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UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





Form 10-K

|                                                   |  |                                                                                                 
|-------------------------------------------------- |  | ------------------------------------------------------------------------------------------------
|x                                                  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|                                                  
|For the fiscal year ended December 31, 2003
    OR
|                                                  
|o                                                  |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|                                                  
|For the transition period
    from              to
|                                                  
|Commission File Number: 1-12928                   




AGREE REALTY CORPORATION

(Exact name of Registrant as specified in its
charter)


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




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

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

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

None


(Title of Class)





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

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

Indicate by check mark whether the Registrant is
an accelerated filer (as defined in Exchange Act
Rule 12b-2).  Yes ü               No

The aggregate market value of the
Registrants shares of common stock held by non-affiliates
was approximately $108,892,877 as of June 30, 2003, based
on the closing price of $24.31 on the NYSE on that date.

As of March 8, 2004, the number of shares of
common stock of the Registrant outstanding was 6,466,971.

DOCUMENTS INCORPORATED BY REFERENCE

|                                                                                                                       |  |                            
|---------------------------------------------------------------------------------------------------------------------- |  | ---------------------------
|Document                                                                                                               |  | Incorporated into Form 10-K
|                                                                                                                       |  |                            
|Portions of the Registrants Proxy Statement
    for its
    Annual Meeting of Shareholders to be held on May 10, 2004 |  | Part III
    Items 10-13   



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TABLE OF CONTENTS



|                                                                          |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART 1                                                                   
|                                                                          | Item 1. BUSINESS                                                                             
|                                                                          | Item 2. PROPERTIES                                                                           
|                                                                          | Item 3. LEGAL PROCEEDINGS                                                                    
|                                                                          | Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|Part II                                                                  
|                                                                          | Item 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                
|                                                                          | Item 6. SELECTED FINANCIAL DATA                                                              
|                                                                          | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                                          | Item 7A QUANTITATIVE AND QUALATATIVE DISCLOSURES ABOUT MARKET RISK                           
|                                                                          | Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                           
|                                                                          | Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  
|                                                                          | Item 9A CONTROLS AND PROCEDURES                                                              
|PART III                                                                 
|                                                                          | Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                  
|                                                                          | Item 11. EXECUTIVE COMPENSATION                                                              
|                                                                          | Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|                                                                          | Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|                                                                          | Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                              
|PART IV                                                                  
|                                                                          | Item 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K                    
|SIGNATURES                                                               
|Report of Independent Certified Public Accountants                       
|                                                                          | Consolidated Balance Sheets                                                                  
|                                                                          | Consolidated Statements of Income                                                            
|                                                                          | Consolidated Statements of Stockholders Equity                                              
|                                                                          | Consolidated Statements of Cash Flows                                                        
|Notes to Consolidated Financial Statements                               
|Schedule III - Real Estate and Accumulated Depreciation December 31, 2003
|Indemnity Deed of Trust Agreement - Columbia                             
|Indemnity Deed of Trust Agreement - Milestone Ctr.                       
|Mortgage and Security Agreement dated 10/31/2003                         
|Deed of Trust and Security Agreement                                     
|CEO and CFO Code of Ethics                                               
|Subsidiaries                                                             
|Consent of BDO Siedman, LLP                                              
|Certification of Richard Agree, CEO                                      
|Certification of Kenneth Howe, CFO                                       
|Certification of Richard Agree, CEO                                      
|Certification of Kenneth Howe, CFO                                       



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TABLE OF CONTENTS

|           |  |                                                                                       |  |  |    |         |    | 
|---------- |  | ------------------------------------------------------------------------------------- |  |  | -- | ------- | -- | 
|           |  |                                                                                       |  |  |    | Page   
|           |  |                                                                                       |  |  |    | Numbers
|           |  |                                                                                       |  |  |    |        
|           |  | Part I                                                                                |  |  |    |        
|Item 1.    |  | Business                                                                              |  |  | 4  |        
|Item 2.    |  | Properties                                                                            |  |  | 14 |        
|Item 3.    |  | Legal Proceedings                                                                     |  |  | 24 |        
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  |  | 24 |        
|           |  | Part II                                                                               |  |  |    |        
|Item 5.    |  | Market for
Registrants Common Equity and Related Stockholder Matters                 |  |  | 24 |        
|Item 6.    |  | Selected Financial Data                                                               |  |  | 26 |        
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  |  | 27 |        
|Item 7A    |  | Quantitative and Qualitative Disclosures About Market Risk                            |  |  | 34 |        
|Item 8.    |  | Financial Statements and Supplementary Data                                           |  |  | 35 |        
|Item 9.    |  | Changes In and Disagreements With Accountants on Accounting and Financial Disclosure  |  |  | 35 |        
|Item 9A    |  | Controls and Procedures                                                               |  |  | 35 |        
|           |  | Part III                                                                              |  |  |    |        
|Item 10.   |  | Directors and Executive Officers of the Registrant                                    |  |  | 35 |        
|Item 11.   |  | Executive Compensation                                                                |  |  | 36 |        
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management                        |  |  | 36 |        
|Item 13.   |  | Certain Relationships and Related Transactions                                        |  |  | 36 |        
|Item 14.   |  | Principal Accountant Fees and Services                                                |  |  | 37 |        
|           |  | Part IV                                                                               |  |  |    |        
|Item 15.   |  | Exhibits, Financial Statements, Schedules  and Reports on Form 8-K                    |  |  | 37 |        
|Signatures |  |                                                                                       |  |  |    |         | 42 | 





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PART 1

FORWARD LOOKING STATEMENTS

We have made statements in this Form 10-K that are forward- Looking in
that they do not discuss historical facts but instead note future expectations,
projections, intentions or other items relating to the future.

Forward-looking statements, which are generally prefaced by the words
anticipate, estimate, should, expect, believe, intend, and similar
terms, are subject to known and unknown risks, uncertainties and other facts
that may cause our actual results or performance to differ materially from
those contemplated by the forward-looking statements. Many of those factors
are noted in conjunction with the forward-looking statements in the text.
Other important factors that could cause our actual results to differ include:



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

Other risk uncertainties and factors that could cause actual results to
differ materially from those projected are discussed in the Risk Factors
section of this Form 10-K.

We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise, except as required by law. In light of





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these risks, uncertainties and assumptions, the forward-looking events
discussed in or incorporated by reference into this Form 10-K might not occur.

References herein to the Company include Agree Realty Corporation,
together with its wholly-owned subsidiaries and its majority owned operating
partnership, Agree Limited Partnership (the Operating Partnership), unless
the context otherwise requires.




Item 1. BUSINESS

General

Agree Realty Corporation is a fully-integrated, self-administered and
self-managed real estate investment trust (a REIT) that focuses primarily on
the development, acquisition and ownership of retail properties net leased to
national tenants. We were formed in December 1993 to continue and expand the
retail business founded in 1971 by our current President and Chairman, Richard
Agree. We specialize in building properties for national retailers who have
signed long-term net leases prior to commencement of construction. All of our
freestanding property tenants and most of our community shopping center tenants
have triple-net leases which typically require the tenant to be responsible for
property operating expenses including property taxes, insurance and
maintenance. We believe this strategy provides us with a generally consistent
source of income and cash for distributions and also provides opportunities for
development of additional properties at attractive returns on investment,
without the risks associated with speculative development.

At December 31, 2003, our portfolio consisted of 50 properties, owned
either directly or through joint ventures, located in 13 states and contained
an aggregate of approximately 3.5 million square feet of gross leasable area.
Our portfolio includes 37 freestanding net leased properties and 13 community
shopping centers that as of December 31, 2003 were 97% leased with a weighted
average lease term of approximately 11.9 years. As of December 31, 2003,
approximately 67% of our annualized lease revenue is derived from our top three
tenants: Borders Group, Inc. (Borders)  33%, Walgreen Co. (Walgreen)  17%
and Kmart Corporation (Kmart)  17%. As of December 31, 2003 approximately 88%
of our annualized lease revenue is derived from national tenants.

We expect to continue to grow our asset base primarily through the
development of new retail properties that are pre-leased on a long-term basis
to national tenants. Since our initial public offering in 1994, we have
developed 27 properties, one of which we sold in 2003. We developed 31 of our
37 freestanding properties and all 13 of our community shopping centers. We
focus on development because we believe it generally provides us a higher
return on investment than the acquisition of similarly located properties. We
expect to continue to expand our tenant relationships and diversify our tenant
base to include other quality national tenants.

Growth Strategy

Our growth strategy is to continue to develop retail properties pre-leased
on a long-term basis to national tenants. We believe that a development
strategy combined with substantial pre-leasing will produce





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superior risk adjusted returns. To effect this strategy, we first identify a
land parcel that we believe is an attractive retail location for one of our
tenant relationships. The location must be in a concentrated retail corridor,
have high traffic counts, good visibility and demographics compatible with the
needs of the particular retail tenant. Then we propose to that tenant that we
execute a long-term net lease for the finished development on that site.

Once the lease is executed, we close on the land and pursue all the
necessary approvals to begin development. We direct all aspects of the
development, including construction, design, leasing and management. Property
management and the majority of the leasing activities are handled directly by
our personnel. We believe that this hands-on approach to development and
property management enhances our ability to maximize the long-term value of our
properties.

Financing Strategy

The majority of our indebtedness is fixed rate, non-recourse and long-term
in nature. Whenever possible, we use long-term financing for our properties to
match the underlying long-term leases. As of December 31, 2003, the average
weighted maturity of our long- term debt was 16.4 years. We intend to limit
our floating rate debt to borrowings under our credit facilities, which are
primarily used to finance new development and acquisitions. Once development
of a project is completed, we typically refinance this floating rate debt with
long-term, fixed rate, non-recourse debt. We intend to maintain a ratio of
total indebtedness (including construction and acquisition financing) to market
capitalization of 65% or less.

We may from time to time re-evaluate our borrowing policies in light of
the then current economic conditions, relative costs of debt and equity,
capital, market value of properties, growth and acquisition opportunities and
other factors. There is no contractual limit on our ratio of total
indebtedness to total market capitalization, and accordingly, we may modify our
borrowing policy and may increase or decrease our ratio of debt to market
capitalization without stockholder approval.

Property Management

We maintain an active leasing and capital improvement program that,
combined with the quality and locations of our properties, has made our
properties attractive to tenants. We intend to continue to hold our properties
for long-term investment and accordingly, place a strong emphasis on quality
construction and an on-going program of regular maintenance. Our properties
are designed to require minimal capital improvements other than renovations or
expansions paid for by tenants. At our 13 community shopping centers
properties, we sub-contract on-site functions such as maintenance, landscaping,
snow removal, sweeping, plumbing and electrical and, to the extent permitted by
the respective leases, our cost of these functions is reimbursed by our
tenants. Personnel from our corporate headquarters conduct regular inspections
of each property and maintain regular contact with major tenants.

We have a management information system designed to provide management
with the operating data necessary to make informed business decisions on a
timely basis. This computer system provides us immediate access to store
availability, lease data, tenants sales history, cash





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flow budgets and forecasts, and enables us to maximize cash flow from
operations and closely monitor corporate expenses.

Agree Limited Partnership

Our assets are held by, and all of our operations are conducted through,
Agree Limited Partnership (Operating Partnership), of which we are the sole
general partner and held a 90.52% interest as of December 31, 2003. Under the
partnership agreement of the Operating Partnership, we, as the sole general
partner, have exclusive responsibility and discretion in the management and
control of the Operating Partnership.

Recent Developments

During 2003 we completed the development of two (2) freestanding net
leased properties that added 17,986 square feet of gross leasable area to our
operating portfolio and cost approximately $4.5 million. The properties are
leased to Walgreen Co. and Citizens Bank.

During 2003 we acquired a freestanding net leased property that added
11,180 square feet of gross leasable area to our operating portfolio and cost
approximately $3.7 million. The property is located in Canton Township,
Michigan and is leased to Rite Aid of Michigan, Inc.

During 2003, we also acquired the interest of our joint venture partner in
two (2) Joint Venture Properties and now own 100% of the properties. The
properties are located in Ann Arbor, Michigan and Tulsa, Oklahoma. The cost to
acquire the Ann Arbor interest was approximately $7.7 million and was financed
with a fixed rate self- amortizing mortgage at a rate of 6.50%. The cost to
acquire the Tulsa interest was approximately $4.8 million and was funded using
our credit facility.

During 2003 we sold a community shopping center located in Winter Garden,
Florida. We developed the 233,512 square foot Kmart anchored shopping center
in 1988. The property was sold to a private investor for approximately $8.5
million.

Our headquarters are located at 31850 Northwestern Highway, Farmington
Hills, MI 48334 and our telephone number is (248) 737-4190. Our web site
address is www.agreerealty.com. Agree Realty Corporations SEC filings can be
accessed through this site.

Risk Factors

General

We rely on a few major tenants. As of December 31, 2004, we derived
approximately 67% of our annualized base rent from three major tenants,
Borders, Kmart and Walgreen. In the event of a default by any of these tenants
under their leases, we may experience delays in enforcing our rights as lessor
and may incur substantial costs in protecting our investment. The bankruptcy
or insolvency of any of the major tenants would be likely to have a material
adverse effect on the properties affected and the income produced by those
properties and correspondingly our ability to make distributions.

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





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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, 2003, 13 of our properties had tenants with those provisions in their
leases.

We could be adversely affected by a tenants bankruptcy.If a tenant
becomes bankrupt or insolvent, that could diminish the income we expect from
that tenants leases. We may not be able to evict a tenant solely because of
its bankruptcy. On the other hand, a bankruptcy court might authorize the
tenant to terminate its leases with us. If that happens, our claim against the
bankruptcy tenant for unpaid future rent would be subject to statutory
limitations that might be substantially less than the remaining rent owed under
the leases. In addition, any claim we have for unpaid past rent would likely
not be paid in full. One of our major tenants, Kmart, recently emerged from
bankruptcy. As part of their plan of reorganization, Kmart terminated one of
our leases and modified one other lease. We cannot predict what effect a
future Kmart bankruptcy or the bankruptcy of any other major tenant will have
on us. A failure by Kmart to successfully implement its reorganization plan or
to continue as a going concern could result in Kmarts inability to maintain
its lease payments to us or to attempt to renegotiate or terminate leases.

Risks involved in single tenant leases.We focus our development
activities on net leased real estate or interests therein. Because our
properties are generally leased to single tenants, the financial failure of or
other default by a tenant resulting in the termination of a lease is likely to
cause a significant reduction in our operating cash flow and might decrease the
value of the property leased to such tenant.

Risks associated with borrowing, including loss of properties in the event
of a foreclosure. At December 31, 2003, our ratio of indebtedness to market
capitalization was approximately 30%. Certain of our properties may have a
ratio of long-term debt to tangible asset value exceeding 50%. 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 Agree. Under the cross-default provisions
contained in mortgages encumbering some of our properties, a default by Agree
under its mortgage with a lender would result in a default by Agree under
mortgages held by the same lender on other properties.

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





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available or would be available only on disadvantageous terms. In
addition, the fact that we must distribute 90% of our taxable income in order
to maintain our qualification as a REIT will limit our ability to rely upon
income from operations or cash flow from operations to finance new development
or acquisitions. As a result, if permanent debt or equity financing was not
available on acceptable terms to refinance new development or acquisitions
undertaken without permanent financing, further development activities or
acquisitions might be curtailed or cash available for distribution might be
adversely affected. Acquisitions entail risks that investments will fail to
perform in accordance with expectations and that judgments with respect to the
costs of improvements to bring an acquired property up to standards established
for the market position intended for that property will prove inaccurate, as
well as general investment risks associated with any new real estate
investment.

Our portfolio has limited geographic diversification. Our properties are
located primarily in the Midwestern United States and Florida. The
concentration of our properties in a limited number of geographic regions
creates the risk that, should these regions experience an economic downturn,
our operations may be adversely affected. For example, 26 of our properties
are located in Michigan. Should Michigan experience an economic downturn, our
operations and our rentals from our Michigan properties could be adversely
affected.

Dependence on key personnel.We are dependent on the efforts of our
executive officers and directors. The loss of one or more of our executive
officers or directors would likely have a material adverse effect on our future
development or acquisition operations, which could adversely affect the market
price of our common stock. We do not presently have key-man life insurance for
any of our employees.

We are not limited by our organization documents as to the amount of debt
we may incur.We intend to maintain a ratio of total indebtedness (including
construction or acquisition financing) to market capitalization of 65% or less.
Nevertheless, we may operate with debt levels which are in excess of 65% of
market capitalization for extended periods of time. Our organization documents
contain no limitation on the amount or percentage of indebtedness which we may
incur. Therefore, our board of directors, without a vote of the stockholders,
could alter the general policy on borrowings at any time. If our debt
capitalization policy were changed, we could become more highly leveraged,
resulting in an increase in debt service that could adversely affect our
operating cash flow and our ability to make expected distributions to
stockholders, and could result in an increased risk of default on our
obligations.

We can change our investment and financing policies without stockholder
approval.Our investment and financing policies, and our policies with respect
to certain other activities, including our growth, debt capitalization,
distributions, REIT status and investment and operating policies, are
determined by our Board of Directors. Although we have no present intention to
do so, these policies may be amended or revised from time to time at the
discretion of our Board of Directors without a vote of our stockholders.

Competition.We face competition in seeking properties for acquisition
and tenants who will lease space in these properties from insurance companies,
credit companies, pension funds, private individuals, investment companies and
other REITs, many of which have





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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.

Uncertainties relating to lease renewals and re-letting of space.We are
subject to the risks that, upon expiration of leases for space located in our
properties, the premises may not be re-let or the terms of re-letting
(including the cost of concessions to tenants) may be less favorable than
current lease terms. If we are unable to re-let promptly all or a substantial
portion of our retailers or if the rental rates upon such re-letting were
significantly lower than expected rates, our net income and ability to make
expected distributions to shareholders 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.

We must obtain new financing in order to grow.As a REIT, we are required
to distribute at least 90% of our net income to stockholders in the form of
dividends. This means we are limited in our ability to use internal capital to
acquire properties and must continually raise new capital in order to continue
to grow and diversify our real estate portfolio. Our ability to raise new
capital depends in part on factors beyond our control, including conditions in
equity and credit markets, conditions in the retail industry and the
performance of REITs generally. We continually consider and evaluate a variety
of potential transactions to raise additional capital, but we cannot assure
that attractive alternatives will always be available to us, nor that our
common share price will increase or remain at a level that will permit us to
continue to raise equity capital privately or publicly.

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 rates.                                                                                                                                                                             
|
| |  |  | The risk that we may not always be able to sell a property
when we desire to do so at a favorable price.                                                                                                                                                    





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| |  |  | The risk of changes in tax, zoning or other laws could make
properties less attractive or less profitable.
| | - |  | ----------------------------------------------------------------------------------------------------------

If a tenant fails to perform on its lease covenants, that would not excuse us
from meeting any mortgage debt obligation secured by the property and could
require us to fund reserves in favor of our mortgage lenders, thereby reducing
funds available for payment of dividends on our shares of common stock. We
cannot be assured that tenants will elect to renew their leases when the terms
expire. If a tenant does not renew its lease or if a tenant defaults on its
lease obligations, there is no assurance we could obtain a substitute tenant on
acceptable terms. If we cannot obtain another tenant with comparable
structural needs, we may be required to modify the property for a different
use, which may involve a significant capital expenditure and a delay in
re-leasing the property.

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. We believe the
required coverage is of the type, and amount, customarily obtained by an owner
of similar properties. We believe all of our properties are adequately
insured. However, there are some types of losses, such as terrorist acts or
catastrophic acts of nature, for which we or our tenants cannot obtain
insurance at an acceptable cost. If there is an uninsured loss or a loss in
excess of insurance limits, we could lose both the revenues generated by the
affected property and the capital we have invested in the property. We would,
however, remain obligated to repay any mortgage indebtedness or other
obligations related to the property.

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



| |  |  | As owner we may have to pay for property damage and for
investigation and clean-up costs incurred in connection with the
contamination.                                                  
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The law may impose clean-up responsibility and liability
regardless of whether the owner or operator knew of or caused the
contamination.                                                
|
| |  |  | 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





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##### Table of Contents



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.We believe all of our properties
are in material compliance with environmental laws. 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.

Tax Risks

We will be subject to increased taxation if we fail to qualify as a REIT
for federal income tax purposes.A REIT generally is not taxed at the
corporate level on income it distributes to its stockholders, as long as it
distributes annually at lease 90% of its taxable income to its stockholders.
We have not requested and do not plan to request, a ruling from the Internal
Revenue Service that we qualify as a REIT.

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



| |  |  | We would not be allowed a deduction for dividends paid to
shareholders in computing our taxable income and would be subject to
federal income tax at regular corporate rates.   
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We could be subject to the federal alternative minimum tax
and possibly increased state and local taxes.                                                                        
|
| |  |  | Unless we are entitled to relief under statutory provisions,
we could not elect to be treated as a REIT for four taxable years
following the year in which we were disqualified.

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

Excessive non-real estate asset values may jeopardize our REIT status.In
order to qualify as a REIT, at least 75% of the value of our assets must
consist of investments in real estate, investments in other REITs, cash and
cash equivalents, and government securities. Therefore, the value of any
property that is not considered a real estate asset for federal income tax
purposes must represent in the aggregate less than 25% of our total assets. In
addition, under federal income tax law, we may not own securities in any one
company (other than a REIT, a qualified REIT subsidiary or a taxable REIT
subsidiary) which represent





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##### Table of Contents



in excess of 10% of the voting securities or 10% of the value of all
securities of any one company, or which have, in the aggregate, a value in
excess of 5% of our total assets, and we may not own securities of one or more
taxable REIT subsidiaries which have, in the aggregate, a value in excess of
20% of our total assets. We may invest in securities of another REIT, and our
investment may represent in excess of 10% of the voting securities or 10% of
the value of the securities of the other REIT. If the other REIT were to lose
its REIT status during a taxable year in which our investment represented in
excess of 10% of the voting securities or 10% of the value of the securities of
the other REIT as of the close of a calendar quarter, we will lose our REIT
status.

The 25%, 20%, 10% and 5% tests are determined at the end of each calendar
quarter. If we fail to meet any such test at the end of any calendar quarter,
we will cease to qualify as a REIT.

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

We may be subject to other tax liabilities.Even if we qualify as a REIT,
we may be subject to some federal, state and local taxes on our income and
property that could reduce operating cash flow.

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

Major Tenants

As of December 31, 2003, approximately 67% of our gross leasable area,
including the Joint Venture Properties, was leased to Borders, Kmart and
Walgreen and approximately 67% of total annualized base rents was attributable
to these tenants. At December 31, 2003, Borders occupied approximately 28% of
our gross leasable area, including the joint venture properties, and accounted
for approximately 33% of the annualized base rent. At December 31, 2003,
Walgreen Co. occupied approximately 5% of our gross leasable area, including
the joint venture properties, and accounted for approximately 17% of the
annualized base rent. At December 31, 2003, Kmart Corporation occupied
approximately 33% of our gross leasable area, including the joint venture
properties, and accounted for approximately 17% of the annualized base rent.
No other tenant accounted for more than 10% of gross leasable area or
annualized base rent in 2003. The loss of any of these anchor tenants





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##### Table of Contents



or the inability of any of them to pay rent would have an adverse effect
on our business.

Tax Status

We have operated and intend to operate in a manner to qualify as a REIT
under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended
(the Code). In order to maintain qualification as a REIT, we must, among
other things, distribute at least 90% of our real estate investment trust
income and meet certain other asset and income tests. Additionally, our
charter limits ownership of the Company, directly or constructively, by any
single person to 9.8% of the total number of outstanding shares, subject to
certain exceptions. As a REIT, we are not subject to federal income tax with
respect to that portion of its income that meets certain criteria and is
distributed annually to the stockholders.

Competition

We face competition in seeking properties for acquisition and tenants who
will lease space in these properties from insurance companies, credit
companies, pension funds, private individuals, investment companies and other
REITs, many of which have greater financial and other resources than us. There
can be no assurance that we will be able to successfully compete with such
entities in our development, acquisition and leasing activities in the future.

Potential Environmental Risks

Investments in real property create a potential for environmental
liability on the part of the owner or operator of such real property. If
hazardous substances are discovered on or emanating from a property, the owner
or operator of the property may be held strictly liable for all costs and
liabilities relating to such hazardous substances. We have obtained a Phase I
environmental study (which involves inspection without soil sampling or ground
water analysis) conducted on each Property by independent environmental
consultants. Furthermore, we have adopted a policy of conducting a Phase I
environmental study on each property we acquire and if necessary conducting
additional investigation as warranted.

We conducted Phase I environmental studies on the two properties we
developed and the one property we acquired in 2003. The results of these Phase
I studies required the Company to perform a Limited Phase II environmental site
assessment on 2 of the properties (which involves soil sampling or ground water
analysis). The results of the Phase II environmental study conducted on the
properties indicated that no further action was required. In addition, we have
no knowledge of any hazardous substances existing on any of its 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





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##### Table of Contents



As of February 29, 2004, we employed eight persons. Employee
responsibilities include accounting, construction, leasing, property
coordination and administrative functions for the properties. Our employees
are not covered by a collective bargaining agreement, and we consider our
employee relations to be satisfactory.

Financial Information About Industry Segments

We are in the business of development, acquisition and management of
freestanding net leased properties and community shopping centers. We consider
our activities to consist of a single industry segment. See the Consolidated
Financial Statements and Notes thereto included in Item 8 of this Annual Report
on Form 10-K for certain information required in Item 1.




Item 2. PROPERTIES

Our properties consist of 37 freestanding net leased properties and 13
community shopping centers, that as of December 31, 2003 were 97% leased, with
a weighted average lease term of 11.9 years. Approximately 88% of our base
rental income was attributable to national retailers. Among these retailers
are Borders, Walgreen and Kmart which, at December 31, 2003, collectively
represented approximately 67% of our current base rental income. 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 31 of
our 37 freestanding properties and all 13 of our community shopping center
properties. Five of our freestanding properties, although not built by us,
were acquired as part of our relationship with Borders. Properties we have
developed (including our community shopping centers) account for 89.3% of our
contractual rent for 2004. Our 37 freestanding properties are comprised of 36
retail locations and Borders corporate headquarters.

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 $185,620, $247,994 and $413,058 for the fiscal
years 2003, 2002 and 2001, respectively, and these amounts represented 0.7%,
1.0% and 1.8%, respectively, of our total revenue for these periods. Included
in those amounts were percentage rents from Kmart of $106,282, $162,419 and
$235,894 for fiscal years 2003, 2002 and 2001, 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.

Major Tenants

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

|         |  |           |    |                   |  |                         |            |                  |  |  |    |  
|-------- |  | --------- | -- | ----------------- |  | ----------------------- | ---------- | ---------------- |  |  | -- | -
|         |  |           |    |                   |  | Annualized Base         |            | Percent of Total
|         |  | Number    |    | Rent as of        |  | Annualized Base Rent as
|         |  | of Leases |    | December 31, 2003 |  | of December 31, 2003   
|         |  |           |    |                   |  |                        
|Borders  |  |           | 18 |                   |  | $                       | 8,407,559  | (1)              |  |  | 33 | %
|Walgreen |  |           | 12 |                   |  |                         | 4,455,806  |                  |  |  | 17 |  
|Kmart    |  |           | 14 |                   |  |                         | 4,428,587  |                  |  |  | 17 |  
|         |  |           |    |                   |  |                         |            |                  |  |  |    |  
|Total    |  |           | 44 |                   |  | $                       | 17,291,952 |                  |  |  | 67 | %
|         |  |           |    |                   |  |                         |            |                  |  |  |    |  



|(1) |  | Includes our percentage of base rent for each of the Joint
Venture Properties
|--- |  | -----------------------------------------------------------------------------





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##### Table of Contents



Borders Group, Inc., (Borders), is a FORTUNE 500 company that trades on
the New York Stock Exchange under the symbol BGP. Borders, is a leading
global retailer of books, music, movies and other information and entertainment
items. Headquartered in Ann Arbor, Michigan, Borders operates over 445 Borders
Books and Music stores in the United States, as well as 37 international
Borders stores, approximately 750 Waldenbooks locations and 36 Great Britain
based Books etc. stores. BGI employs more than 32,000 people worldwide. We
derived approximately 33% of our base rental income for the year ended December
31, 2003 from, and approximately 39% of our future minimum rentals are
attributable to Borders. Borders has reported that its annual revenues for its
2002 fiscal year ended January 26, 2003 were $3,513,000,000 and its annual net
income for 2002 was $111,700,000 and that it had total stockholders equity of
$1,030,600,000. Borders posted revenues of approximately $3.4 billion in
fiscal 2002.

Walgreen is a leader of the U.S. chain drugstore industry and trades on
the New York Stock Exchange under the symbol WAG. It operates over 4,290
stores in 44 states and Puerto Rico and has total assets of approximately $11.4
billion as of August 31, 2003. As of January 22, 2004, Walgreen had a Standard
and Poors rating of A+ and a Moodys rating of Aa3. We derived approximately
17% of our base rental income for the year ended December 31, 2003 from, and
approximately 26% of our future minimum rentals are attributable to Walgreen.
For the fiscal year ended August 31, 2003, Walgreen reported that its annual
net sales were $32,505,000,000 and its annual net income was $1,175,700,000 and
that it had shareholders equity of $7,195,700,000.

We have fourteen leases with Kmart, a retailer that operates over 1,500
stores following its emergence from bankruptcy proceedings in May 2003 and
trades on the NASDAQ under the symbol KMRT. Kmarts principal business is
general merchandise retailing through a chain of department stores. We derived
approximately 17% of our base rental income for the year ended December 31,
2003 from, and approximately 15% of our future minimum rentals are attributable
to, Kmart. In connection with its emergence from bankruptcy proceedings, Kmart
was relieved of $7,969,000,000 of liabilities. As of October 29, 2003 Kmart
had total liabilities of $4,410,000,000 and shareholders equity of
$1,707,000,000. All of our Kmart properties are in the Big K format and
these Kmart properties average 85,000 square feet per property.

In May 2003 Kmart emerged from the bankruptcy proceeding which it had
initiated in January 2002. Pursuant to the confirmed plan of reorganization,
Kmart closed approximately 600 of its stores, including one of which was
located on our property in Lakeland, Florida. Kmart vacated the premises in
Lakeland, Florida in April 2003 and we are actively marketing the space
formerly occupied by Kmart. Our annual rent from this property was
approximately $480,000 and Kmarts annual contribution under the lease for real
estate taxes, insurance and common area maintenance was approximately $110,000.
Certain tenants in the Lakeland, Florida community shopping center have
co-tenancy clauses in their leases which provide either for modification of
their rent to be based on gross sales or an option to terminate their lease
when the Kmart store closed, if we are unable to obtain a replacement anchor
tenant. As of February 29, 2004, none of these tenants have indicated that
they will exercise their option to terminate their leases with us. We believe
it will take between 9 and 15 months to re-let the Kmart location. In
connection with the re-letting the Kmart location, we may have to agree to make
capital expenditures with respect to the property. In addition, we have agreed
to a rent reduction of $150,000 per year under a Kmart lease for a store in
Perrysburg, Ohio. The rent reduction is for a 5-year period.

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 2002 and 2003 fiscal
years and the quarterly report on form 10-Q filed by Kmart with the SEC with
respect to the third quarter of 2003. Additional information regarding
Borders, Kmart or Walgreen may be found in their respective public filings.
These filings can be accessed at www.sec.gov.





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##### Table of Contents



Location of Properties in the Portfolio

|              |  |            |    |               |  |                   |           |            |  |  |     |  
|------------- |  | ---------- | -- | ------------- |  | ----------------- | --------- | ---------- |  |  | --- | -
|              |  |            |    |               |  | Total Gross       |           | Percent of
|              |  | Number of  |    | Leasable Area |  | GLA Leased on    
|State         |  | Properties |    | (Sq. feet)    |  | December 31, 2003
|              |  |            |    |               |  |                  
|California    |  |            | 1  |               |  |                   | 38,015    |            |  |  | 100 | %
|Florida       |  |            | 4  | (1)           |  |                   | 258,793   |            |  |  | 68  |  
|Indiana       |  |            | 1  |               |  |                   | 15,844    |            |  |  | 100 |  
|Illinois      |  |            | 1  |               |  |                   | 20,000    |            |  |  | 100 |  
|Kansas        |  |            | 2  |               |  |                   | 45,000    |            |  |  | 100 |  
|Kentucky      |  |            | 1  |               |  |                   | 135,009   |            |  |  | 100 |  
|Maryland      |  |            | 2  |               |  |                   | 53,000    |            |  |  | 100 |  
|Michigan      |  |            | 26 | (1)           |  |                   | 2,106,032 |            |  |  | 99  |  
|Nebraska      |  |            | 2  |               |  |                   | 55,000    |            |  |  | 100 |  
|Ohio          |  |            | 2  |               |  |                   | 108,543   |            |  |  | 100 |  
|Oklahoma      |  |            | 4  |               |  |                   | 99,282    |            |  |  | 100 |  
|Pennsylvania  |  |            | 1  |               |  |                   | 37,004    |            |  |  | 100 |  
|Wisconsin     |  |            | 3  |               |  |                   | 523,036   |            |  |  | 99  |  
|              |  |            |    |               |  |                   |           |            |  |  |     |  
|Total/Average |  |            | 50 |               |  |                   | 3,494,558 |            |  |  | 97  | %
|              |  |            |    |               |  |                   |           |            |  |  |     |  



---

|(1) |  | Includes two (2) joint venture properties in which we own
interests of 11% and 12% respectively.
|--- |  | ------------------------------------------------------------------------------------------------

Lease Expirations

The following table shows lease expirations for the next 10 years for our
freestanding properties and community shopping centers, assuming that none of
the tenants exercise renewal options.

|           |  |           |     |         |  |                     |           |                      |  |          |       |         |  |   |           |  |  |  |       |  
|---------- |  | --------- | --- | ------- |  | ------------------- | --------- | -------------------- |  | -------- | ----- | ------- |  | - | --------- |  |  |  | ----- | -
|           |  |           |     |         |  | December 31, 2003  
|           |  |           |     |         |  |                    
|           |  |           |     |         |  | Gross Leasable Area |           | Annualized Base Rent
|           |  | Number    |     |         |  |                    
|Expiration |  | of Leases |     | Square  |  | Percent             |           |                      |  |          |       | Percent
|Year       |  | Expiring  |     | Footage |  | of Total            |           | Amount               |  | of Total
|           |  |           |     |         |  |                     |           |                      |  |         
|2004       |  |           | 12  |         |  |                     | 40,259    |                      |  |          | 1.15  | %       |  | $ | 194,904   |  |  |  | .76   | %
|2005       |  |           | 21  |         |  |                     | 155,367   |                      |  |          | 4.45  |         |  |   | 888,599   |  |  |  | 3.47  |  
|2006       |  |           | 35  |         |  |                     | 167,724   |                      |  |          | 4.80  |         |  |   | 1,386,099 |  |  |  | 5.41  |  
|2007       |  |           | 12  |         |  |                     | 63,330    |                      |  |          | 1.81  |         |  |   | 431,097   |  |  |  | 1.68  |  
|2008       |  |           | 23  |         |  |                     | 383,138   |                      |  |          | 10.96 |         |  |   | 1,441,445 |  |  |  | 5.62  |  
|2009       |  |           | 6   |         |  |                     | 152,390   |                      |  |          | 4.36  |         |  |   | 621,281   |  |  |  | 2.42  |  
|2010       |  |           | 7   |         |  |                     | 213,135   |                      |  |          | 6.10  |         |  |   | 1,243,929 |  |  |  | 4.85  |  
|2011       |  |           | 6   |         |  |                     | 178,903   |                      |  |          | 5.12  |         |  |   | 1,116,688 |  |  |  | 4.36  |  
|2012       |  |           |    |         |  |                     |          |                      |  |          |      |         |  |   |          |  |  |  |      |  
|2013       |  |           | 1   |         |  |                     | 51,868    |                      |  |          | 1.49  |         |  |   | 492,746   |  |  |  | 1.92  |  
|           |  |           |     |         |  |                     |           |                      |  |          |       |         |  |   |           |  |  |  |       |  
|Total      |  |           | 123 |         |  |                     | 1,406,114 |                      |  |          | 40.24 | %       |  | $ | 7,816,788 |  |  |  | 30.49 | %
|           |  |           |     |         |  |                     |           |                      |  |          |       |         |  |   |           |  |  |  |       |  



|(1) |  | For purposes of this table we have assumed that Borders will enter
into a 15 to 20 year lease upon the expiration of each of its leases on
our two joint venture properties
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We have made preliminary contact with the tenants whose leases expire in
2004. Six (6) tenants, at their option have the right to extend their lease
term; four (4) tenants leases expire in 2004 and we expect to negotiate lease
extensions; one (1) tenant has a month to month lease arrangement; and one (1)
tenant has elected to terminate its lease. Of the 19 leases that expired in
2003, sixteen (16) tenants extended their lease term; one (1) tenant elected
not to extend their lease; and two tenants elected a month to month option.

Leases on the two Joint Venture Properties are for an initial term through
June 20, 2004. At the time that a refinancing of these properties is
consummated, Borders is required to enter into a net lease at a fixed lease
rate for a term of 15 to 20 years.

Annualized Base Rent of our Properties

The following is a breakdown of base rents in place at December 31, 2003
for each type of retail tenant:





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##### Table of Contents



|               |       |               |            |            |            |  |            |     |  
|-------------- | ----- | ------------- | ---------- | ---------- | ---------- |  | ---------- | --- | -
|               |       |               |            |            |            |  | Percent of |    
|               |       |               | Annualized |            | Annualized
|Type of Tenant |       | Base Rent (1) |            | Base Rent 
|               |       |               |            |           
|National (2)   |       | $             | 22,605,413 |            |            |  | 88         | %  
|Regional (3)   |       |               | 1,985,713  |            |            |  | 8          |    
|Local          |       |               | 1,043,309  |            |            |  | 4          |    
|               |       |               |            |            |            |  |            |    
|               | Total |               | $          | 25,634,435 |            |  |            | 100 | %
|               |       |               |            |            |            |  |            |    

(1)  Includes our share of annualized base rent for each of the joint venture
properties.

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

(3)  Includes the following regional tenants: Roundys Foods, Dunhams Sports,
Christopher Banks and Hollywood Video.

Freestanding Properties

Thirty-seven (37) of our Properties are freestanding properties which at
December 31, 2003 were leased to Borders (18), Circuit City Stores (1),
Citizens Bank (1), Kmart (3), Rite Aid (1), Walgreen (12) and Wal-Mart (1). Our
freestanding properties provided $15,423,693, or approximately 60% of our total
annualized base rent as of December 31, 2003, at an average base rent per
square foot of $11.85. These properties contain, in the aggregate, 1,301,753
square feet of gross leasable area or approximately 37% of our total gross
leasable area. Our freestanding properties tend to have high traffic counts,
are generally located in densely populated areas and are leased to a single
tenant on a long term basis. Thirty-one (31) of our 37 freestanding properties
were developed by us. Five (5) of our 37 freestanding properties, although not
developed by us, were acquired as part of our relationship with Borders. Our
freestanding properties have a weighted average lease term of 14.9 years.

Our freestanding properties range in size from 4,426 to 458,729 square
feet of gross leasable area and are located in the following states: California
(1), Florida (3), Indiana (1), Kansas (2), Maryland (2), Michigan (19),
Nebraska (2), Ohio (2), Oklahoma (4) and Pennsylvania (1). Included in our
freestanding properties are two joint venture properties in which the Company
owns interests of 11% and 12% respectively. The location and general occupancy
information with respect to our freestanding properties are set forth in the
following table:

Freestanding Properties (1)

|                          |  |            |      |           |  |                     |        |                      |  |                     |  | 
|------------------------- |  | ---------- | ---- | --------- |  | ------------------- | ------ | -------------------- |  | ------------------- |  | 
|                          |  | Year       |      |           |  |                     |        |                      |  |                    
|                          |  | Completed/ |      |           |  |                     |        | Lease expiration (3)
|Tenant/Location           |  | Expanded   |      | Total GLA |  | (Option expiration)
|                          |  |            |      |           |  |                    
|Borders, (2)
Aventura, FL |  |            | 1996 |           |  |                     | 30,000 |                      |  | Jan 31, 2016 (2036)
|Borders, Columbus, OH     |  |            | 1996 |           |  |                     | 21,000 |                      |  | Jan 23, 2016 (2036)
|Borders,
Monroeville, PA  |  |            | 1996 |           |  |                     | 37,004 |                      |  | Nov 8, 2016 (2036) 
|Borders, Norman, OK       |  |            | 1996 |           |  |                     | 24,641 |                      |  | Sep 20, 2016 (2036)
|Borders, Omaha, NE        |  |            | 1995 |           |  |                     | 30,000 |                      |  | Nov 3, 2015 (2035) 





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|                                      |  |            |           |           |  |                     |         |                      |  |                      |  | 
|------------------------------------- |  | ---------- | --------- | --------- |  | ------------------- | ------- | -------------------- |  | -------------------- |  | 
|                                      |  | Year       |           |           |  |                     |         |                      |  |                     
|                                      |  | Completed/ |           |           |  |                     |         | Lease expiration (3)
|Tenant/Location                       |  | Expanded   |           | Total GLA |  | (Option expiration)
|                                      |  |            |           |           |  |                    
|Borders,
Santa Barbara, CA            |  |            | 1995      |           |  |                     | 38,015  |                      |  | Nov 17, 2015 (2035) 
|Borders, Wichita, KS                  |  |            | 1995      |           |  |                     | 25,000  |                      |  | Nov 10, 2015 (2035) 
|Borders, (2)
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  |                      |  | Jan 31, 2018 (2038) 
|Borders, Omaha, NE                    |  |            | 2002      |           |  |                     | 25,000  |                      |  | Jan 31, 2018 (2038) 
|Borders,
Indianapolis, IN             |  |            | 2002      |           |  |                     | 15,844  |                      |  | Nov 17, 2017 (2037) 
|Borders, Columbia, MD                 |  |            | 1999      |           |  |                     | 28,000  |                      |  | Jan 31, 2018 (2038) 
|Borders, Germantown, MD               |  |            | 2000      |           |  |                     | 25,000  |                      |  | Jan 31, 2018 (2038) 
|Borders, Ann Arbor, MI                |  |            | 1996/1998 |           |  |                     | 458,729 |                      |  | Jan 29, 2023 (2043) 
|Borders, Tulsa, OK                    |  |            | 1996      |           |  |                     | 25,000  |                      |  | Sep 30, 2018 (2038) 
|Citizens Bank, Flint, MI              |  |            | 2003      |           |  |                     | 4,426   |                      |  | July 14, 2023       
|Circuit City Stores
Boynton Beach, FL |  |            | 1996      |           |  |                     | 32,459  |                      |  | Dec 15, 2016 (2036) 
|Kmart, Grayling, MI                   |  |            | 1984      |           |  |                     | 52,320  |                      |  | Sep 30, 2009 (2059) 
|Kmart, Oscoda, MI                     |  |            | 1984/1990 |           |  |                     | 90,470  |                      |  | Sep 30, 2009 (2059) 
|Kmart, Perrysburg, OH                 |  |            | 1983/1997 |           |  |                     | 87,543  |                      |  | Oct 31, 2008 (2058) 
|Rite Aid, Canton Twp, MI              |  |            | 2003      |           |  |                     | 11,180  |                      |  | Oct 31, 2019 (2049) 
|Sams Club, Roseville, MI             |  |            | 2002      |           |  |                     | (4      | )                    |  | Aug 4, 2022 (2082)  
|Walgreen, Waterford, MI               |  |            | 1997      |           |  |                     | 13,905  |                      |  | Feb 28, 2018 (2058) 
|Walgreen, Chesterfield, MI            |  |            | 1998      |           |  |                     | 13,686  |                      |  | July 31, 2018 (2058)
|Walgreen, Pontiac, MI                 |  |            | 1998      |           |  |                     | 13,905  |                      |  | Oct 31, 2018 (2058) 
|Walgreen, Grand Blanc, MI             |  |            | 1998      |           |  |                     | 13,905  |                      |  | Feb 28, 2019 (2059  

Freestanding Properties
(continued)

|                           |       |           |      |           |  |                     |        |         |                      |                      |  |  | 
|-------------------------- | ----- | --------- | ---- | --------- |  | ------------------- | ------ | ------- | -------------------- | -------------------- |  |  | 
|                           |       |           | Year |           |  |                     |        |         | Lease expiration (3)
|Tenant/Location            |       | Completed |      | Total GLA |  | (Option expiration)
|                           |       |           |      |           |  |                    
|Walgreen, Rochester, MI    |       |           | 1998 |           |  |                     | 13,905 |         |                      | June 30, 2019 (2059)
|Walgreen, Ypsilanti, MI    |       |           | 1999 |           |  |                     | 15,120 |         |                      | Dec 31, 2019 (2059) 
|Walgreen (2), Petoskey, MI |       |           | 2000 |           |  |                     | 13,905 |         |                      | Apr 30, 2020 (2060) 
|Walgreen, Flint, MI        |       |           | 2000 |           |  |                     | 14,490 |         |                      | Dec 31, 2020 (2060) 
|Walgreen, Flint, MI        |       |           | 2001 |           |  |                     | 15,120 |         |                      | Feb 28, 2021 (2061) 
|Walgreen, N Baltimore, MI  |       |           | 2001 |           |  |                     | 14,490 |         |                      | Aug 31, 2021 (2061) 
|Walgreen, Flint, MI        |       |           | 2002 |           |  |                     | 14,490 |         |                      | Apr 30, 2027 (2077) 
|Walgreen, Big Rapids, MI   |       |           | 2002 |           |  |                     | 13,560 |         |                      | Apr 30, 2028 (2078) 
|                           |       |           |      |           |  |                     |        |         |                      |                      |  | 
|                           | Total |           |      |           |  |                     |        | 788,858 |                      |                      |  |  | 
|                           |       |           |      |           |  |                     |        |         |                      |                      |  | 

(1)  Does not include the two joint venture properties

(2)  These properties are subject to long-term ground leases where a
third party owns the underlying land and has leased the land to





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##### Table of Contents



us to construct or operate freestanding properties. We pay rent for
the use of the land and we are generally responsible for all costs and
expenses associated with the building and improvements. At the end of the
lease terms, as extended (Aventura, FL 2036, Lawrence, KS 2027 and
Petoskey, MI 2049), the land together with all improvements revert to the
land owner. We have an option to purchase the Lawrence property during
the period October 1, 2006 to September 30, 2016 and to purchase the
Petoskey property after August 7, 2019.

(3)  At the expiration of a tenants initial lease term, each tenant has
an option, subject to certain requirements, to extend its lease for an
additional period of time.

(4)  This 12.68 acre property is leased from us by Wal-Mart pursuant to a
ground lease.

Joint Venture Properties

During 1996, seven free-standing properties which we leased to Borders,
including Borders current corporate headquarters, its former headquarters
building and properties operated as Borders Books and Music were developed or
acquired directly by seven limited liability companies which we identify as
joint ventures, but which are accounted for by us as partnerships. We have
acquired the entire interest of our joint venture partner in five of the joint
venture properties and have entered into a long-term lease with Borders for
each property. The acquired properties are located in Oklahoma City, Oklahoma,
Omaha, Nebraska, Indianapolis, Indiana, Ann Arbor, Michigan and Tulsa Oklahoma.
The remaining two properties are owned by separate limited liability companies
that are each owned jointly by us and an affiliate of Borders. Our economic
interest in the joint ventures are 11% and 12% respectively. The financing for
the development of the joint venture properties was provided through a
financing facility established by Borders and its affiliates (Borders Financing
Facility).

The leases on the two properties between Borders and each of the joint
ventures has a term expiring June 20, 2004, unless the Borders Financing
Facility is extended or earlier terminated. At any time during the term of the
lease, Borders has the right to cause the refinancing of the properties,
provided that, prior to any refinancing, we may elect to provide alternative
financing for the properties. If we elect to provide alternative financing and
are subsequently unable to obtain the requisite financing, Borders may purchase
the properties. Upon a refinancing by Borders or our providing alternative
financing, we will acquire the interest of the Borders affiliate in the joint
ventures, and Borders will enter into a new lease with us providing for a term
of 15 or 20 years, with four five-year extension options.

Our investment in the two joint venture properties currently yields
approximately $388,000 annualized base rent. Under certain circumstances
relating to refinancing of such assets, the rents paid pursuant to such leases
are subject to adjustment. The following table provides additional information
on the joint venture properties.

Joint Venture Properties





---



##### Table of Contents



|                                |       |          |               |           |  |                   |         |         |  |               |  |  | 
|------------------------------- | ----- | -------- | ------------- | --------- |  | ----------------- | ------- | ------- |  | ------------- |  |  | 
|                                |       |          | The Company's |           |  |                   |         |         |  |               | 
|Tenant / Location               |       | Interest |               | Total GLA |  | Lease Expirations
|                                |       |          |               |           |  |                  
|Borders, Inc.
Ann Arbor, MI     |       |          | 11            | %         |  |                   | 110,000 |         |  | June 20, 2004
|Borders, Inc.
Boynton Beach, FL |       |          | 12            | %         |  |                   | 25,000  |         |  | June 20, 2004
|                                |       |          |               |           |  |                   |         |         |  |               |  | 
|                                | Total |          |               |           |  |                   |         | 135,000 |  |               |  |  | 
|                                |       |          |               |           |  |                   |         |         |  |               |  | 

Community Shopping Centers

Thirteen (13) of our properties are community shopping centers ranging in size
from 20,000 to 241,458 square feet of gross leasable area. The centers are
located in 5 states as follows: Florida (1), Illinois (1), Kentucky (1),
Michigan (7), and Wisconsin (3). The location, general character and occupancy
information with respect to the community shopping centers at December 31, 2003
are set forth below: The option to extend the lease beyond its initial term is
only at the option of the tenant.

Summary of Community Shopping Centers at December 31, 2003

|                    |                    |          |            |         |      |           |          |      |            |         |          |      |           |      |            |                           |                    |   |      |  |     |  |     |   |  |  |     |   |  |                         |                         |  | 
|------------------- | ------------------ | -------- | ---------- | ------- | ---- | --------- | -------- | ---- | ---------- | ------- | -------- | ---- | --------- | ---- | ---------- | ------------------------- | ------------------ | - | ---- |  | --- |  | --- | - |  |  | --- | - |  | ----------------------- | ----------------------- |  | 
|                    |                    |          |            |         |      |           |          |      |            |         |          |      |           |      |            |                           |                    |   | (2)  |  | (3) |  |     |   |  |  |     |   | 
|                    |                    |          |            |         |      |           | (4)      |      | Gross      |         | (1)      |      | Average   |      | Percent    |                           | Percent            |   |      |  |    
|                    |                    |          | Year       |         | Land |           | Leasable |      | Annualized |         | Base     |      | Leased at |      | Occupied   |                           | Anchor Tenants    
|                    |                    |          | Completed/ |         | Area |           | Area     |      | Base       |         | Rent per |      | Dec 31,   |      | at Dec 31, |                           | (Lease expiration/
|Property Location   |                    | Expanded |            | (acres) |      | (Sq. Ft.) |          | Rent |            | Sq. Ft. |          | 2003 |           | 2003 |            | Option period expiration)
|                    |                    |          |            |         |      |           |          |      |            |         |          |      |           |      |            |                          
|Capital Plaza       |                    |          | 1978/      |         |      |           | 11.58    |      |            |         | 135,009  |      |           | $    | 369,568    |                           |                    | $ | 2.66 |  |     |  | 100 | % |  |  | 75  | % |  | Kmart (2008/2053)      
|                    | Frankfort, KY      |          |            | 1991    |      |           |          |      |            |         |          |      |           |      |            |                           |                    |   |      |  |     |  |     |   |  |  |     |   |  |                         | Winn Dixie (2010/2035) 
|                    |                    |          |            |         |      |           |          |      |            |         |          |      |           |      |            |                           |                    |   |      |  |     |  |     |   |  |  |     |   |  | Fashion Bug (2005/2025)
|Charleviox Commons  |                    |          | 1991       |         |      |           | 14.79    |      |            |         | 137,375  |      |           |      | 637,245    |                           |                    |   | 4.81 |  |     |  | 96  | % |  |  | 70  | % |  | Kmart (2015/2065)      
|                    | Charlevoix, MI     |          |            |         |      |           |          |      |            |         |          |      |           |      |            |                           |                    |   |      |  |     |  |     |   |  |  |     |   |  |                         | Roundys  (2011/2031)  
|Chippewa Commons    |                    |          | 1991       |         |      |           | 16.37    |      |            |         | 168,311  |      |           |      | 925,383    |                           |                    |   | 5.52 |  |     |  | 100 | % |  |  | 100 | % |  | Kmart (2014/2064)      
|                    | Chippewa Falls, WI |          |            |         |      |           |          |      |            |         |          |      |           |      |            |                           |                    |   |      |  |     |  |     |   |  |  |     |   |  |                         | Roundys  (2011/2031)  
|                    |                    |          |            |         |      |           |          |      |            |         |          |      |           |      |            |                           |                    |   |      |  |     |  |     |   |  |  |     |   |  | Fashion Bug (2006/2021)
|Iron Mountain Plaza |                    |          | 1991       |         |      |           | 21.20    |      |            |         | 176,352  |      |           |      | 868,418    |                           |                    |   | 5.06 |  |     |  | 97  | % |  |  | 97  | % |  | Kmart (2015/2065)      
|                    | Iron Mountain, MI  |          |            |         |      |           |          |      |            |         |          |      |           |      |            |                           |                    |   |      |  |     |  |     |   |  |  |     |   |  |                         | Roundys (2011/2031)   
|                    |                    |          |            |         |      |           |          |      |            |         |          |      |           |      |            |                           |                    |   |      |  |     |  |     |   |  |  |     |   |  | Fashion Bug (2007/2022)
|Ironwood Commons    |                    |          | 1991       |         |      |           | 23.92    |      |            |         | 185,535  |      |           |      | 905,910    |                           |                    |   | 5.00 |  |     |  | 98  | % |  |  | 98  | % |  | Kmart (2015/2065)      
|                    | Ironwood, MI       |          |            |         |      |           |          |      |            |         |          |      |           |      |            |                           |                    |   |      |  |     |  |     |   |  |  |     |   |  |                         | Super Value (2011/2036)
|                    |                    |          |            |         |      |           |          |      |            |         |          |      |           |      |            |                           |                    |   |      |  |     |  |     |   |  |  |     |   |  | Fashion Bug (2004/2022)
|Marshall Plaza      |                    |          | 1990       |         |      |           | 10.74    |      |            |         | 119,279  |      |           |      | 648,831    |                           |                    |   | 5.44 |  |     |  | 100 | % |  |  | 100 | % |  | Kmart (2015/2065)      
|                    | Marshall, MI       |          |            |         |      |           |          |      |            |         |          |      |           |      |            |                           |                    |   |      |  |     |  |     |   |  |  |     |   |  |                         |                         |  | 

Summary of Community Shopping
Centers at December 31, 2003 - (continued)

|                     |                    |                  |               |         |            |           |       |      |          |         |            |      |          |           |           |                           |            |            |                    |  |     |      |     |   |  |    |     |   |  |                             |                             |                           |  |  | 
|-------------------- | ------------------ | ---------------- | ------------- | ------- | ---------- | --------- | ----- | ---- | -------- | ------- | ---------- | ---- | -------- | --------- | --------- | ------------------------- | ---------- | ---------- | ------------------ |  | --- | ---- | --- | - |  | -- | --- | - |  | --------------------------- | --------------------------- | ------------------------- |  |  | 
|                     |                    |                  |               |         |            |           |       |      |          |         |            |      |          |           |           |                           |            |            |                    |  | (2) |      | (3) |   |  |    |     |   |  |                             |                            
|                     |                    |                  |               |         |            |           |       |      | (4)      |         | Gross      |      | (1)      |           | Average   |                           | Percent    |            | Percent            |  |     |      |    
|                     |                    |                  |               |         | Year       |           | Land  |      | Leasable |         | Annualized |      | Base     |           | Leased at |                           | Occupied   |            | Anchor Tenants    
|                     |                    |                  |               |         | Completed/ |           | Area  |      | Area     |         | Base       |      | Rent per |           | Dec 31,   |                           | at Dec 31, |            | (Lease expiration/
|Property Location    |                    | Expanded         |               | (acres) |            | (Sq. Ft.) |       | Rent |          | Sq. Ft. |            | 2003 |          | 2003      |           | Option period expiration)
|                     |                    |                  |               |         |            |           |       |      |          |         |            |      |          |           |           |                          
|Mt Pleasant Shopping |                    |                  | 1973/         |         |            |           | 24.51 |      |          |         | 241,458    |      |          | $         | 1,090,796 |                           |            | $          | 4.52               |  |     |      | 100 | % |  |    | 100 | % |  | Kmart (2008/2048)          
|                     | Center             |                  |               | 1997    |            |           |       |      |          |         |            |      |          |           |           |                           |            |            |                    |  |     |      |     |   |  |    |     |   |  |                             | J.C. Penney Co. (2005/2020)
|                     |                    | Mt. Pleasant, MI |               |         |            |           |       |      |          |         |            |      |          |           |           |                           |            |            |                    |  |     |      |     |   |  |    |     |   |  |                             |                             | Staples, Inc. (2005/2025)
|                     |                    |                  |               |         |            |           |       |      |          |         |            |      |          |           |           |                           |            |            |                    |  |     |      |     |   |  |    |     |   |  | Fashion Bug (2006/2026)    
|North Lakeland Plaza |                    |                  | 1987          |         |            |           | 16.67 |      |          |         | 171,334    |      |          |           | 725,368   |                           |            |            | 8.31               |  |     |      | 51  | % |  |    | 51  | % |  | Best Buy (2013/2028)       
|                     | Lakeland, FL       |                  |               |         |            |           |       |      |          |         |            |      |          |           |           |                           |            |            |                    |  |     |      |     |   |  |    |     |   |  |                             |                             |                           | 
|Petoskey Town Center |                    |                  | 1990          |         |            |           | 22.08 |      |          |         | 174,870    |      |          |           | 1,022,776 |                           |            |            | 5.98               |  |     |      | 98  | % |  |    | 98  | % |  | Kmart (2015/2065)          
|                     | Petoskey, MI       |                  |               |         |            |           |       |      |          |         |            |      |          |           |           |                           |            |            |                    |  |     |      |     |   |  |    |     |   |  |                             | Roundys  (2010/2030)      
|                     |                    |                  |               |         |            |           |       |      |          |         |            |      |          |           |           |                           |            |            |                    |  |     |      |     |   |  |    |     |   |  | Fashion Bug (2007/2022)    
|Plymouth Commons     |                    |                  | 1990          |         |            |           | 16.30 |      |          |         | 162,031    |      |          |           | 963,766   |                           |            |            | 5.97               |  |     |      | 100 | % |  |    | 100 | % |  | Kmart (2015/2065)          
|                     | Plymouth, WI       |                  |               |         |            |           |       |      |          |         |            |      |          |           |           |                           |            |            |                    |  |     |      |     |   |  |    |     |   |  |                             | Roundys  (2010/2030)      
|                     |                    |                  |               |         |            |           |       |      |          |         |            |      |          |           |           |                           |            |            |                    |  |     |      |     |   |  |    |     |   |  | Fashion Bug (2004/2021)    
|Rapids Associates    |                    |                  | 1990          |         |            |           | 16.84 |      |          |         | 173,557    |      |          |           | 981,722   |                           |            |            | 5.66               |  |     |      | 100 | % |  |    | 100 | % |  | Kmart (2015/2065)          
|                     | Big Rapids, MI     |                  |               |         |            |           |       |      |          |         |            |      |          |           |           |                           |            |            |                    |  |     |      |     |   |  |    |     |   |  |                             | Roundys  (2010/2030)      
|                     |                    |                  |               |         |            |           |       |      |          |         |            |      |          |           |           |                           |            |            |                    |  |     |      |     |   |  |    |     |   |  | Fashion Bug (2004/2021)    
|Shawano Plaza        |                    |                  | 1990          |         |            |           | 17.91 |      |          |         | 192,694    |      |          |           | 969,959   |                           |            |            | 5.03               |  |     |      | 100 | % |  |    | 100 | % |  | Kmart (2014/2064)          
|                     | Shawano, WI        |                  |               |         |            |           |       |      |          |         |            |      |          |           |           |                           |            |            |                    |  |     |      |     |   |  |    |     |   |  |                             | Roundys  (2010/2030)      
|                     |                    |                  |               |         |            |           |       |      |          |         |            |      |          |           |           |                           |            |            |                    |  |     |      |     |   |  |    |     |   |  | J.C. Penney Co. (2005/2025)
|                     |                    |                  |               |         |            |           |       |      |          |         |            |      |          |           |           |                           |            |            |                    |  |     |      |     |   |  |    |     |   |  | Fashion Bug (2004/2021)    
|West Frankfort Plaza |                    |                  | 1982          |         |            |           | 1.45  |      |          |         | 20,000     |      |          |           | 131,000   |                           |            |            | 6.55               |  |     |      | 100 | % |  |    | 100 | % |  | Fashion Bug (2007)         
|                     | West Frankfort, IL |                  |               |         |            |           |       |      |          |         |            |      |          |           |           |                           |            |            |                    |  |     |      |     |   |  |    |     |   |  |                             |                             |                           | 
|                     |                    |                  |               |         |            |           |       |      |          |         |            |      |          |           |           |                           |            |            |                    |  |     |      |     |   |  |    |     |   |  |                             |                             |                          
|                     |                    |                  | Total/Average |         |            |           |       |      |          | 214.36  |            |      |          | 2,057,805 |           |                           | $          | 10,240,742 |                    |  | $   | 5.24 |     |   |  | 97 | %   |   |  | 89                          | %                           |                           |  |  | 
|                     |                    |                  |               |         |            |           |       |      |          |         |            |      |          |           |           |                           |            |            |                    |  |     |      |     |   |  |    |     |   |  |                             |                             |                          



|(1) |  | Our total annualized base rents as of December 31, 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Calculated as total annualized base rents, divided by gross
leasable area actually leased as of December 31, 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(3) |  | Roundys has sub-leased the space it leases at Iron Mountain Plaza
(35,285 square feet, rented at a rate of $5.87 per square foot) and
leases but does not occupy the 35,896 square feet it leases at
Charlevoix Commons at a rate of $5.97 per square foot and leases but
does not occupy the 44,478 square feet it leases at Rapids Associates
at a rate of $6.00 per square foot. The Rapids Associates lease
expires in 2010 and the Charlevoix and Iron Mountain leases expire in
2011 (assuming they are not extended by Roundys). Winn Dixie leases
but does not currently occupy, the 33,617 square feet it leases at
Capital Plaza. This lease expires in 2010 and is rented at a rate of
$4.06 per square foot.
|   
|(4) |  | 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 Agree Limited Partnership.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     




Item 3. LEGAL PROCEEDINGS

We are not presently involved in any litigation nor, to our knowledge, is
any litigation threatened against us, except for routine litigation arising in
the ordinary course of business which is expected to be covered by our
liability insurance.




Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





---



##### Table of Contents



No matter was submitted to a vote of security holders during the fourth
quarter of 2003.




Part II




Item 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

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

Market Information

|              |                    |  |      |       |     |  |              |       |  |  |               |       | 
|------------- | ------------------ |  | ---- | ----- | --- |  | ------------ | ----- |  |  | ------------- | ----- | 
|              |                    |  |      |       |     |  |              |       |  |  | Dividends Per
|              |                    |  | High |       | Low |  | Common Share
|              |                    |  |      |       |     |  |             
|Quarter Ended |                    |  |      |       |     |  |              |       |  |  |               |      
|              | March 31, 2003     |  | $    | 20.44 |     |  | $            | 17.00 |  |  | $             | 0.480 | 
|              | June 30, 2003      |  | $    | 25.62 |     |  | $            | 19.35 |  |  | $             | 0.485 | 
|              | September 30, 2003 |  | $    | 24.98 |     |  | $            | 22.68 |  |  | $             | 0.485 | 
|              | December 31, 2003  |  | $    | 28.50 |     |  | $            | 24.41 |  |  | $             | 0.485 | 
|              | March 31, 2002     |  | $    | 18.97 |     |  | $            | 14.40 |  |  | $             | 0.46  | 
|              | June 30, 2002      |  | $    | 20.00 |     |  | $            | 17.41 |  |  | $             | 0.46  | 
|              | September 30, 2002 |  | $    | 19.98 |     |  | $            | 15.75 |  |  | $             | 0.46  | 
|              | December 31, 2002  |  | $    | 18.14 |     |  | $            | 16.20 |  |  | $             | 0.46  | 

At December 31, 2003, there were 6,434,345 shares of our common stock
issued and outstanding which were held by approximately 220 stockholders of
record. The stockholders of record do not reflect persons or entities who held
their shares in nominee or street name.

We intend to continue to declare quarterly dividends to our shareholders.
However, our distributions are determined by our board of directors and will
depend on a number of factors, including the amount of our funds from
operations, the financial and other condition of our properties, our capital
requirements, our annual distribution requirements under the provisions of the
Code applicable to REITs and such other factors as our board of directors deems
relevant.

During the year ended December 31, 2003, we did not sell any unregistered
securities, except the grant, under our 1994 Stock Incentive Plan (the Plan),
of 36,814 shares of restricted stock to certain of our employees. The transfer
restrictions on such shares lapse in equal annual installments over a five-year
period from the date of the grant, but the holder thereof is entitled to
receive dividends on all such shares from the date of the grant. On January 1,
2003 the Company redeemed 6,000 shares of restricted stock previously issued
under the Plan.





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##### Table of Contents






Item 6. SELECTED FINANCIAL DATA

The following table sets forth selected financial information for the
Company 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 ended December 31, 1999 through December 31, 2003 and operating data
for each of the period presented were derived from the audited financial
statements of the Company.

|                                                            |                                       |                    |         |                                              |      |         |         |         |      |         |         |         |      |   |         |       |      |   |         |       |      | 
|----------------------------------------------------------- | ------------------------------------- | ------------------ | ------- | -------------------------------------------- | ---- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | ---- | - | ------- | ----- | ---- | - | ------- | ----- | ---- | 
|                                                            |                                       |                    |         | (In thousands,
except per share information)
|                                                            |                                       |                    |         | Year                                         |      | Year    |         | Year    |      | Year    |         | Year   
|                                                            |                                       |                    |         | Ended                                        |      | Ended   |         | Ended   |      | Ended   |         | Ended  
|                                                            |                                       |                    |         | Dec 31,                                      |      | Dec 31, |         | Dec 31, |      | Dec 31, |         | Dec 31,
|                                                            |                                       |                    |         | 2003                                         |      | 2002    |         | 2001    |      | 2000    |         | 1999   
|                                                            |                                       |                    |         |                                              |      |         |         |         |      |         |         |        
|Total Revenue                                               |                                       | $                  | 27,472  |                                              |      | $       | 24,409  |         |      | $       | 23,451  |         |      | $ | 22,555  |       |      | $ | 20,696  |      
|                                                            |                                       |                    |         |                                              |      |         |         |         |      |         |         |         |      |   |         |       |      |   |         |      
|Expenses                                                    |                                       |                    |         |                                              |      |         |         |         |      |         |         |         |      |   |         |       |      |   |         |      
|                                                            | Property expense (1)                  |                    |         | 4,464                                        |      |         |         | 4,043   |      |         |         | 3,645   |      |   |         | 3,579 |      |   |         | 3,311 |     
|                                                            | General and administrative            |                    |         | 2,275                                        |      |         |         | 2,012   |      |         |         | 1,757   |      |   |         | 1,557 |      |   |         | 1,425 |     
|                                                            | Interest                              |                    |         | 5,684                                        |      |         |         | 6,196   |      |         |         | 6,720   |      |   |         | 7,045 |      |   |         | 5,771 |     
|                                                            | Depreciation and amortization         |                    |         | 4,082                                        |      |         |         | 3,712   |      |         |         | 3,623   |      |   |         | 3,472 |      |   |         | 3,221 |     
|                                                            |                                       |                    |         |                                              |      |         |         |         |      |         |         |         |      |   |         |       |      |   |         |      
|Total Expenses                                              |                                       |                    | 16,505  |                                              |      |         | 15,963  |         |      |         | 15,745  |         |      |   | 15,653  |       |      |   | 13,728  |      
|                                                            |                                       |                    |         |                                              |      |         |         |         |      |         |         |         |      |   |         |       |      |   |         |      
|Operating Income                                            |                                       |                    | 10,967  |                                              |      |         | 8,446   |         |      |         | 7,706   |         |      |   | 6,902   |       |      |   | 6,968   |      
|Early extinguishment of debt                                |                                       |                    | (961    | )                                            |      |         |        |         |      |         |        |         |      |   |        |       |      |   |        |      
|Other Income (2)                                            |                                       |                    | 438     |                                              |      |         | 673     |         |      |         | 913     |         |      |   | 522     |       |      |   | 69      |      
|                                                            |                                       |                    |         |                                              |      |         |         |         |      |         |         |         |      |   |         |       |      |   |         |      
|Income before Minority Interest
and discontinued operations |                                       |                    | 10,444  |                                              |      |         | 9,119   |         |      |         | 8,619   |         |      |   | 7,424   |       |      |   | 7,037   |      
|Minority Interest                                           |                                       |                    | 1,183   |                                              |      |         | 1,199   |         |      |         | 1,140   |         |      |   | 987     |       |      |   | 941     |      
|                                                            |                                       |                    |         |                                              |      |         |         |         |      |         |         |         |      |   |         |       |      |   |         |      
|Income before Discontinued
Operations                       |                                       |                    | 9,261   |                                              |      |         | 7,920   |         |      |         | 7,479   |         |      |   | 6,437   |       |      |   | 6,096   |      
|Gain on sale of asset from
discontinued operations          |                                       |                    | 740     |                                              |      |         |        |         |      |         |        |         |      |   |        |       |      |   |        |      
|Income from discontinued operations                         |                                       |                    | 471     |                                              |      |         | 852     |         |      |         | 587     |         |      |   | 661     |       |      |   | 710     |      
|                                                            |                                       |                    |         |                                              |      |         |         |         |      |         |         |         |      |   |         |       |      |   |         |      
|Net Income                                                  |                                       | $                  | 10,472  |                                              |      | $       | 8,772   |         |      | $       | 8,066   |         |      | $ | 7,098   |       |      | $ | 6,806   |      
|                                                            |                                       |                    |         |                                              |      |         |         |         |      |         |         |         |      |   |         |       |      |   |         |      
|Earnings per Share (3)                                      |                                       |                    |         |                                              |      |         |         |         |      |         |         |         |      |   |         |       |      |   |         |      
|                                                            | Income before discontinued operations |                    | $       | 1.79                                         |      |         | $       | 1.80    |      |         | $       | 1.71    |      |   | $       | 1.46  |      |   | $       | 1.40  |     
|                                                            | Discontinued operations               |                    |         | 0.20                                         |      |         |         | 0.17    |      |         |         | 0.12    |      |   |         | 0.15  |      |   |         | 0.16  |     
|                                                            |                                       |                    |         |                                              |      |         |         |         |      |         |         |         |      |   |         |       |      |   |         |      
|                                                            |                                       | Earnings per share |         | $                                            | 1.99 |         |         | $       | 1.97 |         |         | $       | 1.83 |   |         | $     | 1.61 |   |         | $     | 1.56 | 
|                                                            |                                       |                    |         |                                              |      |         |         |         |      |         |         |         |      |   |         |       |      |   |         |      
|Cash dividends                                              |                                       | $                  | 1.935   |                                              |      | $       | 1.840   |         |      | $       | 1.840   |         |      | $ | 1.840   |       |      | $ | 1.840   |      
|                                                            |                                       |                    |         |                                              |      |         |         |         |      |         |         |         |      |   |         |       |      |   |         |      
|Weighted average of common
shares outstanding               |                                       |                    | 5,273   |                                              |      |         | 4,447   |         |      |         | 4,417   |         |      |   | 4,396   |       |      |   | 4,365   |      
|                                                            |                                       |                    |         |                                              |      |         |         |         |      |         |         |         |      |   |         |       |      |   |         |      
|Balance Sheet Data                                          |                                       |                    |         |                                              |      |         |         |         |      |         |         |         |      |   |         |       |      |   |         |      
|Real Estate
(before accumulated depreciation)               |                                       | $                  | 221,225 |                                              |      | $       | 210,986 |         |      | $       | 196,486 |         |      | $ | 191,048 |       |      | $ | 179,858 |      
|Total Assets                                                |                                       | $                  | 191,686 |                                              |      | $       | 178,162 |         |      | $       | 167,511 |         |      | $ | 166,052 |       |      | $ | 158,196 |      
|Total debt, including accrued interest                      |                                       | $                  | 84,203  |                                              |      | $       | 115,534 |         |      | $       | 105,946 |         |      | $ | 104,407 |       |      | $ | 95,762  |      
|Number of Properties                                        |                                       |                    | 50      |                                              |      |         | 48      |         |      |         | 47      |         |      |   | 45      |       |      |   | 42      |      
|Square Footage                                              |                                       |                    | 3,495   |                                              |      |         | 3,699   |         |      |         | 3,556   |         |      |   | 3,526   |       |      |   | 3,468   |      



|(1) |  | Property expense includes real estate taxes, property maintenance,
insurance, utilities and land lease expense.                                                                                                                                                                                        
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Other income is composed of development fee income, gain on land
sales, and equity in net income of unconsolidated entities.                                                                                                                                                                           
|   
|(3) |  | Net income per share has been computed by dividing the net income by
the weighted average number of shares of Common Stock outstanding. The
per share amounts shown are presented in accordance
with SFAS No. 128 Earnings per Share. The Companys basic and diluted earnings per share are the same





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

Overview

We were established to continue to operate and expand the retail property
business of our predecessor. We commenced our operations in April 1994. Our
assets are held by, and all operations are conducted through, Agree Limited
Partnership (the Operating Partnership), of which Agree Realty Corporation is
the sole general partner and held a 90.52% interest as of December 31, 2003.
We are operating so as to qualify as a real estate investment trust (REIT)
for federal income tax purposes.

On August 4, 2003, we completed an offering of 1,700,000 shares of common
stock at $23.50 per share; on August 12, 2003 the underwriters exercised their
over allotment option for an additional 255,000 shares at the same per share
price (collectively, the 2003 Offering). The net proceeds from the 2003
Offering of approximately $43.2 million were used to repay amounts outstanding
under our credit facility.

We have fourteen (14) leases with Kmart Corporation. Eleven (11) of the
Kmart stores are currently anchors in our community shopping centers and three
(3) Kmart stores are freestanding net leased properties. The Kmart stores in
our portfolio provided 17% of our annual base rent as of December 31, 2003.
Four of the Kmart stores paid percentage rent in addition to their minimum rent
during 2003. As of December 31, 2003, all of our Kmart stores were open and
operating as Kmart discount stores.

In May 2003 Kmart emerged from the bankruptcy proceeding which it had
initiated in January 2002. Pursuant to the confirmed plan of reorganization,
Kmart closed approximately 600 of its stores, including one located in our
center in Lakeland, Florida. Kmart vacated the premises in Lakeland, Florida
in April 2003, and we are actively





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marketing the space formerly occupied by Kmart. Kmarts annual rent on this
property was approximately $480,000 and their annual contribution under the
lease for real estate taxes, insurance and common area maintenance was
approximately $110,000. Certain tenants in the Lakeland, Florida community
shopping center have co-tenancy clauses in their leases which provide either
for modification of their rent to be based on gross sales or an option to
terminate their lease when the Kmart store closed, and we are unable to obtain
a replacement anchor tenant. As of February 29, 2004, none of these tenants
has indicated that they will exercise their option to terminate their leases
with us. We believe it will take between 12 and 18 months to re-let the Kmart
location. In connection with the re-letting the Kmart location, we may have to
agree to make capital expenditures with respect to the property. In addition,
we have agreed to a rent reduction of $150,000 per year under a Kmart lease for
a store in Perrysburg, Ohio. The rent reduction is for a 5-year period.

During 2003 we sold a community shopping center that was located in Winter
Garden, Florida and was anchored by Kmart. The Company developed the 233,512
square foot shopping center in 1988. The property was sold to a private
investor for approximately $8.5 million. We recognized a gain of approximately
$835,000 on the sale.

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 May 2003, the Financial Accounting Standards Board (the FASB) issued
SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity (SFAS 150). The objective of
SFAS 150 is to establish standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. In November 2003, the FASB indefinitely delayed the effective date for
certain mandatory redeemable non-controlling interests in consolidated
financial statements. Adoption of SFAS 150 did not have an impact on the
results of operations or financial position of the Company.

Critical Accounting Policies

In the course of developing and evaluating accounting policies and
procedures, we use estimates, assumptions and judgments to determine the most
appropriate methods to be applied. Such processes are used in determining
capitalization of costs related to real estate investments, potential
impairment of real estate investments, operating cost reimbursements, and
taxable income.

Real estate assets are stated at cost less accumulated depreciation. All
costs related to planning, development and construction of buildings prior to
the date they become operational, including interest and real estate taxes
during the construction period, are capitalized for financial reporting
purposes and recorded as property under development until construction has been
completed. Subsequent to completion of construction, expenditures for property
maintenance are charged to operations as incurred, while significant
renovations are capitalized. Depreciation of the buildings is recorded on the
straight-line method using an estimated useful life of forty years.





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In determining the fair value of real estate investments, we consider
future cash flow projections on a property by property basis, current interest
rates and current market conditions of the geographical location of each
property.

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

We have elected to be taxed as a REIT under the Internal Revenue Code of
1986, as amended (the Code), commencing with our 1994 tax year. As a result,
we are not subject to federal income taxes to the extent that we distribute
annually at lease 90% of our taxable income to our shareholders and satisfy
certain other requirements defined in the Code. Accordingly, no provision was
made for federal income taxes in the accompanying consolidated financial
statements.

Comparison of Year Ended December 31, 2003 to Year Ended December 31, 2002

Minimum rental income increased $2,739,000, or 13%, to $24,333,000 in
2003, compared to $21,594,000 in 2002. The increase was the result of rental
increases of $373,000 from existing properties; an increase of $1,953,000 due
to additional rent resulting from the acquisition of our joint venture
partners interest in three joint venture properties in 2002 and two joint
venture properties in 2003; an increase of $387,000 from the development of one
property in 2002 and two properties in 2003; and an increase of $26,000 from
the acquisition of one property in 2003.

Percentage rental income decreased $62,000, or 25%, to $186,000 in 2003,
compared to $248,000 in 2002. The decrease was the result of a decrease in
percentage rent received from Kmart of $56,000; and a decrease in percentage
rent received from other tenants of $6,000.

Operating cost reimbursements increased $393,000, or 15%, to $2,951,000 in
2003, compared to $2,558,000 in 2002. Operating cost reimbursement increased
due to the increase in the reimbursable property operating expenses as
explained below.

Other income remained relatively constant at $3,000 in 2003, compared to
$9,000 in 2002

Real estate taxes increased $85,000, or 5%, to $1,779,000 in 2003 compared
to $1,694,000 in 2002. The increase is the result of general assessment
increases of $38,000 and additional real estate taxes of $47,000 which we are
now required to pay as a result of the closing of the Kmart store in Lakeland,
Florida.

Property operating expenses (shopping center maintenance, snow removal,
insurance and utilities) increased $340,000, or 21%, to $1,949,000 in 2003
compared to $1,609,000 in 2002. The increase was the result of additional
shopping center maintenance of $63,000; increased snow removal costs of
$36,000; an increase in utility costs of $22,000; and an increase in insurance
costs of $219,000 in 2003 versus 2002.





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Land lease payments remained relatively constant at $737,000 for 2003 and
$739,000 in 2002.

General and administrative expenses increased $263,000, or 13%, to
$2,275,000 in 2003 compared to $2,012,000 in 2002. The increase was the result
of increased compensation related expenses of $179,000; increased general state
taxes of $50,000; and increased property management related expenses of
$34,000. General and administrative expenses as a percentage of rental income
increased from 9.2% for 2002 to 9.3% for 2003.

Depreciation and amortization increased $370,000, or 10%, to $4,082,000 in
2003 compared to $3,712,000 in 2002. The increase was the result of the
development of one property in 2002 and two properties in 2003; the acquisition
of one property in 2003; and the acquisition of the joint venture partners
interest in three joint venture properties in 2002 and two joint venture
properties in 2003.

Interest expense decreased $512,000, or 8%, to $5,684,000 in 2003, from
$6,196,000 in 2002. The decrease in interest expense was the result of
decreased borrowings as a result of the reduction in outstanding indebtedness
with the net proceeds from the issuance of additional common stock.

Equity in net income of unconsolidated entities decreased $235,000, or
35%, to $438,000 in 2003 compared to $674,000 in 2002 as a result of the
acquisition of our joint venture partners interest in three joint venture
properties in 2002 and two joint venture properties in 2003.

Early extinguishment of debt totaled $961,000 in 2003, as a result of the
Company repaying in 2003 three mortgages totaling approximately $37,000,000
prior to their scheduled maturity. In connection with these repayments we
incurred pre-payment penalties of $555,000 and wrote-off unamortized mortgage
costs in the amount of $406,000.

The Company recognized a gain on the sale of the Winter Garden Plaza
community shopping center of $740,000 (net of minority interest) in 2003.
There was no such gain in 2002.

The Companys income before minority interest and discontinued operations
increased $2,159,000, or 24%, to $11,279,000 in 2003, from $9,120,000 in 2002
as a result of the foregoing factors.

Comparison of Year Ended December 31, 2002 to Year Ended December 31, 2001

Minimum rental income increased $932,000, or 5%, to $21,594,000 in 2002,
compared to $20,662,000 in 2001. The increase resulted from rental increases
of $8,000 from existing properties; an increase of $147,000 due to additional
rent resulting from the acquisition of our joint venture partners interest in
three joint venture properties in 2002; an increase of $508,000 from the
development of two properties in 2001 and one property in 2002; and three lease
terminations payments received in 2002 of $269,000.

Percentage rents decreased $165,000, or 40%, to $248,000 in 2002, compared
to $413,000 in 2001. The decrease was the result of the elimination of a
tenants percentage rent provision in exchange for an increase in their base
rental income ($128,000); a decrease in





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##### Table of Contents



percentage rent received from Kmart ($73,000); and an increase in percentage
rent received from other tenants $36,000.

Operating cost reimbursements increased $223,000, or 10%, to $2,558,000 in
2002, compared to $2,335,000 in 2001. Operating cost reimbursement increased
due to the increase in the reimbursable property operating expenses as
explained below.

Other income decreased $32,000, or 77%, to $9,000 in 2002, compared to
$41,000 in 2001. The decrease was the result of the terminations in September
2001 and February 2002 of the management agreements between the Company and two
properties it previously managed but did not own.

Real estate taxes increased $56,000, or 3%, to $1,694,000 in 2002 compared
to $1,638,000 in 2001. The increase is the result of general assessment
increases on the properties.

Property operating expenses (shopping center maintenance, snow removal,
insurance and utilities) increased $341,000, or 27%, to $1,609,000 in 2002
compared to $1,268,000 in 2001. The increase was the result of additional
shopping center maintenance of $120,000; increased snow removal costs of
$134,000; an increase in utility costs of $1,000; and an increase in insurance
costs of $86,000 in 2002 versus 2001.

Land lease payments remained constant at $739,000 for 2002 and 2001.

General and administrative expenses increased $255,000, or 15%, to
$2,012,000 in 2002 compared to $1,757,000 in 2001. The increase was primarily
the result of an increase in compensation related expenses related to the
addition of an employee and normal compensation increases. General and
administrative expenses as a percentage of rental income increased from 7.9%
for 2001 to 8.7% for 2002.

Depreciation and amortization increased $89,000, or 2%, to $3,712,000 in
2002 compared to $3,623,000 in 2001. The increase was the result of
indebtedness incurred to develop three properties in 2001 and 2002 and to
acquire the joint venture partners interest in three joint venture properties
in 2002.

Interest expense decreased $524,000, or 8%, to $6,196,000 in 2002, from
$6,720,000 in 2001. The decrease in interest expense was the result of
decreased interest rates on variable rate notes payable.

Equity in net income of unconsolidated entities decreased $21,000 to
$674,000 in 2002 compared to $694,000 in 2001 as a result of the acquisition of
the joint venture partners interest in three joint venture properties in
November 2002.

The Company recognized a gain on the sale of an asset in the amount of
$219,000 in 2001. There was no such gain in 2002.

The Companys income before minority interest and discontinued interest
increased $501,000, or 6%, to $9,120,000 in 2002, from $8,619,000 in 2001 as a
result of the foregoing factors.

Funds from Operations

We consider Funds from Operations (FFO) to be a useful supplemental
measure to evaluate our operating performance. We also





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consider FFO to be an appropriate supplemental measure of operating performance
because, by excluding gains or losses on dispositions and excluding
depreciation, FFO can help one compare the operating performance of our real
estate between periods or compare such performance to that of different
companies. FFO is defined by the National Association of Real Estate
Investment Trusts, Inc. (NAREIT) to mean net income computed in accordance with
generally accepted accounting principles (GAAP), excluding gains (or losses)
from sales of property, plus real estate related depreciation and amortization.
FFO should not be considered as an alternative to net income as the primary
indicator of our operating performance or as an alternative to cash flow as a
measure of liquidity. While we adhere to the NAREIT definition of FFO in
making our calculation, our method of calculating FFO may not be comparable to
the methods used by other REITs and accordingly may be different from similarly
titled measures reported by other companies.

The following table illustrates the calculation of FFO for the years ended
December 31, 2003, 2002 and 2001:

|                                                 |  |                         |            |      |  |      |            |  |  |   |            |  
|------------------------------------------------ |  | ----------------------- | ---------- | ---- |  | ---- | ---------- |  |  | - | ---------- | -
|                                                 |  | Year ended December 31,
|                                                 |  |                        
|                                                 |  | 2003                    |            | 2002 |  | 2001
|                                                 |  |                         |            |      |  |     
|Net income                                       |  | $                       | 10,471,746 |      |  | $    | 8,772,330  |  |  | $ | 8,065,653  |  
|Depreciation of real estate assets               |  |                         | 4,164,691  |      |  |      | 3,840,636  |  |  |   | 3,747,065  |  
|Amortization of leasing costs                    |  |                         | 55,182     |      |  |      | 68,325     |  |  |   | 68,241     |  
|Minority interest                                |  |                         | 1,338,046  |      |  |      | 1,328,233  |  |  |   | 1,229,819  |  
|Gain on sale of assets                           |  |                         | (834,669   | )    |  |      |           |  |  |   | (218,543   | )
|                                                 |  |                         |            |      |  |      |            |  |  |   |            |  
|Funds from Operations                            |  | $                       | 15,194,996 |      |  | $    | 14,009,524 |  |  | $ | 12,892,235 |  
|                                                 |  |                         |            |      |  |      |            |  |  |   |            |  
|Weighted average shares and
OP Units outstanding |  |                         | 5,946,070  |      |  |      | 5,120,338  |  |  |   | 5,090,416  |  
|                                                 |  |                         |            |      |  |      |            |  |  |   |            |  

Liquidity and Capital Resources

Our principal demands for liquidity are distributions to our shareholders,
debt service, development of new properties and future property acquisitions.

During the quarter ended December 31, 2003, we declared a quarterly
dividend of $.485 per share. The dividend was paid on January 6, 2004 to
holders of record on December 22, 2003.

As of December 31, 2003, we had total mortgage indebtedness of $55,967,378
with a weighted average interest rate of 6.63%. Future scheduled annual
maturities of mortgages payable for the years ending December 31 are as
follows: 2004  $2,049,975; 2005  $2,298,292; 2006  $2,454,764; 2007 -
$2,621,920; 2008  $2,781,076. The mortgage debt is all fixed rate,
self-amortizing debt.

In addition, the Operating Partnership has in place a $50 million credit
facility with Standard Federal Bank, as the agent (Credit Facility), which is
guaranteed by the Company. The Credit Facility matures in November 2006 and
can be extended for an additional three years. During the three year extension
period we will have no further ability to borrow under this facility and will
be required to repay a portion of the unpaid principal on a quarterly basis.
Advances under





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##### Table of Contents



the Credit Facility bear interest within a range of one-month to six-month
LIBOR plus 150 basis points to 213 basis points or the lenders prime rate, at
the our option, based on certain factors such as debt to property value and
debt service coverage. The Credit Facility is used to fund property
acquisitions and development activities and is secured by most of the
properties which are not otherwise encumbered and properties to be acquired or
developed. As of December 31, 2003, $24,000,000 was outstanding under the
Credit Facility bearing a weighted average interest rate of 2.74%.

We also have in place a $5 million line of credit (Line of Credit), which
matures on April 30, 2004, and which we expect to renew for an additional
12-month period. The Line of Credit bears interest at the lenders prime rate
less 50 basis points or 175 basis points in excess of the one-month LIBOR rate,
at our option. The purpose of the Line of Credit is to provide working capital
and fund land options and start-up costs associated with new projects. As of
December 31, 2003, $2,500,000 was outstanding under the Line of Credit bearing
a weighted average interest rate of 3.50%.

We have received funding from an unaffiliated third party for the
construction of one of our properties. Advances under this arrangement bear no
interest. The advances are secured by the specific land and buildings being
developed. As of December 31, 2003, $1,569,000 was outstanding under this
arrangement.

The following table outlines our contractual obligations (in thousands) as
of December 31, 2003.

|                            |       |   |        |        |      |   |         |       |         |   |            |       |  |   |       |       |  |   |        |        | 
|--------------------------- | ----- | - | ------ | ------ | ---- | - | ------- | ----- | ------- | - | ---------- | ----- |  | - | ----- | ----- |  | - | ------ | ------ | 
|                            |       |   | Total  |        | Yr 1 |   | 2-3 Yrs |       | 4-5 Yrs |   | Over 5 Yrs
|                            |       |   |        |        |      |   |         |       |         |   |           
|Mortgages Payable           |       | $ | 55,967 |        |      | $ | 2,050   |       |         | $ | 4,753      |       |  | $ | 5,403 |       |  | $ | 43,761 |       
|Construction Loan           |       |   | 1,569  |        |      |   |        |       |         |   |           |       |  |   |      |       |  |   | 1,569  |       
|Notes Payable               |       |   | 26,500 |        |      |   | 2,500   |       |         |   |           |       |  |   |      |       |  |   | 24,000 |       
|Land Lease Obligations      |       |   | 15,072 |        |      |   | 725     |       |         |   | 1,533      |       |  |   | 1,535 |       |  |   | 11,279 |       
|Other Long-Term Liabilities |       |   |       |        |      |   |        |       |         |   |           |       |  |   |      |       |  |   |       |       
|                            |       |   |        |        |      |   |         |       |         |   |            |       |  |   |       |       |  |   |        |       
|                            | Total |   | $      | 99,108 |      |   | $       | 5,275 |         |   | $          | 6,286 |  |   | $     | 6,938 |  |   | $      | 80,609 | 
|                            |       |   |        |        |      |   |         |       |         |   |            |       |  |   |       |       |  |   |        |       

During the third quarter 2003, we negotiated an early payment on three
mortgage notes totaling approximately $37 million and bearing an interest rate
of 7.00%. The mortgages were secured by eight (8) community shopping centers.
Two of the mortgages totaling approximately $30.3 million were scheduled to
mature in November, 2005 and required a final payment in the amount of
approximately $28.2 million on the maturity date. The third mortgage in the
amount of approximately $6.7 million had a scheduled maturity date of April
2013 and required a final payment in the amount of approximately $2.9 million
on the maturity date. This mortgage contained a provision that would reset the
interest rate to the then current rate in December 2005. We incurred a
pre-payment penalty of 1.50% on the outstanding mortgage balance.

We have one development project under construction that will add an
additional 14,560 square feet of GLA to our portfolio. The project was
completed during the first quarter of 2004. Additional funding required for
this project is estimated to be $1,400,000 and will come from the Credit
Facility.

We intend to meet our short-term liquidity requirements, including capital
expenditures related to the leasing and improvement of the properties, through
cash flow provided by operations and the Line of





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##### Table of Contents



Credit. We also have restricted cash available to fund future real estate
investments. We believe that adequate cash flow will be available to fund our
operations and pay dividends in accordance with REIT requirements. We may
obtain additional funds for future development or acquisitions through other
borrowings or the issuance of additional shares of common stock. We intend to
incur additional debt in a manner consistent with our policy of maintaining a
ratio of total debt (including construction and acquisition financing) to total
market capitalization of 65% or less. We believe that these financing sources
will enable us to generate funds sufficient to meet both our short-term and
long-term capital needs.

We plan to begin construction of additional pre-leased developments and
may acquire additional properties, which will initially be financed by the
Credit Facility and Line of Credit. We will periodically refinance short-term
construction and acquisition financing with long-term debt and / or equity.
Upon completion of refinancing, we intend to lower the ratio of total debt to
market capitalization to 50% or less. Nevertheless, we may operate with debt
levels or rations, which are in excess of 50% for extended periods of time
prior to such refinancing.

Inflation

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




Item 7A QUANTITATIVE AND QUALATATIVE DISCLOSURES ABOUT MARKET RISK

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

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

|                   |                       |  |       |      |      |  |       |      |      |  |       |      |            |  |       |      |  |  |       |      |  |  |        |      |  |  |        |   | 
|------------------ | --------------------- |  | ----- | ---- | ---- |  | ----- | ---- | ---- |  | ----- | ---- | ---------- |  | ----- | ---- |  |  | ----- | ---- |  |  | ------ | ---- |  |  | ------ | - | 
|                   |                       |  | 2004  |      | 2005 |  | 2006  |      | 2007 |  | 2008  |      | Thereafter |  | Total
|                   |                       |  |       |      |      |  |       |      |      |  |       |      |            |  |      
|Fixed rate debt    |                       |  | 2,050 |      |      |  | 2,298 |      |      |  | 2,455 |      |            |  | 2,622 |      |  |  | 2,781 |      |  |  | 43,761 |      |  |  | 55,967 |  
|                   | Average interest rate |  |       | 6.63 |      |  |       | 6.63 |      |  |       | 6.63 |            |  |       | 6.63 |  |  |       | 6.63 |  |  |        | 6.63 |  |  |        | - | 
|Construction loans |                       |  |      |      |      |  |      |      |      |  |      |      |            |  |      |      |  |  |      |      |  |  | 1,569  |      |  |  | 1,569  |  
|                   | Average interest rate |  |       |     |      |  |       |     |      |  |       |     |            |  |       |     |  |  |       |     |  |  |        |     |  |  |        | - | 
|Variable rate debt |                       |  | 2,500 |      |      |  |      |      |      |  |      |      |            |  | 640   |      |  |  | 640   |      |  |  | 22,720 |      |  |  | 26,500 |  
|                   | Average interest rate |  |       | 3.50 |      |  |       | 2.74 |      |  |       | 2.74 |            |  |       | 2.74 |  |  |       | 2.74 |  |  |        | 2.74 |  |  |        | - | 

The fair value (in thousands) is estimated at $56,500, $1,569 and $26,500
for fixed rate debt, construction loans and variable rate debt, respectively.





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##### Table of Contents



The table above incorporates those exposures that exist as of December 31,
2003; it does not consider those exposures or position, which could arise after
that date. As a result, our ultimate realized gain or loss with respect to
interest rate fluctuations will depend on the exposures that arise during the
period and interest rates.

The Company does not enter into financial instrument transactions for
trading or other speculative purposes or to manage interest rate exposure.

A 10% adverse change in interest rates on the portion of the Companys
debt bearing interest at variable rates would result in an increase in interest
expense of approximately $75,000.




Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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




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

During our last two fiscal years, there have been no changes in the
independent accountants nor disagreements with such accountants as to
accounting and financial disclosures of the type required to be disclosed in
this Item 9.




Item 9A CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management,
including our Principal executive officer and principal financial officer, we
conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended, as of the end of the
period covered by this report (the Evaluation Date). Based on this
evaluation, our principal executive officer and principal financial officer
concluded as of the Evaluation Date that our disclosure controls and procedures
were effective such that the information relating to us, including our
consolidated subsidiaries, required to be disclosed in our Securities and
Exchange Commission (SEC) reports (i) is recorded, processed, summarized and
reported within the time periods specified in Sec rules and forms, and (ii) is
accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.




PART III




Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Incorporated herein by reference to our definitive proxy statement to be
filed with the Securities and Exchange Commission within 120 days after the
year covered by this Form 10-K with respect to its Annual Meeting of
Stockholders to be held on May 10, 2004.

Code of Ethics





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##### Table of Contents



We have adopted a code of business and ethics for directors, officers, and
employees, known as the Code of Business Conduct and Ethics. The Code of
Business Conduct and Ethics is available on our website at www.agreerealty.com.
Stockholders may request a free copy of
The Code of Business Conduct and Ethics from:

|                                                                                                                                            
|--------------------------------------------------------------------------------------------------------------------------------------------
|Agree Realty Corporation
Attention: Kenneth R. Howe
31850 Northwestern Highway
Farmington Hills, MI 48334
(248) 737-4190
www.agreerealty.com

We have also adopted a Chief Executive Officer and Chief Financial Officer
Code of Professional Ethics setting forth a code of ethics applicable to our
principal executive officer and principal financial officer, which is available
on our website at www.agreerealty.com. Stockholders may request a free copy of
the Chief Executive Officer and Chief Financial Officer Code of Professional
Ethics from the address and phone number set forth above.

Corporate Governance Guidelines

We have adopted Corporate Governance Guidelines, which are available on
our website at www.agreerealty.com. Stockholders may request a free copy of
the Corporate Governance Guidelines from the address and phone number set forth
above under -Code of Ethics.




Item 11. EXECUTIVE COMPENSATION

Incorporated herein by reference to our definitive proxy statement to be
filed with the Securities and Exchange Commission within 120 days after the
year covered by this Form 10-K with respect to its Annual Meeting of
Stockholders to be held on May 10, 2004.

The following table summarizes the equity compensation plans under which
the Companys common stock may be issued as of December 31, 2003.

|                                                           |  |                         |        |                      |  |                      |       |  |  |  |         | 
|---------------------------------------------------------- |  | ----------------------- | ------ | -------------------- |  | -------------------- | ----- |  |  |  | ------- | 
|                                                           |  | Number of securities to |        | Weighted average     |  |                      |       | 
|                                                           |  | be issued upon exercise |        | exercise price of    |  | Number of securities
|                                                           |  | of outstanding options, |        | outstanding options, |  | remaining available 
|Plan category                                              |  | warrants and rights     |        | warrants and rights  |  | for future issuance 
|                                                           |  |                         |        |                      |  |                     
|Equity compensation
plans approved
by security holders     |  |                         | 23,275 |                      |  | $                    | 19.50 |  |  |  | 107,315 | 
|Equity compensation
plans not approved
by security holders |  |                         |       |                      |  |                      |      |  |  |  |        | 
|                                                           |  |                         |        |                      |  |                      |       |  |  |  |         | 
|Total                                                      |  |                         | 23,275 |                      |  | $                    | 19.50 |  |  |  | 107,315 | 
|                                                           |  |                         |        |                      |  |                      |       |  |  |  |         | 




Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated herein by reference from our definitive proxy statement to be
filed with the Securities and Exchange Commission within 120 days after the end
of the fiscal year covered by this Form 10-K with





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##### Table of Contents



respect to its Annual Meeting of Stockholders to be held on May 10, 2004.




Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated herein by reference from our definitive proxy statement to be
filed with the Securities and Exchange Commission within 120 days after the end
of the fiscal year covered by this Form 10-K with respect to its Annual Meeting
of Stockholders to be held on May 10, 2004.




Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Incorporated herein by reference from our definitive proxy statement to be
filed with the Securities and Exchange Commission within 120 days after the end
of the fiscal year covered by this Form 10-K with respect to its Annual Meeting
of Stockholders to be held on May 10, 2004.




PART IV




Item 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON
FORM 8-K



| | (a) |  | The following documents are filed as part of this Report
| | --- |  | --------------------------------------------------------
|

| | (1) |  | (2) The financial statements indicated by Part II,
Item 8, Financial Statements and Supplementary
Data.
| | --- |  | -------------------------------------------------------------------------------------------------------
|

| | (b) |  | Reports on Form 8-K
| | --- |  | -------------------
|

| |  |  | On October 29, 2003, we filed a Form 8-K under Item 7 and Item 12
furnishing our third quarter 2003 results of operations and
financial condition
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|

| | (C) |  | Exhibits
| | --- |  | --------

|     |  |                                                                                                                                                                                                                                                                                                            
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Articles of Incorporation and Articles of Amendment of the
Company (incorporated by reference to Exhibit 3.1 to the
Companys Registration Statement on Form S-11 (Registration
Statement No. 33-73858, as amended (Agree S-11))                                                                         
|     |  |                                                                                                                                                                                                                                                                                                            
|3.2  |  | Bylaws of the Company (incorporated by reference to Exhibit
3.3 to Agree S-11)                                                                                                                                                                                                                             
|     |  |                                                                                                                                                                                                                                                                                                            
|4.1  |  | Rights Agreement by and between Agree Realty Corporation and
BankBoston, N.A. as Rights Agent Dated as of December 7, 1998
(incorporated by reference to Exhibit 4.1 to the Companys Form
8-K filed on December 7, 1998)                                                                                  
|     |  |                                                                                                                                                                                                                                                                                                            
|10.1 |  | Loan Modification Agreement, dated April 22, 1994, by and
among Shawano Plaza, Plymouth Commons, Chippewa Commons and
Nationwide Life Insurance Company (incorporated by reference
to Exhibit 10.1 to the Companys Annual Report on Form 10-K
for the year ended December 31, 1996 (the 1996 Form 10-K))
|     |  |                                                                                                                                                                                                                                                                                                            
|10.2 |  | Loan Modification Agreement, dated April 22, 1994, by and
among Rapids Associates, Marshall Plaza Phase Two, Petoskey
Town Center, Charlevoix Commons and Nationwide Life
Insurance Company (incorporated by reference to Exhibit 10.2
to the 1996 Form 10-K)                                              





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##### Table of Contents



|       |  |                                                                                                                                                                                                                                                                                                                      
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.3   |  | First Amended and Restated Agreement of Limited Partnership
of Agree Limited Partnership, dated as of April 22, 1994, by
and among the Company, Richard Agree, Edward Rosenberg and
Joel Weiner (incorporated by reference to Exhibit 10.6 to
the 1996 Form 10-K)                                                    
|       |  |                                                                                                                                                                                                                                                                                                                      
|10.4   |  | Amended and Restated Registration Rights Agreement, dated
July 8, 1994 by and among the Company, Richard Agree, Edward
Rosenberg and Joel Weiner (incorporated by reference to
Exhibit 10.2 to the Companys Annual Report on Form 10-K
for the year ended December 31, 1994)                                        
|       |  |                                                                                                                                                                                                                                                                                                                      
|10.5 + |  | 1994 Stock Incentive Plan of the Company (incorporated by
reference to Exhibit 10.8 to the 1996 Form 10-K)                                                                                                                                                                                                           
|       |  |                                                                                                                                                                                                                                                                                                                      
|10.6   |  | Management Agreement, dated April 22, 1994, by and among Mt
Pleasant Shopping Center, Angola Plaza, Shiloh Plaza and the Company
(incorporated by reference to Exhibit 10.9 to the
1996 Form 10-K)                                                                                                                   
|       |  |                                                                                                                                                                                                                                                                                                                      
|10.7   |  | Contribution Agreement, dated as of April 21, 1994, by and
among the Company, Richard Agree, Edward Rosenberg and the
co-partnerships named therein (incorporated by reference to
Exhibit 10.10 to the 1996 Form 10-K)                                                                                               
|       |  |                                                                                                                                                                                                                                                                                                                      
|10.8 + |  | Agree Realty Corporation Profit Sharing Plan (incorporated
by reference to Exhibit 10.13 to the 1996 Form 10-K)                                                                                                                                                                                                      
|       |  |                                                                                                                                                                                                                                                                                                                      
|10.9   |  | Business Loan Agreement, dated as of September 21, 1995,
by and between Agree Limited Partnership and Michigan
National Bank (incorporated by reference to Exhibit 10.9
to the Companys Annual Report on Form 10-K for the year
ended December 31, 1995 (the 1995 Form 10-K))                                     
|       |  |                                                                                                                                                                                                                                                                                                                      
|10.10  |  | Line of Credit Agreement by and among Agree Limited
Partnership, the Company, the lenders parties thereto, and
Michigan National Bank as Agent (incorporated by reference
to Exhibit 10.10 to the 1995 Form 10-K)                                                                                                    
|       |  |                                                                                                                                                                                                                                                                                                                      
|10.11  |  | First amendment to $50 million line-of-credit agreement
dated August 7, 1997 among Agree Realty Corporation and
Michigan National Bank, as agent (incorporated by reference
to Exhibit 10.1 to the Companys Quarterly Report on Form
10-Q for the period ending September 30, 1997 (the
September 1997 Form 10-Q))
|       |  |                                                                                                                                                                                                                                                                                                                      
|10.12  |  | First amendment to $5 million business loan agreement dated
September 21, 1997 between Agree Limited Partnership and
Michigan National Bank (incorporated by reference to Exhibit
10.2 to the September 1997 Form 10-Q)                                                                                              
|       |  |                                                                                                                                                                                                                                                                                                                      
|10.13  |  | Second amendment to $50 million line-of-credit agreement
dated November 17, 1997 among Agree Realty Corporation and
Michigan National Bank, as agent (incorporated by reference to
Exhibit 10.19 to the Companys Annual Report on Form 10-K for the
year ended December 31, 1997)                                   
|       |  |                                                                                                                                                                                                                                                                                                                      
|10.14  |  | Second amendment to amended and restated $5 million business                                                                                                                                                                                                                                                         





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##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                                          
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |  | Loan agreement dated October 19, 1998 between Agree Limited
Partnership and Michigan National Bank (incorporated by reference
to Exhibit 10.17 to the Companys Annual Report on Form 10-K for
the year ended December 31, 1998)                                                         
|        |  |                                                                                                                                                                                                                                                                                          
|10.15 + |  | Employment Agreement, dated July 1, 1999, by and between the
Company, and Richard Agree (incorporated by reference to
exhibit 10.5 to the Companys Quarterly Report on Form 10-Q
for the period ending June 30, 1999 (the June 1999 Form 10-
Q))                                       
|        |  |                                                                                                                                                                                                                                                                                          
|10.16 + |  | Employment Agreement, dated July 1, 1999, by and between the
Company, and Kenneth R. Howe (incorporated by reference to
exhibit 10.6 to the June 1999 Form 10-Q)                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                          
|10.17   |  | Third amendment to amended and restated $5 million business
Loan agreement dated December 19, 1999 between Agree Limited
Partnership and Michigan National Bank (incorporated by reference
to exhibit 10.17 to the 1999 Form 10-K)                                                       
|        |  |                                                                                                                                                                                                                                                                                          
|10.18   |  | Assumption Agreement, Mortgage Modification and Amended and
Restated Mortgage and Security Agreement, dated as of March
31, 1999 by Agree Limited Partnership to and in favor of
Nationwide Life Insurance Company (incorporated by reference
to exhibit 10.1 to the June 1999 Form 10-Q)
|        |  |                                                                                                                                                                                                                                                                                          
|10.19   |  | Project Loan Agreement dated as of April 30, 1999 between Wilmington
Trust Company not in its individual capacity, but solely as Owner Trustee
and Agree  Columbia Crossing Project L.L.C. (incorporated by reference to
exhibit 10.2 to the June 1999 Form 10-Q)                       
|        |  |                                                                                                                                                                                                                                                                                          
|10.20   |  | Project Loan Agreement dated as of June 11, 1999 between Wilmington
Trust Company not in its individual capacity, but solely as Owner Trustee
and Agree  Milestone Center Project L.L.C. (incorporated by reference to
exhibit 10.3 to the June 1999 Form 10-Q)                         
|        |  |                                                                                                                                                                                                                                                                                          
|10.21   |  | Trust Mortgage dated as of June 27, 1999 from Agree Facility No. 1,
L.L.C. as Grantor to Manufacturers and Traders Trust Company (incorporated
by reference to exhibit 10.4 to the June 1999 Form 10-Q)                                                                                  
|        |  |                                                                                                                                                                                                                                                                                          
|10.22 + |  | Employment Agreement, dated January 10, 2000, by and between
the Company, and David J. Prueter (incorporated by reference
to exhibit 10.1 to the Companys Quarterly Report on Form
10-Q for the period ended March 31, 2000                                                             
|        |  |                                                                                                                                                                                                                                                                                          
|10.23   |  | Third amendment to $50 million line-of-credit agreement
dated August 7, 2000 among Agree Realty Corporation and
Michigan National Bank, as agent (incorporated by reference
To exhibit 10.1 to the Companys Quarterly report on Form
10-Q for the period ended September 30, 2000)      
|        |  |                                                                                                                                                                                                                                                                                          
|10.24   |  | Fourth amendment to amended and restated $5 million business
Loan agreement dated February 19, 2001 between Agree Limited
Partnership and Michigan National Bank (incorporated by
reference to exhibit 10.23 to the Companys Annual Report on                                           





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##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                                                                      
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |  | Form 10-K for the year ended December 31, 2000 (the 2000
Form 10-K))                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                      
|10.25   |  | Mortgage dated as of December 20, 2001, by Agree
Limited Partnership to and in favor of Nationwide Life
Insurance Company (incorporated by reference to exhibit
10.25 to the Companys Annual Report on Form 10-K for the
year ended December 31, 2001 (the 2001 from 10-K))                                        
|        |  |                                                                                                                                                                                                                                                                                                                      
|10.26   |  | Fifth amendment to amended and restated $5 million business
Loan agreement dated April 30, 2002 between Agree Limited
Partnership and Standard Federal Bank (incorporated by
reference to exhibit 10.1 to the Companys Quarterly Report
on Form 10-Q for the period ended June 30, 2002 (the June
2002 Form 10-Q))
|        |  |                                                                                                                                                                                                                                                                                                                      
|10.27   |  | Project Loan Agreement dated as of April 30, 2002 between Royal Identify
Company (together with its successors and assigns) and Lawrence Store No.
203 L.L.C. (together with its permitted successors and assigns)
(incorporated by reference to exhibit 10.2 to the June 2002 Form 10-Q)                            
|        |  |                                                                                                                                                                                                                                                                                                                      
|10.28   |  | Project Loan Agreement dated as of November 25, 2002 between Wilmington
Trust Company, not in its individual capacity, but solely as Owner
Trustee, and Indianapolis Store No. 16 L.L.C.                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                      
|10.29   |  | Project Loan Agreement dated as of January 30, 2003 between Modern
Woodman of America and Phoenix Drive L.L.C. (incorporated by reference to
exhibit 10.1 to the March 31, 2003 Form 10-Q)                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                      
|10.30   |  | Sixth amendment to amended and restated $5 million business loan
agreement dated April 30, 2003, between Agree Limited Partnership and
Standard Federal Bank (incorporated by reference to exhibit 10.1 to the
June 30, 2003 Form 10-Q)                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                      
|10.31   |  | Fourth amendment to $50 million Line of Credit agreement dated July 11,
2003 among Agree Realty Corporation and Standard Federal Bank, N.A.
(incorporated by reference to exhibit 10.2 to the June 30, 2003 Form 10-Q)                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                      
|10.32   |  | Amended and Restated $50 million Line of Credit agreement dated November
5, 2003, among Agree Realty Corporation, Standard Federal Bank and Bank
One. (incorporated by reference to exhibit 10.1 to the Sep 30, 2003 Form
10-Q)                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                      
|10.33 * |  | Indemnity Deed of Trust and Security Agreement dated October
31, 2003, by Agree  Columbia Crossing Project, L.L.C., and Nationwide
Life Insurance Company                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                      
|10.34 * |  | Indemnity Deed of Trust and Security Agreement dated October 31, 2003,
by Agree-Milestone Center Project, L.L.C., and Nationwide Life Insurance Company                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                      
|10.35 * |  | Mortgage and Security Agreement dated October 31, 2003, by
Oklahoma Store No. 151, L.L.C. and Nationwide Life Insurance                                                                                                                                                                                              





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##### Table of Contents



|        |  |                                                                                                                                  
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------
|        |  | Company                                                                                                                          
|        |  |                                                                                                                                  
|10.36 * |  | Deed of Trust and Security Agreement dated October 31, 2003,
by Omaha Store No. 166, L.L.C. and Nationwide Life Insurance
Company
|        |  |                                                                                                                                  
|14.1 *  |  | Chief Executive Officer and Chief Financial Officer Code of
Professional Ethics.                                                 
|        |  |                                                                                                                                  
|21.1 *  |  | Subsidiaries of Agree Realty Corporation                                                                                         
|        |  |                                                                                                                                  
|23 *    |  | Consent of BDO Seidman, LLP                                                                                                      
|        |  |                                                                                                                                  
|31.1 *  |  | Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, Richard Agree, Chief Executive Officer                  
|        |  |                                                                                                                                  
|31.2 *  |  | Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, Kenneth R. Howe, Chief Financial Officer                
|        |  |                                                                                                                                  
|32.1 *  |  | Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, Richard Agree, Chief Executive Officer                  
|        |  |                                                                                                                                  
|32.2 *  |  | Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, Kenneth R. Howe, Chief Financial Officer                
|        |  |                                                                                                                                  



---

|* |  | Filed herewith                                         
|- |  | -------------------------------------------------------
| 
|+ |  | Management contract or compensatory plan or arrangement





---



##### Table of Contents






SIGNATURES

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

| |  |                          |  |                                                               
| |  | ------------------------ |  | --------------------------------------------------------------
| |  | AGREE REALTY CORPORATION
| |  |                          |  |                                                               
| |  | By:                      |  | /s/ Richard Agree                                             
| |  | Name:                    |  | Richard Agree President and Chairman of the
Board of Directors
| |  | Date:                    |  | March 12, 2004                                                

PURSUANT to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 12th day of March 2004.

|    |  |                                                                                                                      |  |     |  |                                                
|--- |  | -------------------------------------------------------------------------------------------------------------------- |  | --- |  | -----------------------------------------------
|By: |  | /s/Richard AgreeRichard Agree
President and Chairman of the
Board of Directors
(Principal Executive Officer)         |  | By: |  | /s/ Farris G. KalilFarris G. Kalil
Director    
|   
|    |  |                                                                                                                      |  | By: |  | /s/ Michael RotchfordMichael Rotchford
Director
|   
|By: |  | /s/Kenneth R. HoweKenneth R. Howe
Vice President, Finance
and Secretary
(Principal Financial and
Accounting Officer) |  | By: |  | /s/ Ellis G. WachsEllis G. Wachs
Director      
|   
|    |  |                                                                                                                      |  | By: |  | /s/ Gene SilvermanGene Silverman
Director      
|   
|    |  |                                                                                                                      |  | By: |  | /s/ Leon M. SchurginLeon M. Schurgin
Director  





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##### Table of Contents



Agree Realty Corporation

Index

|                                                       |                                                 |  |      |     | 
|------------------------------------------------------ | ----------------------------------------------- |  | ---- | --- | 
|                                                       |                                                 |  | Page
|                                                       |                                                 |  |     
|Report of Independent Certified Public Accountants     |                                                 |  | F-2  |    
|Financial Statements                                   |                                                 |  |      |    
|                                                       | Consolidated Balance Sheets                     |  |      | F-3 | 
|                                                       | Consolidated Statements of Income               |  |      | F-5 | 
|                                                       | Consolidated Statements of Stockholders Equity |  |      | F-6 | 
|                                                       | Consolidated Statements of Cash Flows           |  |      | F-7 | 
|Notes to Consolidated Financial Statements             |                                                 |  | F-9  |    
|Schedule III -Real Estate and Accumulated Depreciation |                                                 |  | F-25 |    

F - 1



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##### Table of Contents






Report of Independent Certified Public Accountants

To the Board of Directors and Owners of
Agree Realty Corporation
Farmington Hills, Michigan

We have audited the accompanying consolidated balance sheets of Agree Realty
Corporation (the Company) as of December 31, 2003 and 2002, and the related
consolidated statements of income, stockholders equity and cash flows for each
of the three years in the period ended December 31, 2003. We have also audited
the schedule listed in the accompanying index. These financial statements and
the schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements and the
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements and the schedule are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and the schedule. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
financial statements and the schedule. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Agree Realty
Corporation at December 31, 2003 and 2002, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2003 in conformity with accounting principles generally accepted in the United
States of America.

Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.

BDO SEIDMAN, LLP

Troy, Michigan
February 13, 2004

F - 2



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##### Table of Contents






Agree Realty Corporation

Consolidated Balance Sheets

|                                                                                            |                               |      |             |             |   |   |             |             |  
|------------------------------------------------------------------------------------------- | ----------------------------- | ---- | ----------- | ----------- | - | - | ----------- | ----------- | -
|December 31,                                                                                |                               | 2003 |             | 2002       
|                                                                                            |                               |      |             |            
|Assets                                                                                      |                               |      |             |             |   |   |             |            
|Real Estate Investments(Notes 3, 4 and 5)                                                   |                               |      |             |             |   |   |             |            
|                                                                                            | Land                          |      | $           | 56,848,606  |   |   | $           | 53,177,464  |  
|                                                                                            | Buildings                     |      |             | 161,265,188 |   |   |             | 155,536,789 |  
|                                                                                            | Property under development    |      |             | 3,110,835   |   |   |             | 2,271,413   |  
|                                                                                            |                               |      |             |             |   |   |             |             |  
|                                                                                            |                               |      | 221,224,629 |             |   |   | 210,985,666 |            
|                                                                                            | Less accumulated depreciation |      |             | (38,475,767 | ) |   |             | (37,456,301 | )
|                                                                                            |                               |      |             |             |   |   |             |             |  
|Net Real Estate Investments                                                                 |                               |      | 182,748,862 |             |   |   | 173,529,365 |            
|Cash and Cash Equivalents                                                                   |                               |      | 1,004,090   |             |   |   | 1,095,610   |            
|Cash - Restricted                                                                           |                               |      | 4,309,914   |             |   |   |            |            
|Accounts Receivable - Tenants,net of allowance of
$120,000 and $185,000 for possible losses |                               |      | 622,337     |             |   |   | 784,637     |            
|Investments In and Advances To
Unconsolidated Entities                                      |                               |      | 330,316     |             |   |   | 315,496     |            
|Unamortized Deferred Expenses                                                               |                               |      |             |             |   |   |             |            
|                                                                                            | Financing costs               |      |             | 1,155,427   |   |   |             | 1,117,253   |  
|                                                                                            | Leasing costs                 |      |             | 231,344     |   |   |             | 307,746     |  
|Other Assets                                                                                |                               |      | 1,283,424   |             |   |   | 1,012,065   |            
|                                                                                            |                               |      |             |             |   |   |             |             |  
|                                                                                            |                               | $    | 191,685,714 |             |   | $ | 178,162,172 |            
|                                                                                            |                               |      |             |             |   |   |             |             |  

See accompanying notes to consolidated financial statements.

F - 3



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##### Table of Contents



Agree Realty Corporation

Consolidated Balance Sheets

|                                                         |                                                                                                                     |      |             |             |   |   |             |             |  
|-------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------- | ---- | ----------- | ----------- | - | - | ----------- | ----------- | -
|December 31,                                             |                                                                                                                     | 2003 |             | 2002       
|                                                         |                                                                                                                     |      |             |            
|Liabilities and Stockholders Equity                     |                                                                                                                     |      |             |             |   |   |             |            
|Mortgages Payable(Note 3)                                |                                                                                                                     | $    | 55,967,378  |             |   | $ | 71,588,863  |            
|Construction Loans(Note 4)                               |                                                                                                                     |      | 1,569,000   |             |   |   | 5,612,313   |            
|Notes Payable(Note 5)                                    |                                                                                                                     |      | 26,500,000  |             |   |   | 38,083,232  |            
|Dividends and Distributions Payable(Note 6)              |                                                                                                                     |      | 3,447,328   |             |   |   | 2,356,156   |            
|Accrued Interest Payable                                 |                                                                                                                     |      | 167,099     |             |   |   | 249,706     |            
|Accounts Payable                                         |                                                                                                                     |      |             |             |   |   |             |            
|                                                         | Capital expenditures                                                                                                |      |             | 570,363     |   |   |             | 589,760     |  
|                                                         | Operating                                                                                                           |      |             | 1,408,272   |   |   |             | 1,179,273   |  
|Tenant Deposits                                          |                                                                                                                     |      | 47,099      |             |   |   | 93,138      |            
|                                                         |                                                                                                                     |      |             |             |   |   |             |            
|Total Liabilities                                        |                                                                                                                     |      | 89,676,539  |             |   |   | 119,752,441 |            
|                                                         |                                                                                                                     |      |             |             |   |   |             |            
|Minority Interest(Note 7)                                |                                                                                                                     |      | 5,821,739   |             |   |   | 5,787,007   |            
|                                                         |                                                                                                                     |      |             |             |   |   |             |            
|Stockholders Equity(Note 6)                             |                                                                                                                     |      |             |             |   |   |             |            
|                                                         | Common stock, $.0001 par value; 20,000,000
shares authorized; 6,434,345 and 4,448,531
shares issued and outstanding |      |             | 643         |   |   |             | 445         |  
|                                                         | Additional paid-in capital                                                                                          |      |             | 108,251,813 |   |   |             | 64,506,772  |  
|                                                         | Deficit                                                                                                             |      |             | (11,227,636 | ) |   |             | (11,135,499 | )
|                                                         |                                                                                                                     |      |             |             |   |   |             |            
|                                                         |                                                                                                                     |      | 97,024,820  |             |   |   | 53,371,718  |            
|Less: unearned compensation  restricted stock (Note 10) |                                                                                                                     |      | (837,384    | )           |   |   | (748,994    | )          
|                                                         |                                                                                                                     |      |             |             |   |   |             |            
|Total Stockholders Equity                               |                                                                                                                     |      | 96,187,436  |             |   |   | 52,622,724  |            
|                                                         |                                                                                                                     |      |             |             |   |   |             |            
|                                                         |                                                                                                                     | $    | 191,685,714 |             |   | $ | 178,162,172 |            
|                                                         |                                                                                                                     |      |             |             |   |   |             |            

See accompanying notes to consolidated financial statements.

F - 4



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##### Table of Contents






Agree Realty Corporation

Consolidated Statements of Income

|                                                                                              |                                                   |      |            |            |   |      |            |            |   |   |            |            |  
|--------------------------------------------------------------------------------------------- | ------------------------------------------------- | ---- | ---------- | ---------- | - | ---- | ---------- | ---------- | - | - | ---------- | ---------- | -
|Year Ended December 31,                                                                       |                                                   | 2003 |            | 2002       |   | 2001
|                                                                                              |                                                   |      |            |            |   |     
|Revenues                                                                                      |                                                   |      |            |            |   |      |            |            |   |   |            |           
|                                                                                              | Minimum rents                                     |      | $          | 24,333,371 |   |      | $          | 21,593,957 |   |   | $          | 20,661,694 |  
|                                                                                              | Percentage rents                                  |      |            | 185,620    |   |      |            | 247,994    |   |   |            | 413,058    |  
|                                                                                              | Operating cost reimbursement                      |      |            | 2,950,565  |   |      |            | 2,557,965  |   |   |            | 2,335,183  |  
|                                                                                              | Other income (Note 8)                             |      |            | 2,885      |   |      |            | 9,250      |   |   |            | 40,573     |  
|                                                                                              |                                                   |      |            |            |   |      |            |            |   |   |            |            |  
|Total Revenues                                                                                |                                                   |      | 27,472,441 |            |   |      | 24,409,166 |            |   |   | 23,450,508 |           
|                                                                                              |                                                   |      |            |            |   |      |            |            |   |   |            |            |  
|Operating Expenses                                                                            |                                                   |      |            |            |   |      |            |            |   |   |            |           
|                                                                                              | Real estate taxes                                 |      |            | 1,778,517  |   |      |            | 1,694,031  |   |   |            | 1,638,271  |  
|                                                                                              | Property operating expenses                       |      |            | 1,948,754  |   |      |            | 1,609,350  |   |   |            | 1,267,534  |  
|                                                                                              | Land lease payments                               |      |            | 736,793    |   |      |            | 738,915    |   |   |            | 738,960    |  
|                                                                                              | General and administrative                        |      |            | 2,275,177  |   |      |            | 2,011,854  |   |   |            | 1,756,709  |  
|                                                                                              | Depreciation and amortization                     |      |            | 4,081,942  |   |      |            | 3,712,373  |   |   |            | 3,622,655  |  
|                                                                                              |                                                   |      |            |            |   |      |            |            |   |   |            |            |  
|Total Operating Expenses                                                                      |                                                   |      | 10,821,183 |            |   |      | 9,766,523  |            |   |   | 9,024,129  |           
|                                                                                              |                                                   |      |            |            |   |      |            |            |   |   |            |            |  
|Income From Continuing Operations                                                             |                                                   |      | 16,651,258 |            |   |      | 14,642,643 |            |   |   | 14,426,379 |           
|                                                                                              |                                                   |      |            |            |   |      |            |            |   |   |            |            |  
|Other Income (Expense)                                                                        |                                                   |      |            |            |   |      |            |            |   |   |            |           
|                                                                                              | Interest expense, net                             |      |            | (5,684,200 | ) |      |            | (6,196,153 | ) |   |            | (6,720,318 | )
|                                                                                              | Early extinguishment of debt                      |      |            | (961,334   | ) |      |            |           |   |   |            |           |  
|                                                                                              | Equity in net income of unconsolidated entities   |      |            | 438,489    |   |      |            | 673,580    |   |   |            | 694,319    |  
|                                                                                              | Gain on sale of assets                            |      |            |           |   |      |            |           |   |   |            | 218,543    |  
|                                                                                              |                                                   |      |            |            |   |      |            |            |   |   |            |            |  
|Total Other Expense                                                                           |                                                   |      | (6,207,045 | )          |   |      | (5,522,573 | )          |   |   | (5,807,456 | )         
|                                                                                              |                                                   |      |            |            |   |      |            |            |   |   |            |            |  
|Income Before Minority Interest and Discontinued Operations                                   |                                                   |      | 10,444,213 |            |   |      | 9,120,070  |            |   |   | 8,618,923  |           
|Minority Interest                                                                             |                                                   |      | 1,183,319  |            |   |      | 1,199,298  |            |   |   | 1,140,312  |           
|                                                                                              |                                                   |      |            |            |   |      |            |            |   |   |            |            |  
|Income Before Discontinued Operations                                                         |                                                   |      | 9,260,894  |            |   |      | 7,920,772  |            |   |   | 7,478,611  |           
|Gain on Sale of Asset From Discontinued Operations,
net of minority interest of $94,575       |                                                   |      | 740,094    |            |   |      |           |            |   |   |           |           
|Income From Discontinued Operations,net of minority
interest of $60,152, $128,935 and $89,507 |                                                   |      | 470,758    |            |   |      | 851,558    |            |   |   | 587,042    |           
|                                                                                              |                                                   |      |            |            |   |      |            |            |   |   |            |            |  
|Net Income                                                                                    |                                                   | $    | 10,471,746 |            |   | $    | 8,772,330  |            |   | $ | 8,065,653  |           
|                                                                                              |                                                   |      |            |            |   |      |            |            |   |   |            |            |  
|Basic and Diluted Earnings Per Share(Note 2)                                                  |                                                   |      |            |            |   |      |            |            |   |   |            |           
|                                                                                              | Income before discontinued operations             |      | $          | 1.79       |   |      | $          | 1.80       |   |   | $          | 1.71       |  
|                                                                                              | Discontinued operations, net of minority interest |      |            | .20        |   |      |            | .17        |   |   |            | 12         |  
|                                                                                              |                                                   |      |            |            |   |      |            |            |   |   |            |            |  
|Earnings Per Share                                                                            |                                                   | $    | 1.99       |            |   | $    | 1.97       |            |   | $ | 1.83       |           
|                                                                                              |                                                   |      |            |            |   |      |            |            |   |   |            |            |  

See accompanying notes to consolidated financial statements.

F - 5



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##### Table of Contents






Agree Realty Corporation

Consolidated Statements of Stockholders Equity

|                                                  |  |              |           |            |  |         |     |         |  |                  |             |   |  |   |             |   |  |   |          |  
|------------------------------------------------- |  | ------------ | --------- | ---------- |  | ------- | --- | ------- |  | ---------------- | ----------- | - |  | - | ----------- | - |  | - | -------- | -
|                                                  |  | Common Stock |           | Additional |  |         |     |         |  | Unearned        
|                                                  |  |              |           | Paid-In    |  |         |     |         |  | Compensation -  
|                                                  |  | Shares       |           | Amount     |  | Capital |     | Deficit |  | Restricted Stock
|                                                  |  |              |           |            |  |         |     |         |  |                 
|Balance,January 1, 2001                           |  |              | 4,394,669 |            |  | $       | 440 |         |  | $                | 63,632,433  |   |  | $ | (11,663,446 | ) |  | $ | (542,341 | )
|Issuance of shares under the Stock
Incentive Plan |  |              | 27,291    |            |  |         | 2   |         |  |                  | 375,249     |   |  |   |            |   |  |   | (305,250 | )
|Shares redeemed under the Stock
Incentive Plan    |  |              | (5,091    | )          |  |         |    |         |  |                  | (70,000     | ) |  |   |            |   |  |   |         |  
|Vesting of restricted stock                       |  |              |          |            |  |         |    |         |  |                  |            |   |  |   |            |   |  |   | 266,252  |  
|Dividends declared, $1.84 per share               |  |              |          |            |  |         |    |         |  |                  |            |   |  |   | (8,127,039  | ) |  |   |         |  
|Net income                                        |  |              |          |            |  |         |    |         |  |                  |            |   |  |   | 8,065,653   |   |  |   |         |  
|                                                  |  |              |           |            |  |         |     |         |  |                  |             |   |  |   |             |   |  |   |          |  
|Balance,December 31, 2001                         |  |              | 4,416,869 |            |  |         | 442 |         |  |                  | 63,937,682  |   |  |   | (11,724,832 | ) |  |   | (581,339 | )
|Issuance of shares under the Stock
Incentive Plan |  |              | 37,662    |            |  |         | 3   |         |  |                  | 680,030     |   |  |   |            |   |  |   | (482,900 | )
|Shares redeemed under the Stock
Incentive Plan    |  |              | (6,000    | )          |  |         |    |         |  |                  | (110,940    | ) |  |   |            |   |  |   |         |  
|Vesting of restricted stock                       |  |              |          |            |  |         |    |         |  |                  |            |   |  |   |            |   |  |   | 315,245  |  
|Dividends declared, $1.84 per share               |  |              |          |            |  |         |    |         |  |                  |            |   |  |   | (8,182,997  | ) |  |   |         |  
|Net income                                        |  |              |          |            |  |         |    |         |  |                  |            |   |  |   | 8,772,330   |   |  |   |         |  
|                                                  |  |              |           |            |  |         |     |         |  |                  |             |   |  |   |             |   |  |   |          |  
|Balance,December 31, 2002                         |  |              | 4,448,531 |            |  |         | 445 |         |  |                  | 64,506,772  |   |  |   | (11,135,499 | ) |  |   | (748,994 | )
|Issuance of common stock, net of
issuance costs   |  |              | 1,955,000 |            |  |         | 195 |         |  |                  | 43,224,291  |   |  |   |            |   |  |   |         |  
|Issuance of shares under the Stock
Incentive Plan |  |              | 36,814    |            |  |         | 3   |         |  |                  | 622,150     |   |  |   |            |   |  |   | (456,300 | )
|Shares redeemed under the Stock
Incentive Plan    |  |              | (6,000    | )          |  |         |    |         |  |                  | (101,400    | ) |  |   |            |   |  |   |         |  
|Vesting of restricted stock                       |  |              |          |            |  |         |    |         |  |                  |            |   |  |   |            |   |  |   | 367,910  |  
|Dividends declared, $1.94 per share               |  |              |          |            |  |         |    |         |  |                  |            |   |  |   | (10,563,883 | ) |  |   |         |  
|Net income                                        |  |              |          |            |  |         |    |         |  |                  |            |   |  |   | 10,471,746  |   |  |   |         |  
|                                                  |  |              |           |            |  |         |     |         |  |                  |             |   |  |   |             |   |  |   |          |  
|Balance,December 31, 2003                         |  |              | 6,434,345 |            |  | $       | 643 |         |  | $                | 108,251,813 |   |  | $ | (11,227,636 | ) |  | $ | (837,384 | )
|                                                  |  |              |           |            |  |         |     |         |  |                  |             |   |  |   |             |   |  |   |          |  

See accompanying notes to consolidated financial statements.

F - 6



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Agree Realty Corporation

Consolidated Statements of Cash Flows

|                                          |                                                                                                                                    |                                                 |             |             |           |      |             |             |           |   |            |            |           |  
|----------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | ----------- | ----------- | --------- | ---- | ----------- | ----------- | --------- | - | ---------- | ---------- | --------- | -
|Year Ended December 31,                   |                                                                                                                                    | 2003                                            |             | 2002        |           | 2001
|                                          |                                                                                                                                    |                                                 |             |             |           |     
|Cash Flows From Operating Activities      |                                                                                                                                    |                                                 |             |             |           |      |             |             |           |   |            |           
|                                          | Net income                                                                                                                         |                                                 | $           | 10,471,746  |           |      | $           | 8,772,330   |           |   | $          | 8,065,653  |          
|                                          | Adjustments to reconcile net income to net
cash provided by operating activities                                                   |                                                 |             |             |           |      |             |             |           |   |            |            |          
|                                          |                                                                                                                                    | Depreciation                                    |             |             | 4,188,655 |      |             |             | 3,861,751 |   |            |            | 3,767,240 |  
|                                          |                                                                                                                                    | Amortization                                    |             |             | 633,922   |      |             |             | 357,589   |   |            |            | 454,196   |  
|                                          |                                                                                                                                    | Stock-based compensation                        |             |             | 367,910   |      |             |             | 315,245   |   |            |            | 266,252   |  
|                                          |                                                                                                                                    | Gain on sale of assets                          |             |             | (834,669  | )    |             |             |          |   |            |            | (218,543  | )
|                                          |                                                                                                                                    | Equity in net income of unconsolidated entities |             |             | (438,489  | )    |             |             | (673,580  | ) |            |            | (694,319  | )
|                                          |                                                                                                                                    | Minority interests                              |             |             | 1,338,046 |      |             |             | 1,328,233 |   |            |            | 1,229,819 |  
|                                          |                                                                                                                                    | Decrease (increase) in accounts receivable      |             |             | 162,300   |      |             |             | (117,888  | ) |            |            | 74,816    |  
|                                          |                                                                                                                                    | (Increase) in other assets                      |             |             | (336,483  | )    |             |             | (191,958  | ) |            |            | (29,313   | )
|                                          |                                                                                                                                    | Increase (decrease) in accounts payable         |             |             | 228,999   |      |             |             | (65,677   | ) |            |            | 227,457   |  
|                                          |                                                                                                                                    | Increase (decrease) in accrued interest         |             |             | (82,607   | )    |             |             | 31,108    |   |            |            | (96,009   | )
|                                          |                                                                                                                                    | Increase (decrease) in tenant deposits          |             |             | (46,039   | )    |             |             | 43,118    |   |            |            | (1,220    | )
|                                          |                                                                                                                                    |                                                 |             |             |           |      |             |             |           |   |            |            |          
|Net Cash Provided By Operating Activities |                                                                                                                                    |                                                 | 15,653,291  |             |           |      | 13,660,271  |             |           |   | 13,046,029 |           
|                                          |                                                                                                                                    |                                                 |             |             |           |      |             |             |           |   |            |            |          
|Cash Flows From Investing Activities      |                                                                                                                                    |                                                 |             |             |           |      |             |             |           |   |            |           
|                                          | Acquisition of real estate investments (including
capitalized interest of $213,000 in 2003,
$118,000 in 2002 and $165,800 in 2001) |                                                 |             | (20,116,584 | )         |      |             | (13,910,078 | )         |   |            | (4,839,564 | )        
|                                          | Distributions from unconsolidated entities                                                                                         |                                                 |             | 438,489     |           |      |             | 673,580     |           |   |            | 694,319    |          
|                                          | Net proceeds from sale of assets, less
amounts held in escrow                                                                      |                                                 |             | 3,887,338   |           |      |             |            |           |   |            | 280,000    |          
|                                          |                                                                                                                                    |                                                 |             |             |           |      |             |             |           |   |            |            |          
|Net Cash Used In Investing Activities     |                                                                                                                                    |                                                 | (15,790,757 | )           |           |      | (13,236,498 | )           |           |   | (3,865,245 | )         
|                                          |                                                                                                                                    |                                                 |             |             |           |      |             |             |           |   |            |            |          

See accompanying notes to consolidated financial statements.

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Agree Realty Corporation

Consolidated Statements of Cash Flows

|                                                    |                                                                   |      |           |             |   |      |           |            |   |   |            |             |  
|--------------------------------------------------- | ----------------------------------------------------------------- | ---- | --------- | ----------- | - | ---- | --------- | ---------- | - | - | ---------- | ----------- | -
|Year Ended December 31,                             |                                                                   | 2003 |           | 2002        |   | 2001
|                                                    |                                                                   |      |           |             |   |     
|Cash Flows From Financing Activities                |                                                                   |      |           |             |   |      |           |            |   |   |            |            
|                                                    | Line-of-credit net borrowings (payments)                          |      |           | (11,583,232 | ) |      |           | 18,125,000 |   |   |            | (15,400,000 | )
|                                                    | Dividends and limited partners distributions paid                |      |           | (10,776,024 | ) |      |           | (9,407,759 | ) |   |            | (9,356,153  | )
|                                                    | Payment on construction loans                                     |      |           | (4,043,313  | ) |      |           | (7,766,219 | ) |   |            | (53,800     | )
|                                                    | Payments of mortgages payable                                     |      |           | (38,320,636 | ) |      |           | (2,104,010 | ) |   |            | (1,910,433  | )
|                                                    | Mortgage proceeds                                                 |      |           | 22,699,151  |   |      |           | 1,301,866  |   |   |            | 19,000,000  |  
|                                                    | Payments of payables for capital expenditures                     |      |           | (423,910    | ) |      |           | (401,229   | ) |   |            | (1,040,672  | )
|                                                    | Redemption of restricted stock                                    |      |           | (101,400    | ) |      |           | (110,940   | ) |   |            | (70,000     | )
|                                                    | Payments for financing costs                                      |      |           | (609,367    | ) |      |           | (43,103    | ) |   |            | (256,679    | )
|                                                    | Payments of leasing costs                                         |      |           | (19,811     | ) |      |           | (23,630    | ) |   |            | (110,258    | )
|                                                    | Net proceeds from the issuance of common stock                    |      |           | 43,224,488  |   |      |           |           |   |   |            |            |  
|                                                    |                                                                   |      |           |             |   |      |           |            |   |   |            |             |  
|Net Cash Provided By (Used In) Financing Activities |                                                                   |      | 45,946    |             |   |      | (430,024  | )          |   |   | (9,197,995 | )          
|                                                    |                                                                   |      |           |             |   |      |           |            |   |   |            |             |  
|Net Decrease In Cash and Cash Equivalents           |                                                                   |      | (91,520   | )           |   |      | (6,251    | )          |   |   | (17,211    | )          
|Cash and Cash Equivalents,beginning of year         |                                                                   |      | 1,095,610 |             |   |      | 1,101,861 |            |   |   | 1,119,072  |            
|                                                    |                                                                   |      |           |             |   |      |           |            |   |   |            |             |  
|Cash and Cash Equivalents,end of year               |                                                                   | $    | 1,004,090 |             |   | $    | 1,095,610 |            |   | $ | 1,101,861  |            
|                                                    |                                                                   |      |           |             |   |      |           |            |   |   |            |             |  
|Supplemental Disclosure of Cash Flow Information    |                                                                   |      |           |             |   |      |           |            |   |   |            |            
|                                                    | Cash paid for interest (net of amounts capitalized)               |      | $         | 5,619,551   |   |      | $         | 5,889,778  |   |   | $          | 6,486,219   |  
|                                                    |                                                                   |      |           |             |   |      |           |            |   |   |            |             |  
|Supplemental Disclosure of Non-Cash Transactions    |                                                                   |      |           |             |   |      |           |            |   |   |            |            
|                                                    | Construction loan paid with mortgage                              |      | $         |            |   |      | $         | 3,181,670  |   |   | $          |            |  
|                                                    | Dividends and limited partners distributions
declared and unpaid |      | $         | 3,447,328   |   |      | $         | 2,356,156  |   |   | $          | 2,341,591   |  
|                                                    | Shares issued under Stock Incentive Plan                          |      | $         | 622,153     |   |      | $         | 680,033    |   |   | $          | 375,251     |  
|                                                    | Real estate investments financed with accounts
payable            |      | $         | 570,363     |   |      | $         | 589,760    |   |   | $          | 598,362     |  
|                                                    |                                                                   |      |           |             |   |      |           |            |   |   |            |             |  

See accompanying notes to consolidated financial statements.

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Agree Realty Corporation

Notes to Consolidated Financial Statements

1.     The Company

Agree Realty Corporation (the
Company) is a self-administered,
self-managed real estate investment
trust, which develops, acquires, owns
and operates properties, which are
primarily leased to national and
regional retail companies under net
leases. At December 31, 2003, the
Companys properties are comprised of
thirty-five single tenant retail
facilities and thirteen shopping
centers located in thirteen states. In
addition, the Company owns joint
venture interests of 11% and 12%
respectively in two free-standing
retail properties. During the year
ended December 31, 2003, approximately
96% of the Companys base rental
revenues were received from national
and regional tenants under long-term
leases, including approximately 33%
from Borders, Inc., 17% from Walgreen
Co., and 17% from Kmart Corporation.

2.     Summary of Significant
Accounting Policies

Principles of Consolidation

The consolidated financial statements
of Agree Realty Corporation include the
accounts of the Company, its
majority-owned partnership, Agree
Limited Partnership (the Operating
Partnership), and its wholly-owned
subsidiaries. The Company controlled,
as the sole general partner, 90.52% and
86.85% of the Operating Partnership as
of December 31, 2003 and 2002,
respectively. All material intercompany
accounts and transactions are
eliminated.

Use of Estimates

The preparation of financial statements
in conformity with generally accepted
accounting principles, requires
management to make estimates and
assumptions that affect the reported
amounts of (1) assets and liabilities
and the disclosure of contingent assets
and liabilities as of the date of the
financial statements, and (2) revenues
and expenses during the reporting
period. Actual results could differ
from those estimates.

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Agree Realty Corporation

Notes to Consolidated Financial Statements

Fair Values of Financial Instruments

The carrying amounts of the Companys financial instruments, which consist of
cash, cash equivalents, receivables, notes payable, accounts payable and
long-term debt, approximate their fair values.

Valuation of Long-Lived Assets

Long-lived assets such as real estate investments are evaluated for impairment
when events or changes in circumstances indicate that the carrying amount of
the assets may not be recoverable through the estimated undiscounted future
cash flows from the use of these assets. When any such impairment exists, the
related assets will be written down to fair value. No impairment loss
recognition has been required through December 31, 2003.

Real Estate Investments

Real estate assets are stated at cost less accumulated depreciation. All costs
related to planning, development and construction of buildings prior to the
date they become operational, including interest and real estate taxes during
the construction period, are capitalized for financial reporting purposes and
recorded as Property under development until construction has been completed.
As of December 31, 2003, the cost to complete the properties under development
is approximately $1,400,000.

Subsequent to completion of construction, expenditures for property maintenance
are charged to operations as incurred, while significant renovations are
capitalized. Depreciation of the buildings is recorded on the straight-line
method using an estimated useful life of forty years.

Cash and Cash Equivalents

Cash and cash equivalents include cash
and money market accounts.
Pursuant to an agreement, restricted cash is held in escrow for the acquisition
of real estate investments.

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Agree Realty Corporation

Notes to Consolidated Financial Statements

Accounts Receivable - Tenants

Accounts receivable from tenants reflect primarily reimbursement of specified
common area expenses. The Company determines its allowance for uncollectible
accounts based on historical trends, existing economic conditions, and known
financial position of its tenants. Tenant accounts receivable are written-off
by the Company only when receipt is remote.

Investments in Unconsolidated Entities

The Company uses the equity method of accounting for investments in
non-majority owned entities where the Company has the ability to exercise
significant influence over operating and financial policies.
The Companys initial investment is recorded at cost, and the carrying amount
of the investment is (a) increased by the Companys share of the investees
earnings (as defined in the limited liability company agreements), and (b)
reduced by distributions paid from the investees to the Company.

Unamortized Deferred Expenses

Deferred expenses are stated net of total accumulated amortization. The nature
and treatment of these capitalized costs are as follows: (1) financing costs,
consisting of expenditures incurred to obtain long-term financing, are being
amortized using the interest method over the term of the related loan, and (2)
leasing costs, which are amortized on a straight-line basis over the term of
the related lease.

Other Assets

The Company records prepaid expenses, deposits and miscellaneous receivables as
other assets in the accompanying balance sheets.

Accounts Payable - Capital Expenditures

Included in accounts payable are amounts related to the construction of
buildings. Due to the nature of these expenditures, they are reflected in the
statements of cash flows as a financing activity.

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Agree Realty Corporation

Notes to Consolidated Financial Statements

Minority Interest

This amount represents the limited partners interest (OP Units) of 9.48% and
13.15% (convertible into 637,547 shares) in the Operating Partnership as of
December 31, 2003 and 2002, respectively.

Revenue Recognition

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

Operating Cost Reimbursement

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

Income Taxes

The Company elected to be taxed as a REIT under the Internal Revenue Code of
1986, as amended (the Code), and began operating as such on April 22, 1994.
As a result, the Company is not subject to federal income taxes to the extent
that it distributes annually at least 90% of its taxable income to its
shareholders and satisfies certain other requirements defined in the Code.
Accordingly, no provision was made for federal income taxes in the accompanying
consolidated financial statements.

Stock Options

The Company has elected to adopt the recognition provisions of Statement of
Financial Accounting Standards (SFAS) No. 123 Accounting for Stock-Based
Compensation (SFAS 123) using the prospective method beginning January 1,
2003. SFAS 123 establishes a fair value based method of accounting for
stock-based compensation plans under which employees receive shares of stock or
other equity instruments of the Company or the Company incurs liabilities to
employees in amounts based on the price of its stock. No stock options were
granted during 2003, 2002 or 2001 and there was no expense for stock options
that would be required.

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Agree Realty Corporation

Notes to Consolidated Financial Statements

Dividends

The Company declared dividends of $1.94, $1.84 and $1.84 per share during
the years ended December 31, 2003, 2002, and 2001; the dividends have been
reflected for federal income tax purposes as follows:

|                  |  |      |      |      |  |      |      |  |  |   |      | 
|----------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  | - | ---- | 
|December 31,      |  | 2003 |      | 2002 |  | 2001
|                  |  |      |      |      |  |     
|Ordinary income   |  | $    | 1.78 |      |  | $    | 1.84 |  |  | $ | 1.76 | 
|Return of capital |  |      | .16  |      |  |      |     |  |  |   | .08  | 
|                  |  |      |      |      |  |      |      |  |  |   |      | 
|Total             |  | $    | 1.94 |      |  | $    | 1.84 |  |  | $ | 1.84 | 
|                  |  |      |      |      |  |      |      |  |  |   |      | 

The aggregate federal income tax basis of Real Estate Investments is
approximately $17.3 million less than the financial statement basis.

Discontinued Operations

During October 2003 the Company completed the sale of a shopping center for
approximately $8.5 million and recognized a gain of approximately $740,000,
net of minority interest. The shopping center was anchored by Kmart
Corporation and Kash N Karry and was located in Winter Garden, Florida. The
gain on the sale and results of operations for this property are presented
as discontinued operations in the Companys Consolidated Statements of
Income.

The revenues from this property were $878,462, $1,415,268 and $1,178,460 for
the years ended December 31, 2003, 2002 and 2001, respectively. The
expenses for this property were $407,704, $563,710 and $591,418, including
minority interest charges of $60,152, $128,935 and $89,507, for the years
ending December 31, 2003, 2002 and 2001, respectively.

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Agree Realty Corporation

Notes to Consolidated Financial Statements

Early Extinguishment of Debt

In August 2003, the Company repaid three mortgages totaling approximately $37,000,000 prior to
their scheduled maturity. In connection with this transaction, the Company incurred a
pre-payment penalty of $555,000 and wrote-off unamortized mortgage costs in the amount of
$406,000.

Earnings Per Share

Earnings per share reflected in the consolidated statements of operations are presented for all
periods in accordance with SFAS No. 128, Earnings per Share. In connection therewith, any
conversion of OP Units to common stock would have no effect on the earnings per share
calculation since the allocation of earnings to an OP Unit is equivalent to earnings allocated
to a share of common stock.

The following table sets forth the computation of basic and diluted earnings per share:

|                                                                                                                |                                        |      |            |            |  |      |            |           |  |   |           |           | 
|--------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ---- | ---------- | ---------- |  | ---- | ---------- | --------- |  | - | --------- | --------- | 
|December 31,                                                                                                    |                                        | 2003 |            | 2002       |  | 2001
|                                                                                                                |                                        |      |            |            |  |     
|Numerator                                                                                                       |                                        |      |            |            |  |      |            |           |  |   |           |          
|                                                                                                                | Net income                             |      | $          | 10,471,746 |  |      | $          | 8,772,330 |  |   | $         | 8,065,653 | 
|                                                                                                                | Income allocated to minority interests |      |            | 1,338,046  |  |      |            | 1,328,233 |  |   |           | 1,229,819 | 
|                                                                                                                |                                        |      |            |            |  |      |            |           |  |   |           |           | 
|Numerator for Basic and Diluted
Earnings Per Share - Income Available
to Shareholders After Assumed
Conversions |                                        | $    | 11,809,792 |            |  | $    | 10,100,563 |           |  | $ | 9,295,472 |          
|                                                                                                                |                                        |      |            |            |  |      |            |           |  |   |           |           | 

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Agree Realty Corporation

Notes to Consolidated Financial Statements

|                                                                                                    |                                                            |      |           |           |  |      |           |           |  |  |           |           | 
|--------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ---- | --------- | --------- |  | ---- | --------- | --------- |  |  | --------- | --------- | 
|December 31,                                                                                        |                                                            | 2003 |           | 2002      |  | 2001
|                                                                                                    |                                                            |      |           |           |  |     
|Denominator                                                                                         |                                                            |      |           |           |  |      |           |           |  |  |           |          
|                                                                                                    | Weighted average shares outstanding                        |      |           | 5,272,523 |  |      |           | 4,446,791 |  |  |           | 4,416,869 | 
|                                                                                                    | Weighted average OP Units outstanding,
Assuming conversion |      |           | 673,547   |  |      |           | 673,547   |  |  |           | 673,547   | 
|                                                                                                    |                                                            |      |           |           |  |      |           |           |  |  |           |           | 
|Denominator for Basic Earnings Per Share -
Adjusted Weighted Average Shares and Assumed
Conversions |                                                            |      | 5,946,070 |           |  |      | 5,120,338 |           |  |  | 5,090,416 |          
|Employee Stock Options                                                                              |                                                            |      | 3,343     |           |  |      |          |           |  |  |          |          
|                                                                                                    |                                                            |      |           |           |  |      |           |           |  |  |           |           | 
|Denominator for Diluted Earnings Per Share                                                          |                                                            |      | 5,949,413 |           |  |      | 5,120,338 |           |  |  | 5,090,416 |          
|                                                                                                    |                                                            |      |           |           |  |      |           |           |  |  |           |           | 

Options to purchase shares of common stock were outstanding (see Note 9) but were not included in
the computation of diluted earnings per share in 2002 and 2001 because the options exercise price
was greater than the average market price of the common shares and, therefore, any additional
shares would be anti-dilutive.

Recent Accounting Pronouncements

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity (SFAS 150). The objective of SFAS 150 is to establish standards
for how an issuer classifies and measures certain financial instruments
with characteristics of both liabilities and equity. In November 2003,
the FASB indefinitely delayed the effective date for certain mandatorily
redeemable noncontrolling interests in consolidated financial statements.
Adoption of SFAS 150 did not have an impact on the results of operations
or financial position of the Company.

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Agree Realty Corporation

Notes to Consolidated Financial Statements

3.     Mortgages
Payable

Mortgages payable consisted of the following:

|                                                                                                                                                                                                   |  |      |            |      |  |   |            | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- |  | - | ---------- | 
|December 31,                                                                                                                                                                                       |  | 2003 |            | 2002
|                                                                                                                                                                                                   |  |      |            |     
|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 |  | $    | 17,856,063 |      |  | $ | 18,447,700 | 
|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  |  |      | 14,898,328 |      |  |   |           | 
|Note 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 |  |      | 10,478,580 |      |  |   | 10,961,509 | 
|Note payable in
monthly
installments of
$57,403 including
interest at 6.50%
per annum, with the
final monthly
payment due
February 2023;
collateralized by
related real estate
and tenant lease    |  |      | 7,538,278  |      |  |   |           | 

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Agree Realty Corporation

Notes to Consolidated Financial Statements

|                                                                                                                                                                                                                              |  |      |            |      |  |   |            | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- |  | - | ---------- | 
|December 31,                                                                                                                                                                                                                  |  | 2003 |            | 2002
|                                                                                                                                                                                                                              |  |      |            |     
|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                                    |  |      | 3,066,134  |      |  |   | 3,140,687  | 
|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                               |  |      | 1,239,682  |      |  |   | 1,301,866  | 
|Note payable in monthly
installments of $6,449
including interest at
6.00% per annum, with the
final monthly payment due
July 2023; collateralized
by related real estate and
tenant lease                                    |  |      | 890,313    |      |  |   |           | 
|Note payable in monthly
installments of $249,750
including interest at 7.0%
per annum, with the
remaining balance of
$28,221,503 due November
2005; collateralized by
related real estate and
tenants leases; repaid in
2003 |  |      |           |      |  |   | 30,910,623 | 
|Other  repaid in 2003                                                                                                                                                                                                        |  |      |           |      |  |   | 6,826,478  | 
|                                                                                                                                                                                                                              |  |      |            |      |  |   |            | 
|Total                                                                                                                                                                                                                         |  | $    | 55,967,378 |      |  | $ | 71,588,863 | 
|                                                                                                                                                                                                                              |  |      |            |      |  |   |            | 

Future scheduled annual maturities of mortgages payable for years ending
December 31 are as follows: 2004 - $2,049,975; 2005 - $2,298,292; 2006 -
$2,454,764; 2007 - $2,621,920; 2008 - $2,781,076; and $43,761,351 thereafter.

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Agree Realty Corporation

Notes to Consolidated Financial Statements

4.     Construction Loans

The Companys wholly-owned subsidiaries obtained
construction financing totalling approximately $-0-
in 2003 and $4,350,000 in 2002, which was available
to fund the development of certain retail properties.
Quarterly interest payments were made based on LIBOR.
The notes were repaid during 2003 and were secured by
the related land and building. The Company owed
$4,002,873 for these loans at December 31, 2002 with
a weighted average interest rate of 3.70%.

The Company has also received funding from an
unaffiliated third party for one of its single tenant
retail properties. Borrowings under this arrangement
bear no interest. The advances are secured by the
specific land and buildings being developed. The
Company owed $1,569,000 and $1,609,440 for these
advances as of December 31, 2003 and 2002,
respectively.

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Agree Realty Corporation

Notes to Consolidated Financial Statements

5.     Notes Payable

The Operating Partnership has in
place a $50 million line-of-credit
agreement, which is guaranteed by
the Company. The agreement expires
in August 2006 and can be extended,
solely at the option of the
Operating Partnership, for an
additional three years. Advances
under the Credit Facility bear
interest within a range of one-month
to six-month LIBOR plus 150 basis
points to 213 basis points or the
banks prime rate, at the option of
the Company, based on certain
factors such as debt to property
value and debt service coverage. The
Credit Facility is used to fund
property acquisitions and
development activities and is
secured by most of the Companys
Properties which are not otherwise
encumbered and properties to be
acquired or developed. At December
31, 2003 and 2002, $24,000,000 and
$36,758,232, respectively, was
outstanding under this facility with
a weighted average interest rate of
2.74% and 2.94%, respectively.

In addition, the Company maintains a
$5,000,000 line-of-credit agreement
with a bank. Monthly interest
payments are required, either at the
banks prime rate less 50 basis
points, or 175 basis points in
excess of the one-month LIBOR rate,
at the option of the Company. At
December 31, 2003 and 2002,
$2,500,000 and $1,325,000,
respectively, was outstanding under
this agreement with a weighted
average interest rate of 3.50% and
3.75%, respectively.

6.     Dividends and Distributions Payable

On December 8, 2003 the Company
declared a dividend of $.485 per
share for the quarter ended December
31, 2003. The holders of OP Units
were entitled to an equal
distribution per OP Unit held as of
December 31, 2003. The dividends and
distributions payable are recorded
as liabilities in the Companys
balance sheet at December 31, 2003.
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, 2004.

F - 19



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##### Table of Contents



Agree Realty Corporation

Notes to Consolidated Financial Statements

7.     Minority Interest

The following summarizes the changes
in minority interest since January 1, 2001:

|                                                 |  |   |            |  
|------------------------------------------------ |  | - | ---------- | -
|Minority Interest at January 1, 2001             |  | $ | 5,707,608  |  
|Minority interests share of income for the year |  |   | 1,229,819  |  
|Distributions for the year                       |  |   | (1,239,326 | )
|                                                 |  |   |            |  
|Minority Interest at December 31, 2001           |  |   | 5,698,101  |  
|Minority interests share of income for the year |  |   | 1,328,233  |  
|Distributions for the year                       |  |   | (1,239,327 | )
|                                                 |  |   |            |  
|Minority Interest at December 31, 2002           |  |   | 5,787,007  |  
|Minority interests share of income for the year |  |   | 1,338,046  |  
|Distributions for the year                       |  |   | (1,303,314 | )
|                                                 |  |   |            |  
|Minority Interest at December 31, 2003           |  | $ | 5,821,739  |  
|                                                 |  |   |            |  

8.     Related Party
Transactions

During 2001, the Company managed certain additional properties,
which are owned by certain officers and directors of the Company,
but are not included in the consolidated financial statements.
Income related to these activities is reflected as other income
in the accompanying consolidated statements of income.

9.     Stock Incentive
Plan

The Company has established a stock incentive plan (the Plan)
under which options were granted in April 1994. The options, which
have an exercise price equal to the initial public offering price
($19.50/share), can be exercised in increments of 25% on each
anniversary of the date of the grant, and expire upon employment
termination. All 23,275 options outstanding were exercisable at
December 31, 2003 and 2002. No options were exercised or granted
during 2003, 2002 or 2001.

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##### Table of Contents



Agree Realty Corporation

Notes to Consolidated Financial Statements

10.     Unearned
Compensation - Restricted Stock

As part of the Companys stock incentive plan, restricted common shares are granted to certain
employees. On the date of the award, the Company increases unearned compensation  restricted
stock on the balance sheet by the stock price multiplied by the number of shares awarded. The
restricted shares vest and are charged to expense in increments of 20% per year for five
years. Plan participants are entitled to receive the quarterly dividends on their respective
restricted shares. The following table summarizes the restricted shares for the years ended
December 31, 2003, 2002 and 2001:

|                                                                  |  |      |         |      |  |      |         |   |  |   |         |  
|----------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                  |  | 2003 |         | 2002 |  | 2001
|                                                                  |  |      |         |      |  |     
|Restricted shares outstanding January 1                           |  |      | 168,996 |      |  |      | 137,334 |   |  |   | 115,134 |  
|Restricted shares granted during the year                         |  |      | 36,814  |      |  |      | 37,662  |   |  |   | 27,291  |  
|Restricted shares redeemed during the
year                        |  |      | (6,000  | )    |  |      | (6,000  | ) |  |   | (5,091  | )
|                                                                  |  |      |         |      |  |      |         |   |  |   |         |  
|Restricted shares outstanding
December 31                         |  |      | 199,810 |      |  |      | 168,996 |   |  |   | 137,334 |  
|                                                                  |  |      |         |      |  |      |         |   |  |   |         |  
|Compensation Expense Recorded Related to
Restricted Common Shares |  | $    | 367,910 |      |  | $    | 315,245 |   |  | $ | 266,252 |  
|                                                                  |  |      |         |      |  |      |         |   |  |   |         |  

11.     Profit-Sharing
Plan

The Company has a discretionary profit-sharing plan whereby it contributes to the plan such
amounts as the Board of Directors of the Company determines. The participants in the plan
cannot make any contributions to the plan. Contributions to the plan are allocated to the
employees based on their percentage of compensation to the total compensation of all employees
for the plan year. Participants in the plan become fully vested after six years of service. No
contributions were made to the plan in 2003, 2002 or 2001.

12.     Rental Income

The Company leases premises in its properties to tenants pursuant to lease agreements, which
provide for terms ranging generally from 5 to 25 years. The majority of leases provide for
additional rents based on tenants sales volume.

F - 21



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##### Table of Contents



Agree Realty Corporation

Notes to Consolidated Financial Statements

As of December 31, 2003, the
future minimum revenues for
the next five years from
rental property under the
terms of all noncancellable
tenant leases, assuming no
new or renegotiated leases
are executed for such
premises, are as follows (in
thousands):

|           |  |   |         |  |  |  |  |  |  |  |  | 
|---------- |  | - | ------- |  |  |  |  |  |  |  |  | 
|2004       |  | $ | 25,130  | 
|2005       |  |   | 24,582  | 
|2006       |  |   | 23,311  | 
|2007       |  |   | 22,716  | 
|2008       |  |   | 22,142  | 
|Thereafter |  |   | 176,075 | 
|           |  |   |         | 
|Total      |  | $ | 293,956 | 
|           |  |   |         | 

Of these future minimum
rentals, approximately 34% of
the total is attributable to
Borders, Inc., approximately
25% of the total is
attributable to Walgreen and
approximately 18% is
attributable to Kmart
Corporation. Borders is a
major operator of book
superstores in the United
States, Walgreen operates in
the national drugstore chain
industry and Kmarts
principal business is general
merchandise retailing through
a chain of discount
department stores. The loss
of any of these anchor
tenants or the inability of
any of them to pay rent could
have an adverse effect on the
Companys business.

In May 2003 Kmart emerged
from the bankruptcy
proceeding, which it had
initiated in January 2002.
Pursuant to the confirmed
plan of reorganization, Kmart
closed approximately 600 of
its stores, including one of
which was located on our
property in Lakeland,
Florida.

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##### Table of Contents



Agree Realty Corporation

Notes to Consolidated Financial Statements

The Company has entered into fourteen (14)
leases with Kmart Corporation. Eleven (11)
of the Kmart stores are anchors in the
Companys Community Shopping Centers and
three (3) Kmart stores are free-standing
properties. The Kmart stores are located
in four states as follows: Michigan (9),
Wisconsin (3), Ohio (1) and Kentucky (1).
At December 31, 2003, all fourteen (14) of
the Kmart stores were open and operating
as Kmart discount stores.

13.     Lease
Commitments

The Company has entered into certain land
lease agreements for four of its
properties. As of December 31, 2003,
future annual lease commitments under
these agreements are as follows:

|                        |  |   |            | 
|----------------------- |  | - | ---------- | 
|Year Ended December 31, |  |   |            | 
|                        |  |   |            | 
|2004                    |  | $ | 725,443    | 
|2005                    |  |   | 764,768    | 
|2006                    |  |   | 768,343    | 
|2007                    |  |   | 774,619    | 
|2008                    |  |   | 760,424    | 
|Thereafter              |  |   | 11,278,887 | 
|                        |  |   |            | 
|Total                   |  | $ | 15,072,484 | 
|                        |  |   |            | 

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##### Table of Contents



Agree Realty Corporation

Notes to Consolidated Financial Statements

14.     Interim Results
(Unaudited)

The following summary represents the unaudited results of operations of the Company, expressed in
thousands except per share amounts, for the periods from January 1, 2002 through December 31, 2003.
Certain amounts have been reclassified to conform to the current presentation of discontinued operations:

|                                                  |  |           |       |          |  |               |       |              |  |   |       |  |  |   |       | 
|------------------------------------------------- |  | --------- | ----- | -------- |  | ------------- | ----- | ------------ |  | - | ----- |  |  | - | ----- | 
|Three Months Ended                               
|                                                 
|2003                                              |  | March 31, |       | June 30, |  | September 30, |       | December 31,
|                                                  |  |           |       |          |  |               |       |             
|Revenues                                          |  | $         | 6,693 |          |  | $             | 6,784 |              |  | $ | 6,733 |  |  | $ | 7,262 | 
|                                                  |  |           |       |          |  |               |       |              |  |   |       |  |  |   |       | 
|Income before discontinued operations             |  | $         | 2,093 |          |  | $             | 2,254 |              |  | $ | 1,713 |  |  | $ | 3,201 | 
|Discontinued operations,
net of minority interest |  |           | 151   |          |  |               | 120   |              |  |   | 144   |  |  |   | 796   | 
|                                                  |  |           |       |          |  |               |       |              |  |   |       |  |  |   |       | 
|Net Income                                        |  | $         | 2,244 |          |  | $             | 2,374 |              |  | $ | 1,857 |  |  | $ | 3,997 | 
|                                                  |  |           |       |          |  |               |       |              |  |   |       |  |  |   |       | 
|Earnings Per Share                                |  | $         | .50   |          |  | $             | .53   |              |  | $ | .33   |  |  | $ | .63   | 
|                                                  |  |           |       |          |  |               |       |              |  |   |       |  |  |   |       | 

|                                                  |  |           |       |          |  |               |       |              |  |   |       |  |  |   |       | 
|------------------------------------------------- |  | --------- | ----- | -------- |  | ------------- | ----- | ------------ |  | - | ----- |  |  | - | ----- | 
|Three Months Ended                               
|                                                 
|2002                                              |  | March 31, |       | June 30, |  | September 30, |       | December 31,
|                                                  |  |           |       |          |  |               |       |             
|Revenues                                          |  | $         | 5,858 |          |  | $             | 5,867 |              |  | $ | 5,966 |  |  | $ | 6,718 | 
|                                                  |  |           |       |          |  |               |       |              |  |   |       |  |  |   |       | 
|Income before discontinued operations             |  | $         | 1,772 |          |  | $             | 1,933 |              |  | $ | 1,927 |  |  | $ | 2,289 | 
|Discontinued operations,
net of minority interest |  |           | 170   |          |  |               | 188   |              |  |   | 210   |  |  |   | 283   | 
|                                                  |  |           |       |          |  |               |       |              |  |   |       |  |  |   |       | 
|Net Income                                        |  | $         | 1,942 |          |  | $             | 2,121 |              |  | $ | 2,137 |  |  | $ | 2,572 | 
|                                                  |  |           |       |          |  |               |       |              |  |   |       |  |  |   |       | 
|Earnings Per Share                                |  | $         | .44   |          |  | $             | .48   |              |  | $ | .48   |  |  | $ | .57   | 
|                                                  |  |           |       |          |  |               |       |              |  |   |       |  |  |   |       | 

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Agree Realty Corporation

Schedule III - Real Estate and Accumulated Depreciation
December 31, 2003



|                            |                           |             |   |           |  |              |              |             |             |      |                    |              |               |       |   |           |   |  |                               |           |  |  |   |           |  |  |   |           | 
|--------------------------- | ------------------------- | ----------- | - | --------- |  | ------------ | ------------ | ----------- | ----------- | ---- | ------------------ | ------------ | ------------- | ----- | - | --------- | - |  | ----------------------------- | --------- |  |  | - | --------- |  |  | - | --------- | 
|Column A                    |                           | Column B    |   | Column C  |  | Column D     |              | Column E   
|                            |                           |             |   |           |  |              |              |            
|                            |                           |             |   |           |  |              |              |             |             |      |                    |              |               |       |   |           |   |  | Gross Amount at Which Carried
|                            |                           |             |   |           |  |              | Initial Cost |             | Costs       |      | at Close of Period
|                            |                           |             |   |           |  |              |              |             | Capitalized |      |                   
|                            |                           |             |   |           |  |              |              |             |             |      | Buildings and      |              | Subsequent to |       |   |           |   |  | Buildings and                 |           |  |  |  
|Description                 |                           | Encumbrance |   | Land      |  | Improvements |              | Acquisition |             | Land |                    | Improvements |               | Total
|                            |                           |             |   |           |  |              |              |             |             |      |                    |              |               |      
|Completed Retail Facilities |                           |             |   |           |  |              |              |             |             |      |                    |              |               |       |   |           |   |  |                               |           |  |  |   |           |  |  |   |          
|                            | Sams Club (Borman), MI   |             | $ | 897,602   |  |              | $            | 550,000     |             |      | $                  | 562,404      |               |       | $ | 1,087,596 |   |  | $                             | 550,000   |  |  | $ | 1,650,000 |  |  | $ | 2,200,000 | 
|                            | Capital Plaza, KY         |             |   | 1,135,100 |  |              |              | 7,379       |             |      |                    | 2,240,607    |               |       |   | 534,115   |   |  |                               | 7,379     |  |  |   | 2,774,722 |  |  |   | 2,782,101 | 
|                            | Charlevoix Common, MI     |             |   |          |  |              |              | 305,000     |             |      |                    | 5,152,992    |               |       |   | 106,718   |   |  |                               | 305,000   |  |  |   | 5,259,710 |  |  |   | 5,564,710 | 
|                            | Chippewa Commons, WI      |             |   |          |  |              |              | 1,197,150   |             |      |                    | 6,367,560    |               |       |   | 353,149   |   |  |                               | 1,197,150 |  |  |   | 6,720,709 |  |  |   | 7,917,859 | 
|                            | Grayling Plaza, MI        |             |   | 807,294   |  |              |              | 200,000     |             |      |                    | 1,778,657    |               |       |   |          |   |  |                               | 200,000   |  |  |   | 1,778,657 |  |  |   | 1,978,657 | 
|                            | Iron Mountain Plaza, MI   |             |   | 3,339,373 |  |              |              | 677,820     |             |      |                    | 7,014,996    |               |       |   | 491,900   |   |  |                               | 677,820   |  |  |   | 7,506,896 |  |  |   | 8,184,716 | 
|                            | Ironwood Commons, MI      |             |   | 3,508,997 |  |              |              | 167,500     |             |      |                    | 8,181,306    |               |       |   | 251,653   |   |  |                               | 167,500   |  |  |   | 8,432,959 |  |  |   | 8,600,459 | 
|                            | Marshall Plaza Two, MI    |             |   |          |  |              |              |            |             |      |                    | 4,662,230    |               |       |   | 115,294   |   |  |                               |          |  |  |   | 4,777,524 |  |  |   | 4,777,524 | 
|                            | North Lakeland Plaza, FL  |             |   |          |  |              |              | 1,641,879   |             |      |                    | 6,364,379    |               |       |   | 824,023   |   |  |                               | 1,641,879 |  |  |   | 7,188,402 |  |  |   | 8,830,281 | 
|                            | Oscoda Plaza, MI          |             |   | 838,911   |  |              |              | 183,295     |             |      |                    | 1,872,854    |               |       |   |          |   |  |                               | 183,295   |  |  |   | 1,872,854 |  |  |   | 2,056,149 | 
|                            | Perrysburg Plaza, OH      |             |   |          |  |              |              | 21,835      |             |      |                    | 2,291,651    |               |       |   | 354,704   |   |  |                               | 345,538   |  |  |   | 2,322,651 |  |  |   | 2,668,189 | 
|                            | Petoskey Town Center, MI  |             |   |          |  |              |              | 875,000     |             |      |                    | 8,895,289    |               |       |   | 217,603   |   |  |                               | 875,000   |  |  |   | 9,112,892 |  |  |   | 9,987,892 | 
|                            | Plymouth Commons, WI      |             |   |          |  |              |              | 535,460     |             |      |                    | 5,667,504    |               |       |   | 279,073   |   |  |                               | 535,460   |  |  |   | 5,946,577 |  |  |   | 6,482,037 | 
|                            | Rapids Associates, MI     |             |   |          |  |              |              | 705,000     |             |      |                    | 6,854,790    |               |       |   | 27,767    |   |  |                               | 705,000   |  |  |   | 6,882,557 |  |  |   | 7,587,557 | 
|                            | Shawano Plaza, WI         |             |   |          |  |              |              | 190,000     |             |      |                    | 9,133,934    |               |       |   | 101,471   |   |  |                               | 190,000   |  |  |   | 9,235,405 |  |  |   | 9,425,405 | 
|                            | West Frankfort Plaza, IL  |             |   | 381,619   |  |              |              | 8,002       |             |      |                    | 784,077      |               |       |   | 143,258   |   |  |                               | 8,002     |  |  |   | 927,335   |  |  |   | 935,337   | 
|                            | Omaha Store, NE           |             |   | 1,534,650 |  |              |              | 1,705,619   |             |      |                    | 2,053,615    |               |       |   | 2,152     |   |  |                               | 1,705,619 |  |  |   | 2,055,767 |  |  |   | 3,761,386 | 
|                            | Wichita Store, KS         |             |   | 1,123,841 |  |              |              | 1,039,195   |             |      |                    | 1,690,644    |               |       |   | 24,666    |   |  |                               | 1,039,195 |  |  |   | 1,715,310 |  |  |   | 2,754,505 | 
|                            | Santa Barbara Store, CA   |             |   | 2,284,247 |  |              |              | 2,355,423   |             |      |                    | 3,240,557    |               |       |   | 2,650     |   |  |                               | 2,355,423 |  |  |   | 3,243,207 |  |  |   | 5,598,630 | 
|                            | Monroeville, PA           |             |   | 3,501,417 |  |              |              | 6,332,158   |             |      |                    | 2,249,724    |               |       |   |          |   |  |                               | 6,332,158 |  |  |   | 2,249,724 |  |  |   | 8,581,882 | 
|                            | Norman, OK                |             |   | 1,022,476 |  |              |              | 879,562     |             |      |                    | 1,626,501    |               |       |   |          |   |  |                               | 879,562   |  |  |   | 1,626,501 |  |  |   | 2,506,063 | 
|                            | Columbus, OH              |             |   | 1,290,422 |  |              |              | 826,000     |             |      |                    | 2,336,791    |               |       |   |          |   |  |                               | 826,000   |  |  |   | 2,336,791 |  |  |   | 3,162,791 | 
|                            | Aventura, FL              |             |   | 1,294,637 |  |              |              |            |             |      |                    | 3,173,121    |               |       |   |          |   |  |                               |          |  |  |   | 3,173,121 |  |  |   | 3,173,121 | 
|                            | Boyton Beach, FL          |             |   | 3,669,008 |  |              |              | 3,103,942   |             |      |                    | 2,043,122    |               |       |   |          |   |  |                               | 3,103,942 |  |  |   | 2,043,122 |  |  |   | 5,147,064 | 
|                            | Lawrence, KS              |             |   | 3,066,134 |  |              |              |            |             |      |                    | 3,000,000    |               |       |   | 155,407   |   |  |                               |          |  |  |   | 3,155,407 |  |  |   | 3,155,407 | 
|                            | Waterford, MI             |             |   | 2,523,242 |  |              |              | 971,009     |             |      |                    | 1,562,869    |               |       |   | 135,390   |   |  |                               | 971,009   |  |  |   | 1,698,259 |  |  |   | 2,669,268 | 
|                            | Chesterfield Township, MI |             |   | 2,770,537 |  |              |              | 1,350,590   |             |      |                    | 1,757,830    |               |       |   | (46,164   | ) |  |                               | 1,350,590 |  |  |   | 1,711,666 |  |  |   | 3,062,256 | 

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                            |                           |              |             |              |         |             |           |      |  |  |              |  | 
|--------------------------- | ------------------------- | ------------ | ----------- | ------------ | ------- | ----------- | --------- | ---- |  |  | ------------ |  | 
|Column A                    |                           | Column F     |             | Column G     |         | Column H   
|                            |                           |              |             |              |         |            
|                            |                           |              |             |              |         |             |           |      |  |  | Life        
|                            |                           |              |             |              |         |             |           |      |  |  | on Which    
|                            |                           |              |             |              |         |             |           |      |  |  | Depreciation
|                            |                           |              |             |              |         |             |           |      |  |  | in Latest   
|                            |                           |              |             |              |         |             |           |      |  |  | Income      
|                            |                           |              | Accumulated |              | Date of |             | Statement
|Description                 |                           | Depreciation |             | Construction |         | is Computed
|                            |                           |              |             |              |         |            
|Completed Retail Facilities |                           |              |             |              |         |             |           |      |  |  |              | 
|                            | Sams Club (Borman), MI   |              | $           | 1,164,280    |         |             |           | 1977 |  |  | 40 Years    
|                            | Capital Plaza, KY         |              |             | 1,550,301    |         |             |           | 1978 |  |  | 40 Years    
|                            | Charlevoix Common, MI     |              |             | 1,715,296    |         |             |           | 1991 |  |  | 40 Years    
|                            | Chippewa Commons, WI      |              |             | 2,206,661    |         |             |           | 1990 |  |  | 40 Years    
|                            | Grayling Plaza, MI        |              |             | 887,510      |         |             |           | 1984 |  |  | 40 Years    
|                            | Iron Mountain Plaza, MI   |              |             | 2,288,003    |         |             |           | 1991 |  |  | 40 Years    
|                            | Ironwood Commons, MI      |              |             | 2,630,732    |         |             |           | 1991 |  |  | 40 Years    
|                            | Marshall Plaza Two, MI    |              |             | 1,505,757    |         |             |           | 1990 |  |  | 40 Years    
|                            | North Lakeland Plaza, FL  |              |             | 2,867,046    |         |             |           | 1987 |  |  | 40 Years    
|                            | Oscoda Plaza, MI          |              |             | 929,263      |         |             |           | 1984 |  |  | 40 Years    
|                            | Perrysburg Plaza, OH      |              |             | 1,164,992    |         |             |           | 1983 |  |  | 40 Years    
|                            | Petoskey Town Center, MI  |              |             | 2,899,900    |         |             |           | 1990 |  |  | 40 Years    
|                            | Plymouth Commons, WI      |              |             | 1,931,064    |         |             |           | 1990 |  |  | 40 Years    
|                            | Rapids Associates, MI     |              |             | 2,271,584    |         |             |           | 1990 |  |  | 40 Years    
|                            | Shawano Plaza, WI         |              |             | 3,125,549    |         |             |           | 1990 |  |  | 40 Years    
|                            | West Frankfort Plaza, IL  |              |             | 441,933      |         |             |           | 1982 |  |  | 40 Years    
|                            | Omaha Store, NE           |              |             | 417,570      |         |             |           | 1995 |  |  | 40 Years    
|                            | Wichita Store, KS         |              |             | 348,347      |         |             |           | 1995 |  |  | 40 Years    
|                            | Santa Barbara Store, CA   |              |             | 658,767      |         |             |           | 1995 |  |  | 40 Years    
|                            | Monroeville, PA           |              |             | 400,479      |         |             |           | 1996 |  |  | 40 Years    
|                            | Norman, OK                |              |             | 294,612      |         |             |           | 1996 |  |  | 40 Years    
|                            | Columbus, OH              |              |             | 462,487      |         |             |           | 1996 |  |  | 40 Years    
|                            | Aventura, FL              |              |             | 611,487      |         |             |           | 1996 |  |  | 40 Years    
|                            | Boyton Beach, FL          |              |             | 361,615      |         |             |           | 1996 |  |  | 40 Years    
|                            | Lawrence, KS              |              |             | 488,806      |         |             |           | 1997 |  |  | 40 Years    
|                            | Waterford, MI             |              |             | 253,706      |         |             |           | 1997 |  |  | 40 Years    
|                            | Chesterfield Township, MI |              |             | 235,933      |         |             |           | 1998 |  |  | 40 Years    

F - 25



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##### Table of Contents



Agree Realty Corporation

Schedule III - Real Estate and Accumulated Depreciation
December 31, 2003



|                  |                                  |               |            |           |   |              |            |              |           |             |             |                    |           |               |           |          |   |   |            |                               |           |   |             |           |           |   |             |           |           | 
|----------------- | -------------------------------- | ------------- | ---------- | --------- | - | ------------ | ---------- | ------------ | --------- | ----------- | ----------- | ------------------ | --------- | ------------- | --------- | -------- | - | - | ---------- | ----------------------------- | --------- | - | ----------- | --------- | --------- | - | ----------- | --------- | --------- | 
|Column A          |                                  | Column B      |            | Column C  |   | Column D     |            | Column E    
|                  |                                  |               |            |           |   |              |            |             
|                  |                                  |               |            |           |   |              |            |              |           |             |             |                    |           |               |           |          |   |   |            | Gross Amount at Which Carried
|                  |                                  |               |            |           |   |              |            | Initial Cost |           | Costs       |             | at Close of Period
|                  |                                  |               |            |           |   |              |            |              |           | Capitalized |             |                   
|                  |                                  |               |            |           |   |              |            |              |           |             |             | Buildings and      |           | Subsequent to |           |          |   |   |            | Buildings and                 |           |   |             |          
|Description       |                                  | Encumbrance   |            | Land      |   | Improvements |            | Acquisition  |           | Land        |             | Improvements       |           | Total        
|                  |                                  |               |            |           |   |              |            |              |           |             |             |                    |           |              
|                  | Grand Blanc, MI                  |               |            | 2,646,889 |   |              |            | 1,104,285    |           |             |             | 1,998,919          |           |               |           | 13,968   |   |   |            | 1,104,285                     |           |   |             | 2,012,887 |           |   |             | 3,117,172 |          
|                  | Pontiac, MI                      |               |            | 2,537,912 |   |              |            | 1,144,190    |           |             |             | 1,808,955          |           |               |           | (113,506 | ) |   |            | 1,144,190                     |           |   |             | 1,695,449 |           |   |             | 2,839,639 |          
|                  | Mt. Pleasant Shopping
Center, MI |               |            |          |   |              |            | 907,600      |           |             |             | 8,081,968          |           |               |           | 403,100  |   |   |            | 907,600                       |           |   |             | 8,485,068 |           |   |             | 9,392,668 |          
|                  | Tulsa, OK                        |               |            |          |   |              |            | 1,100,000    |           |             |             | 2,394,512          |           |               |           |         |   |   |            | 1,100,000                     |           |   |             | 2,394,512 |           |   |             | 3,494,512 |          
|                  | Columbia, MD                     |               |            | 3,496,638 |   |              |            | 1,545,509    |           |             |             | 2,093,700          |           |               |           | 286,589  |   |   |            | 1,545,509                     |           |   |             | 2,380,289 |           |   |             | 3,925,798 |          
|                  | Rochester, MI                    |               |            | 3,578,355 |   |              |            | 2,438,740    |           |             |             | 2,188,050          |           |               |           | 1,949    |   |   |            | 2,438,740                     |           |   |             | 2,189,999 |           |   |             | 4,628,739 |          
|                  | Ypsilanti, MI                    |               |            | 3,231,947 |   |              |            | 2,050,000    |           |             |             | 2,222,097          |           |               |           | 29,624   |   |   |            | 2,050,000                     |           |   |             | 2,251,721 |           |   |             | 4,301,721 |          
|                  | Germantown, MD                   |               |            | 3,288,061 |   |              |            | 1,400,000    |           |             |             | 2,288,890          |           |               |           | 45,000   |   |   |            | 1,400,000                     |           |   |             | 2,333,890 |           |   |             | 3,733,890 |          
|                  | Petoskey, MI                     |               |            | 2,248,078 |   |              |            |             |           |             |             | 2,332,473          |           |               |           | (16,325  | ) |   |            |                              |           |   |             | 2,316,148 |           |   |             | 2,316,148 |          
|                  | Flint, MI                        |               |            | 3,390,866 |   |              |            | 2,026,625    |           |             |             | 1,879,700          |           |               |           | (1,201   | ) |   |            | 2,026,625                     |           |   |             | 1,878,499 |           |   |             | 3,905,124 |          
|                  | Flint, MI                        |               |            | 2,917,681 |   |              |            | 1,477,680    |           |             |             | 2,241,293          |           |               |           |         |   |   |            | 1,477,680                     |           |   |             | 2,241,293 |           |   |             | 3,718,973 |          
|                  | New Baltimore, MI                |               |            | 2,489,135 |   |              |            | 1,250,000    |           |             |             | 2,285,781          |           |               |           | (16,502  | ) |   |            | 1,250,000                     |           |   |             | 2,269,279 |           |   |             | 3,519,279 |          
|                  | Flint, MI                        |               |            | 1,439,407 |   |              |            | 1,729,851    |           |             |             | 1,798,091          |           |               |           |         |   |   |            | 1,729,851                     |           |   |             | 1,798,091 |           |   |             | 3,527,942 |          
|                  | Oklahoma City, OK                |               |            | 4,231,125 |   |              |            | 1,914,859    |           |             |             | 2,057,034          |           |               |           |         |   |   |            | 1,914,859                     |           |   |             | 2,057,034 |           |   |             | 3,971,893 |          
|                  | Omaha, NE                        |               |            | 3,882,504 |   |              |            | 1,530,000    |           |             |             | 2,237,702          |           |               |           |         |   |   |            | 1,530,000                     |           |   |             | 2,237,702 |           |   |             | 3,767,702 |          
|                  | Indianapolis, IN                 |               |            | 1,239,682 |   |              |            | 180,000      |           |             |             | 1,117,617          |           |               |           |         |   |   |            | 180,000                       |           |   |             | 1,117,617 |           |   |             | 1,297,617 |          
|                  | Big Rapids, MI                   |               |            |          |   |              |            | 1,201,675    |           |             |             | 2,014,107          |           |               |           |         |   |   |            | 1,201,675                     |           |   |             | 2,014,107 |           |   |             | 3,215,782 |          
|                  | Flint, MI                        |               |            | 890,313   |   |              |            |             |           |             |             | 1,310,787          |           |               |           |         |   |   |            |                              |           |   |             | 1,310,787 |           |   |             | 1,310,787 |          
|                  | Ann Arbor, MI                    |               |            | 7,538,278 |   |              |            | 1,727,590    |           |             |             | 6,009,488          |           |               |           |         |   |   |            | 1,727,590                     |           |   |             | 6,009,488 |           |   |             | 7,737,078 |          
|                  | Tulsa, OK                        |               |            |          |   |              |            | 2,000,000    |           |             |             | 2,740,507          |           |               |           |         |   |   |            | 2,000,000                     |           |   |             | 2,740,507 |           |   |             | 4,740,507 |          
|                  | Canton Twp, MI                   |               |            |          |   |              |            | 1,550,000    |           |             |             | 2,132,096          |           |               |           |         |   |   |            | 1,550,000                     |           |   |             | 2,132,096 |           |   |             | 3,682,096 |          
|                  |                                  |               |            |           |   |              |            |              |           |             |             |                    |           |               |           |          |   |   |            |                               |           |   |             |           |           |   |             |           |          
|SubTotal          |                                  |               | 84,036,378 |           |   |              | 54,107,422 |              |           |             | 155,793,771 |                    |           |               | 5,795,121 |          |   |   | 54,431,125 |                               |           |   | 161,265,188 |           |           |   | 215,696,313 |          
|                  |                                  |               |            |           |   |              |            |              |           |             |             |                    |           |               |           |          |   |   |            |                               |           |   |             |           |           |   |             |           |          
|Retail Facilities |                                  |               |            |           |   |              |            |              |           |             |             |                    |           |               |           |          |   |   |            |                               |           |   |             |           |           |   |             |          
|                  | Under Development                |               |            |           |   |              |            |              |           |             |             |                    |           |               |           |          |   |   |            |                               |           |   |             |           |           |   |             |           |          
|                  |                                  | Waterford, MI |            |           |  |              |            |              | 800,081   |             |             |                    | 368,661   |               |           |          |  |   |            |                               | 800,081   |   |             |           | 368,661   |   |             |           | 1,168,742 | 
|                  |                                  | Flint, MI     |            |           |  |              |            |              | 1,537,400 |             |             |                    | 1,784,089 |               |           |          |  |   |            |                               | 1,537,400 |   |             |           | 1,784,089 |   |             |           | 3,321,489 | 
|                  |                                  | Webster, NY   |            |           |  |              |            |              |          |             |             |                    | 203,180   |               |           |          |  |   |            |                               |          |   |             |           | 203,180   |   |             |           | 203,180   | 
|                  |                                  | Other         |            |           |  |              |            |              | 80,000    |             |             |                    | 754,905   |               |           |          |  |   |            |                               | 80,000    |   |             |           | 754,905   |   |             |           | 834,905   | 
|                  |                                  |               |            |           |   |              |            |              |           |             |             |                    |           |               |           |          |   |   |            |                               |           |   |             |           |           |   |             |           |          
|                  |                                  |               |           |           |   |              | 2,417,481  |              |           |             | 3,110,835   |                    |           |               |          |          |   |   | 2,417,481  |                               |           |   | 3,110,835   |           |           |   | 5,528,316   |          
|                  |                                  |               |            |           |   |              |            |              |           |             |             |                    |           |               |           |          |   |   |            |                               |           |   |             |           |           |   |             |           |          
|Total             |                                  | $             | 84,036,378 |           |   | $            | 56,524,903 |              |           | $           | 158,904,606 |                    |           | $             | 5,795,121 |          |   | $ | 56,848,606 |                               |           | $ | 164,376,023 |           |           | $ | 221,224,629 |          
|                  |                                  |               |            |           |   |              |            |              |           |             |             |                    |           |               |           |          |   |   |            |                               |           |   |             |           |           |   |             |           |          

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                  |                                  |               |            |              |   |             |  |           |     |  |          |              |     | 
|----------------- | -------------------------------- | ------------- | ---------- | ------------ | - | ----------- |  | --------- | --- |  | -------- | ------------ | --- | 
|Column A          |                                  | Column F      |            | Column G     |   | Column H   
|                  |                                  |               |            |              |   |            
|                  |                                  |               |            |              |   |             |  |           |     |  |          | Life        
|                  |                                  |               |            |              |   |             |  |           |     |  |          | on Which    
|                  |                                  |               |            |              |   |             |  |           |     |  |          | Depreciation
|                  |                                  |               |            |              |   |             |  |           |     |  |          | in Latest   
|                  |                                  |               |            |              |   |             |  |           |     |  |          | Income      
|                  |                                  |               |            | Accumulated  |   | Date of     |  | Statement
|Description       |                                  | Depreciation  |            | Construction |   | is Computed
|                  |                                  |               |            |              |   |            
|                  | Grand Blanc, MI                  |               |            | 251,957      |   |             |  | 1998      |     |  | 40 Years
|                  | Pontiac, MI                      |               |            | 224,236      |   |             |  | 1998      |     |  | 40 Years
|                  | Mt. Pleasant Shopping
Center, MI |               |            | 1,468,734    |   |             |  | 1973      |     |  | 40 Years
|                  | Tulsa, OK                        |               |            | 330,034      |   |             |  | 1998      |     |  | 40 Years
|                  | Columbia, MD                     |               |            | 256,857      |   |             |  | 1999      |     |  | 40 Years
|                  | Rochester, MI                    |               |            | 246,351      |   |             |  | 1999      |     |  | 40 Years
|                  | Ypsilanti, MI                    |               |            | 225,216      |   |             |  | 1999      |     |  | 40 Years
|                  | Germantown, MD                   |               |            | 231,965      |   |             |  | 2000      |     |  | 40 Years
|                  | Petoskey, MI                     |               |            | 214,633      |   |             |  | 2000      |     |  | 40 Years
|                  | Flint, MI                        |               |            | 140,889      |   |             |  | 2000      |     |  | 40 Years
|                  | Flint, MI                        |               |            | 161,092      |   |             |  | 2001      |     |  | 40 Years
|                  | New Baltimore, MI                |               |            | 134,913      |   |             |  | 2001      |     |  | 40 Years
|                  | Flint, MI                        |               |            | 76,800       |   |             |  | 2002      |     |  | 40 Years
|                  | Oklahoma City, OK                |               |            | 59,945       |   |             |  | 2002      |     |  | 40 Years
|                  | Omaha, NE                        |               |            | 65,186       |   |             |  | 2002      |     |  | 40 Years
|                  | Indianapolis, IN                 |               |            | 32,614       |   |             |  | 2002      |     |  | 40 Years
|                  | Big Rapids, MI                   |               |            | 37,765       |   |             |  | 2003      |     |  | 40 Years
|                  | Flint, MI                        |               |            | 30,039       |   |             |  | 2003      |     |  | 40 Years
|                  | Ann Arbor, MI                    |               |            | 147,893      |   |             |  | 2003      |     |  | 40 Years
|                  | Tulsa, OK                        |               |            | 20,526       |   |             |  | 2003      |     |  | 40 Years
|                  | Canton Twp, MI                   |               |            | 4,442        |   |             |  | 2003      |     |  | 40 Years
|                  |                                  |               |            |              |   |             |  |           |     |  |          |              |    
|SubTotal          |                                  |               | 38,475,767 |              |   |             |  |           |     |  |          |             
|                  |                                  |               |            |              |   |             |  |           |     |  |          |              |    
|Retail Facilities |                                  |               |            |              |   |             |  |           |     |  |          |             
|                  | Under Development                |               |            |              |   |             |  |           |     |  |          |              |    
|                  |                                  | Waterford, MI |            |              |  |             |  |           | N/A |  |          |              | N/A | 
|                  |                                  | Flint, MI     |            |              |   |             |  |           | N/A |  |          |              | N/A | 
|                  |                                  | Webster, NY   |            |              |  |             |  |           | N/A |  |          |              | N/A | 
|                  |                                  | Other         |            |              |  |             |  |           | N/A |  |          |              | N/A | 
|                  |                                  |               |            |              |   |             |  |           |     |  |          |              |    
|                  |                                  |               |           |              |   |             |  |           |     |  |          |             
|                  |                                  |               |            |              |   |             |  |           |     |  |          |              |    
|Total             |                                  | $             | 38,475,767 |              |   |             |  |           |     |  |          |             
|                  |                                  |               |            |              |   |             |  |           |     |  |          |              |    

F - 26



---



##### Table of Contents



Agree Realty Corporation

Notes to Schedule III
December 31, 2003



|1) |  | Reconciliation of Real Estate Properties
|-- |  | ----------------------------------------
|  

| |  | The following table reconciles the Real Estate Properties from January 1,
2001 to December 31, 2003:
| |  | ----------------------------------------------------------------------------------------------------

|                                   |  |      |             |      |  |      |             |  |  |   |             | 
|---------------------------------- |  | ---- | ----------- | ---- |  | ---- | ----------- |  |  | - | ----------- | 
|                                   |  | 2003 |             | 2002 |  | 2001
|                                   |  |      |             |      |  |     
|Balance at January 1               |  | $    | 210,985,666 |      |  | $    | 196,485,828 |  |  | $ | 191,047,902 | 
|Construction and acquisition costs |  |      | 20,686,947  |      |  |      | 14,499,838  |  |  |   | 5,437,926   | 
|Sale of real estate asset          |  |      | (10,447,984 | )    |  |      |            |  |  |   |            | 
|                                   |  |      |             |      |  |      |             |  |  |   |             | 
|Balance at December 31             |  | $    | 221,224,629 |      |  | $    | 210,985,666 |  |  | $ | 196,485,828 | 
|                                   |  |      |             |      |  |      |             |  |  |   |             | 



|2) |  | Reconciliation of Accumulated Depreciation
|-- |  | ------------------------------------------
|  

| |  | The following table reconciles the accumulated depreciation from January 1,
2001 to December 31, 2003:
| |  | ------------------------------------------------------------------------------------------------------

|                                  |  |      |            |      |  |      |            |  |  |   |            | 
|--------------------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- |  |  | - | ---------- | 
|                                  |  | 2003 |            | 2002 |  | 2001
|                                  |  |      |            |      |  |     
|Balance at January 1              |  | $    | 37,456,301 |      |  | $    | 33,634,461 |  |  | $ | 29,907,682 | 
|Current year depreciation expense |  |      | 4,145,898  |      |  |      | 3,821,840  |  |  |   | 3,726,779  | 
|Sale of real estate asset         |  |      | (3,126,432 | )    |  |      |           |  |  |   |           | 
|                                  |  |      |            |      |  |      |            |  |  |   |            | 
|Balance at December 31            |  | $    | 38,475,767 |      |  | $    | 37,456,301 |  |  | $ | 33,634,461 | 
|                                  |  |      |            |      |  |      |            |  |  |   |            | 



|3) |  | Tax Basis of Buildings and Improvements                                                                                                                                     
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The aggregate cost of Building and Improvements for federal income tax
purposes is approximately $17,328,000 less than the cost basis used for
financial statement purposes.

F - 27



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##### Table of Contents



EXHIBIT INDEX

|               |  |                                                                                                                                                           
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                               
|               |  |                                                                                                                                                           
|10.33          |  | Indemnity Deed of Trust and Security Agreement dated October
31, 2003, by Agree  Columbia Crossing Project, L.L.C., and Nationwide
Life Insurance Company
|               |  |                                                                                                                                                           
|10.34          |  | Indemnity Deed of Trust and Security Agreement dated October 31, 2003,
by Agree-Milestone Center Project, L.L.C., and Nationwide Life Insurance Company   
|               |  |                                                                                                                                                           
|10.35          |  | Mortgage and Security Agreement dated October 31, 2003, by
Oklahoma Store No. 151, L.L.C. and Nationwide Life Insurance                                   
|               |  |                                                                                                                                                           
|10.36          |  | Deed of Trust and Security Agreement dated October 31, 2003,
by Omaha Store No. 166, L.L.C. and Nationwide Life Insurance
Company                         
|               |  |                                                                                                                                                           
|14.1           |  | Chief Executive Officer and Chief Financial Officer Code of
Professional Ethics.                                                                          
|               |  |                                                                                                                                                           
|21.1           |  | Subsidiaries of Agree Realty Corporation                                                                                                                  
|               |  |                                                                                                                                                           
|23             |  | Consent of BDO Seidman, LLP                                                                                                                               
|               |  |                                                                                                                                                           
|31.1           |  | Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, Richard Agree, Chief Executive Officer                                           
|               |  |                                                                                                                                                           
|31.2           |  | Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, Kenneth R. Howe, Chief Financial Officer                                         
|               |  |                                                                                                                                                           
|32.1           |  | Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, Richard Agree, Chief Executive Officer                                           
|               |  |                                                                                                                                                           
|32.2           |  | Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, Kenneth R. Howe, Chief Financial Officer                                         
|               |  |