590
                                              
                                              
                                              
                                              6,009,488
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,727,590
                                              
                                              
                                              
                                              6,009,488
                                              
                                              
                                              
                                              7,737,078
                                              
                                              
                                              
                                              918,309
                                              
                                              2003
                                              
                                              40
      YearsTulsa,
      OK
                                              
                                              
                                              -
                                              
                                              
                                              
                                              2,000,000
                                              
                                              
                                              
                                              2,740,507
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              2,000,000
                                              
                                              
                                              
                                              2,740,507
                                              
                                              
                                              
                                              4,740,507
                                              
                                              
                                              
                                              371,862
                                              
                                              2003
                                              
                                              40
      YearsCanton
      Twp., MI
                                              
                                              
                                              1,680,237
                                              
                                              
                                              
                                              1,550,000
                                              
                                              
                                              
                                              2,132,096
                                              
                                              
                                              
                                              23,020
                                              
                                              
                                              
                                              1,550,000
                                              
                                              
                                              
                                              2,155,116
                                              
                                              
                                              
                                              3,705,116
                                              
                                              
                                              
                                              273,830
                                              
                                              2003
                                              
                                              40
      YearsFlint,
      MI
                                              
                                              
                                              1,586,799
                                              
                                              
                                              
                                              1,537,400
                                              
                                              
                                              
                                              1,961,674
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,537,400
                                              
                                              
                                              
                                              1,961,674
                                              
                                              
                                              
                                              3,499,074
                                              
                                              
                                              
                                              237,119
                                              
                                              2004
                                              
                                              40
      YearsWebster,
      NY
                                              
                                              
                                              1,831,551
                                              
                                              
                                              
                                              1,600,000
                                              
                                              
                                              
                                              2,438,781
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,600,000
                                              
                                              
                                              
                                              2,438,781
                                              
                                              
                                              
                                              4,038,781
                                              
                                              
                                              
                                              292,148
                                              
                                              2004
                                              
                                              40
      YearsAlbion,
      NY
                                              
                                              
                                              2,239,277
                                              
                                              
                                              
                                              1,900,000
                                              
                                              
                                              
                                              3,037,864
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,900,000
                                              
                                              
                                              
                                              3,037,864
                                              
                                              
                                              
                                              4,937,864
                                              
                                              
                                              
                                              313,281
                                              
                                              2004
                                              
                                              40
      YearsFlint,
      MI
                                              
                                              
                                              1,445,638
                                              
                                              
                                              
                                              1,029,000
                                              
                                              
                                              
                                              2,165,463
                                              
                                              
                                              
                                              (6,666
                                              )
                                              
                                              
                                              1,029,000
                                              
                                              
                                              
                                              2,158,797
                                              
                                              
                                              
                                              3,187,797
                                              
                                              
                                              
                                              222,585
                                              
                                              2004
                                              
                                              40
      YearsLansing,
      MI
                                              
                                              
                                              -
                                              
                                              
                                              
                                              785,000
                                              
                                              
                                              
                                              348,501
                                              
                                              
                                              
                                              3,045
                                              
                                              
                                              
                                              785,000
                                              
                                              
                                              
                                              351,546
                                              
                                              
                                              
                                              1,136,546
                                              
                                              
                                              
                                              39,512
                                              
                                              2004
                                              
                                              40
      YearsBoynton
      Beach, FL
                                              
                                              
                                              1,622,620
                                              
                                              
                                              
                                              1,569,000
                                              
                                              
                                              
                                              2,363,524
                                              
                                              
                                              
                                              108,651
                                              
                                              
                                              
                                              1,569,000
                                              
                                              
                                              
                                              2,472,175
                                              
                                              
                                              
                                              4,041,175
                                              
                                              
                                              
                                              270,222
                                              
                                              2004
                                              
                                              40
      YearsAnn
      Arbor, MI
                                              
                                              
                                              4,606,950
                                              
                                              
                                              
                                              1,700,000
                                              
                                              
                                              
                                              8,308,854
                                              
                                              
                                              
                                              150,000
                                              
                                              
                                              
                                              1,700,000
                                              
                                              
                                              
                                              8,458,854
                                              
                                              
                                              
                                              10,158,854
                                              
                                              
                                              
                                              1,084,904
                                              
                                              2004
                                              
                                              40
      YearsMidland,
      MI
                                              
                                              
                                              2,115,755
                                              
                                              
                                              
                                              2,350,000
                                              
                                              
                                              
                                              2,313,413
                                              
                                              
                                              
                                              2,070
                                              
                                              
                                              
                                              2,350,000
                                              
                                              
                                              
                                              2,315,483
                                              
                                              
                                              
                                              4,665,483
                                              
                                              
                                              
                                              200,117
                                              
                                              2005
                                              
                                              40
      YearsGrand
      Rapids, MI
                                              
                                              
                                              3,439,147
                                              
                                              
                                              
                                              1,450,000
                                              
                                              
                                              
                                              2,646,591
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,450,000
                                              
                                              
                                              
                                              2,646,591
                                              
                                              
                                              
                                              4,096,591
                                              
                                              
                                              
                                              220,550
                                              
                                              2005
                                              
                                              40
      YearsDelta
      Twp., MI
                                              
                                              
                                              3,876,865
                                              
                                              
                                              
                                              2,075,000
                                              
                                              
                                              
                                              2,535,971
                                              
                                              
                                              
                                              7,015
                                              
                                              
                                              
                                              2,075,000
                                              
                                              
                                              
                                              2,542,986
                                              
                                              
                                              
                                              4,617,986
                                              
                                              
                                              
                                              201,375
                                              
                                              2005
                                              
                                              40
      YearsRoseville.,
      MI
                                              
                                              
                                              3,440,373
                                              
                                              
                                              
                                              1,771,000
                                              
                                              
                                              
                                              2,327,052
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,771,000
                                              
                                              
                                              
                                              2,327,052
                                              
                                              
                                              
                                              4,098,052
                                              
                                              
                                              
                                              181,800
                                              
                                              2005
                                              
                                              40
      YearsMt
      Pleasant., MI
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,075,000
                                              
                                              
                                              
                                              1,432,390
                                              
                                              
                                              
                                              4,787
                                              
                                              
                                              
                                              1,075,000
                                              
                                              
                                              
                                              1,437,177
                                              
                                              
                                              
                                              2,512,177
                                              
                                              
                                              
                                              110,771
                                              
                                              2005
                                              
                                              40
      YearsN
      Cape May, NJ.,
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,075,000
                                              
                                              
                                              
                                              1,430,092
                                              
                                              
                                              
                                              495
                                              
                                              
                                              
                                              1,075,000
                                              
                                              
                                              
                                              1,430,587
                                              
                                              
                                              
                                              2,505,587
                                              
                                              
                                              
                                              110,270
                                              
                                              2005
                                              
                                              40
      YearsSummit
      Twp, MI
                                              
                                              
                                              1,960,112
                                              
                                              
                                              
                                              998,460
                                              
                                              
                                              
                                              1,336,357
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              998,460
                                              
                                              
                                              
                                              1,336,357
                                              
                                              
                                              
                                              2,334,817
                                              
                                              
                                              
                                              76,539
                                              
                                              2006
                                              
                                              40
      YearsLivonia,
      MI
                                              
                                              
                                              4,580,781
                                              
                                              
                                              
                                              1,200,000
                                              
                                              
                                              
                                              3,441,694
                                              
                                              
                                              
                                              814,772
                                              
                                              
                                              
                                              1,200,000
                                              
                                              
                                              
                                              4,256,466
                                              
                                              
                                              
                                              5,456,466
                                              
                                              
                                              
                                              144,310
                                              
                                              2007
                                              
                                              40
      YearsBarnesville,
      GA
                                              
                                              
                                              -
                                              
                                              
                                              
                                              932,500
                                              
                                              
                                              
                                              2,091,514
                                              
                                              
                                              
                                              5,490
                                              
                                              
                                              
                                              932,500
                                              
                                              
                                              
                                              2,097,004
                                              
                                              
                                              
                                              3,029,504
                                              
                                              
                                              
                                              63,318
                                              
                                              2007
                                              
                                              40
      YearsEast
      Lansing, MI
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,450,000
                                              
                                              
                                              
                                              1,002,192
                                              
                                              
                                              
                                              183,764
                                              
                                              
                                              
                                              1,450,000
                                              
                                              
                                              
                                              1,185,956
                                              
                                              
                                              
                                              2,635,956
                                              
                                              
                                              
                                              33,576
                                              
                                              2007
                                              
                                              40
      YearsPlainfield,
      IN
                                              
                                              
                                              -
                                              
                                              
                                              
                                              4,549,757
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              574
                                              
                                              
                                              
                                              4,550,331
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              4,550,331
                                              
                                              
                                              
                                              -
                                              
                                              2007
                                              
                                              40
      YearsMacomb
      Township, MI
                                              
                                              
                                              5,125,833
                                              
                                              
                                              
                                              2,621,500
                                              
                                              
                                              
                                              3,484,212
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              2,621,500
                                              
                                              
                                              
                                              3,484,212
                                              
                                              
                                              
                                              6,105,712
                                              
                                              
                                              
                                              72,588
                                              
                                              2007
                                              
                                              40
      YearsYpsilanti,
      MI
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,850,000
                                              
                                              
                                              
                                              3,034,335
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,850,000
                                              
                                              
                                              
                                              3,034,335
                                              
                                              
                                              
                                              4,884,335
                                              
                                              
                                              
                                              44,251
                                              
                                              2007
                                              
                                              40
      YearsMarion
      Oaks, FL
                                              
                                              
                                              -
                                              
                                              
                                              
                                              815,000
                                              
                                              
                                              
                                              2,329,487
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              815,000
                                              
                                              
                                              
                                              2,329,487
                                              
                                              
                                              
                                              3,144,487
                                              
                                              
                                              
                                              29,127
                                              
                                              2007
                                              
                                              40
      YearsShelby
      Township, MI
                                              
                                              
                                              2,190,187
                                              
                                              
                                              
                                              75,000
                                              
                                              
                                              
                                              2,533,876
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              75,000
                                              
                                              
                                              
                                              2,533,876
                                              
                                              
                                              
                                              2,608,876
                                              
                                              
                                              
                                              26,388
                                              
                                              2007
                                              
                                              40
      YearsSub
      Total
                                              
                                              
                                              100,568,697
                                              
                                              
                                              
                                              87,228,715
                                              
                                              
                                              
                                              198,211,446
                                              
                                              
                                              
                                              12,439,619
                                              
                                              
                                              
                                              87,229,289
                                              
                                              
                                              
                                              210,650,491
                                              
                                              
                                              
                                              297,879,780
                                              
                                              
                                              
                                              58,502,384
  F-27
 Agree
Realty Corporation
 Schedule
III – Real Estate and Accumulated Depreciation
 December
31, 2008
 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 ComputedRetail
      FacilitiesUnder
      DevelopmentSilver Springs
      Shores, FL
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            4,169,979
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            4,169,979
                            
                            
                            
                            4,169,979
                            
                            
                            
                            -
                            
                            
                            
                            N/A
                            
                            
                            
                            N/APort
      St. John, FL
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            3,725,468
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            3,725,468
                            
                            
                            
                            3,725,468
                            
                            
                            
                            -
                            
                            
                            
                            N/A
                            
                            
                            
                            N/ABrighton,
      MI
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            3,815,381
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            3,815,381
                            
                            
                            
                            3,815,381
                            
                            
                            
                            -
                            
                            
                            
                            N/A
                            
                            
                            
                            N/AOther
                            
                            
                            -
                            
                            
                            
                            80,000
                            
                            
                            
                            1,672,274
                            
                            
                            
                            -
                            
                            
                            
                            80,000
                            
                            
                            
                            1,672,274
                            
                            
                            
                            1,752,274
                            
                            
                            
                            -
                            
                            
                            
                            N/A
                            
                            
                            
                            N/A-
                            
                            
                            
                            80,000
                            
                            
                            
                            13,383,102
                            
                            
                            
                            -
                            
                            
                            
                            80,000
                            
                            
                            
                            13,383,102
                            
                            
                            
                            13,463,102
                            
                            
                            
                            -Total
                            
                            $
                            100,568,697
                            
                            
                            $
                            87,308,715
                            
                            
                            $
                            211,594,548
                            
                            
                            $
                            12,439,619
                            
                            
                            $
                            87,309,289
                            
                            
                            $
                            224,033,593
                            
                            
                            $
                            311,342,882
                            
                            
                            $
                            58,502,384
  F-28
 Agree
Realty Corporation
 Notes
to Schedule III
 December
31, 2008
 1)
              Reconciliation of Real Estate
      Properties
 
 The
following table reconciles the Real Estate Properties from January 1, 2006 to
December 31, 2008:
 
 2008
                          
                          
                          2007
                          
                          
                          2006Balance
      at January 1
                          
                          $
                          289,073,696
                          
                          
                          $
                          268,247,707
                          
                          
                          $
                          258,332,265Construction
      and acquisition costs
                          
                          
                          22,269,186
                          
                          
                          
                          20,825,989
                          
                          
                          
                          9,915,442Balance at December 31
                          
                          $
                          311,342,882
                          
                          
                          $
                          289,073,696
                          
                          
                          $
                          268,247,707
 
 2)
              Reconciliation of Accumulated
      Depreciation
 
 The
following table reconciles the accumulated depreciation from January 1, 2006 to
December 31, 2008:
 
 2008
                          
                          
                          2007
                          
                          
                          2006Balance
      at January 1
                          
                          $
                          53,250,564
                          
                          
                          $
                          43,352,753
                          
                          
                          $
                          43,771,581Current
      year depreciation expense
                          
                          
                          5,251,820
                          
                          
                          
                          4,897,811
                          
                          
                          
                          4,581,172Balance at December 31
                          
                          $
                          58,502,384
                          
                          
                          $
                          53,250,564
                          
                          
                          $
                          48,352,753
 
 3)
              Tax Basis of Buildings and
      Improvements
 
 The
aggregate cost of Building and Improvements for federal income tax purposes is
approximately $22,219,000 less than the cost basis used for financial statement
purpose.
  F-29