-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bm3mFeg8Q68TRSaHfGFN7RuwMCmhPZ50kyG0znd219m6TwLb0VRfhvRRDxmVNJnw /I90jPa8A4Q5oISF2rGvYw== 0000889697-00-000048.txt : 20000323 0000889697-00-000048.hdr.sgml : 20000323 ACCESSION NUMBER: 0000889697-00-000048 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000322 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AGREE REALTY CORP CENTRAL INDEX KEY: 0000917251 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 383148187 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12928 FILM NUMBER: 575160 BUSINESS ADDRESS: STREET 1: 31850 NORTHWESTERN HGWY CITY: FARMINGTON HILLS STATE: MI ZIP: 48334 BUSINESS PHONE: 8107374190 MAIL ADDRESS: STREET 1: 31850 NORTHWESTERN HIGHWAY CITY: FARMINGTON HILLS STATE: MI ZIP: 48334 10-K 1 ============================================================================= 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, 1999 OR |_| 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 (I.R.S. Employer of incorporation or organization) Identification No.) 31850 Northwestern Highway, (248) 737-4190 Farmington Hills, Michigan 48334 (Registrant's telephone number, (Address of principal executive offices) including area code:) --------- Securities Registered Pursuant to Section 12(b) of the Act: Name of each exchange 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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. __X__ Shares of common stock outstanding as of March 15, 2000: 4,398,669. The aggregate market value of the Registrant's shares of common stock held by non-affiliates on such date was approximately $59,656,948. DOCUMENTS INCORPORATED BY REFERENCE Document Incoroprated into Form 10-K -------- --------------------------- Portions of the Registrant's Proxy Statement Part III for its Annual Meeting of Shareholders Items 10-13 to be held on May 8, 2000 ============================================================================= TABLE OF CONTENTS Part I Page Numbers ------- Item 1. Business 3 Item 2. Properties 7 Item 3. Legal Proceedings 15 Item 4. Submission of Matters to a Vote of Security Holders 16 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 16 Item 6. Selected Financial Data 17 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 18 Item 7A Quantitative and Qualitative Disclosures About Market Risk 23 Item 8. Financial Statements and Supplementary Data 24 Item 9. Changes and Disagreements With Accountants on Accounting and Financial Disclosure 24 Part III Item 10. Directors and Executive Officers of the Registrant 24 Item 11. Executive Compensation 25 Item 12. Security Ownership of Certain Beneficial Owners and Management 25 Item 13. Certain Relationships and Related Transactions 25 Part IV Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K 26 Signatures 29 -2- PART 1 This Form 10-K, together with other statements and information publicly disseminated by the Company, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based on assumptions and expectations which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements. Risks and other factors that might cause such a difference include, but are not limited to, the effect of economic and market conditions; risks that the Company's acquisition and development projects will fail to perform as expected; financing risks, such as the inability to obtain debt or equity financing on favorable terms; the level and volatility of interest rates; loss or bankruptcy of one or more of the Company's major retail tenants; and failure of the Company's properties to generate additional income to offset increases in operating expenses, as well as other risks listed herein under Item 1. Business and from time to time in the Company's reports filed with the Securities and Exchange Commission or otherwise publicly disseminated by the Company. References herein to the "Company" include Agree Realty Corporation, together with its wholly-owned subsidiaries and its majority owned partnership, Agree Limited Partnership (the "Operating Partnership"), unless the context otherwise requires. Item 1. BUSINESS General The Company is a self-administered, self-managed real estate investment trust (a "REIT") which develops, acquires, owns and operates properties which are primarily leased to major national and regional retail companies under net leases. As of December 31, 1999, the Company owned, either directly or through interests in joint ventures, a portfolio of 42 properties (the "Properties") located in 13 states and containing an aggregate of approximately 3.5 million square feet of gross leasable area. The Properties consist of 14 neighborhood and community shopping centers and 28 free-standing properties. The Company independently owns 21 of the free-standing properties and owns the other seven through joint ventures (the "Joint Venture Properties"). As of December 31, 1999, approximately 98% of gross leasable area in the portfolio was leased, and approximately 95% of the Company's base rental income was attributable to national and regional retailers. Such retailers include Kmart Corporation ("Kmart"), Borders, Inc. ("Borders") and Walgreen Co. ("Walgreen") which, as of December 31, 1999, collectively represented approximately 61% of current base rental income. See "Major Tenants." The Company was the developer of all 14 of the shopping centers and 23 of the 28 free-standing properties. The Company was formed in December 1993 to continue and expand the retail property business founded in 1971 by its current Chairman of the Board of Directors and President, Richard Agree. Since 1971, the Company and its predecessors have specialized in building properties to suit for national and regional retailers who have signed long-term net -3- leases prior to commencement of construction. The Company believes that this strategy provides it with a predictable source of income from primarily national and regional retail tenants in its existing properties and also provides opportunities for development of additional properties at attractive returns on investment, without the lease-up risks inherent in speculative development. The Company's headquarters are located at 31850 Northwestern Highway, Farmington Hills, MI 48334 and its telephone number is (248) 737-4190. Description of Business Objectives The Company's primary objectives are (i) to realize steady and predictable cash flows through the ownership of high quality properties leased primarily to national and regional retailers, and (ii) to maximize stockholder returns through the development or acquisition of additional properties. The Company intends to achieve these objectives by implementing the growth, operating and financial strategies outlined below. o Developing or acquiring each property with the objective of holding it for long-term investment value. o Developing or acquiring properties in what the Company considers to be attractive long-term locations. Such locations typically have (i) convenient access to transportation arteries with traffic count that is higher than average for the local market; (ii) concentrations of other retail properties; and (iii) demographic characteristics which are attractive to the retail tenant which will lease the property. o Generally, purchasing land and beginning development of a property only upon the execution of a lease with a national or regional retailer on terms that provide a return on estimated cost which is attractive relative to the Company's cost of capital. o Directing all aspects of development, including construction, design, leasing and management. Property management and the majority of the leasing activities are handled directly by Company personnel. The Company believes that this approach to development and management enhances the ability of the Company to develop and maintain assets of high construction quality which are designed, leased and maintained to maximize long-term value and enables it to operate efficiently. The Company believes that the relationships established by its principals with national and regional retailers as well as the financing relationships its principals have developed with lenders provide it with opportunities not generally available to its competitors, thereby providing the Company with an advantage in achieving its objectives. Recent Developments During 1999 the Company completed the development of three (3) free-standing Properties which added 57,025 square feet of gross leasable area to the Company's operating portfolio and cost approximately $12.5 million. Two (2) of the Properties are leased to Walgreen and one (1) Property is leased to Borders. -4- Major Tenants As of December 31, 1999, approximately 64% of the Company's gross leasable area, including the Joint Venture Properties, was leased to Kmart, Borders and Walgreen and approximately 61% of total annualized base rents was attributable to these tenants. At December 31, 1999, Kmart occupied approximately 39% of the Company's gross leasable area, including the Joint Venture Properties, and accounted for approximately 26% of the annualized base rent. At December 31, 1999, Borders occupied approximately 21% of the Company's gross leasable area, including the Joint Venture Properties, and accounted for approximately 24% of the annualized base rent. At December 31, 1999, Walgreen occupied approximately 4% of the company's gross leasable area, including the Joint Venture Properties, and accounted for approximately 11% of the annualized base rent. No other tenant accounted for more than 10% of gross leasable area or annualized base rent in 1999. 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. Financing Strategy As of December 31, 1999, the Company's ratio of indebtedness to market capitalization was 57%. The Company intends to maintain a ratio of total debt (including construction and acquisition financing) to market capitalization of 65% or less. The Company plans to begin construction of additional pre-leased developments and may acquire additional properties that will initially be financed by its Credit Facility and Line of Credit (each as hereinafter defined). Management intends to periodically refinance short-term construction and acquisition financing with long-term debt and / or equity in order to reduce its ratio of total debt to market capitalization to 50% or less. Nevertheless, the Company may operate with debt levels or ratios that are in excess of 50% for extended periods of time prior to the completion of this long-term financing process. The Company may from time to time re-evaluate its borrowing policies in light of then current economic conditions, relative costs of debt and equity capital, market value of properties, growth and acquisition opportunities and other factors. However, there is no contractual limit on the Company's ratio of debt to total market capitalization and, accordingly, the Company may modify its borrowing policy and may increase or decrease its ratio of debt to market capitalization without stockholder approval. Tax Status The Company has operated and intends 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, the Company must, among other things, distribute at least 95% of its real estate investment trust income and meet certain other asset and income tests. Additionally, the Company's 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, the Company is not subject to -5- federal income tax with respect to that portion of its income that meets certain criteria and is distributed annually to the stockholders. Competition The Company faces 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 the Company. 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. 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 (including the Company) may be held strictly liable for all costs and liabilities relating to such hazardous substances. The Company has had a Phase I environmental study (which involves inspection without soil sampling or ground water analysis) conducted on each Property by independent environmental consultants. Furthermore, the Company has adopted a policy of conducting a Phase I environmental study on each property it acquires and if necessary conducting additional investigation as warranted. The Company conducted a Phase I environmental study on each of the three Properties it developed in 1999. The results of the Phase I study on two (2) of these Properties required the Company to perform a Phase II environmental study (which involves soil sampling or ground water analysis). The results of the Phase II environmental study conducted on these two Properties indicated that no further action was required by the Company. In addition, the Company has 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. The Company carries no insurance coverage for the types of environmental risks described above. The Company believes that it is in compliance, in all material respects, with all federal, state and local ordinances and regulations regarding hazardous or toxic substances. The Company has not been notified by any governmental authority of any noncompliance, liability or other claim in connection with any of the Properties. Employees As of March 15, 2000, the Company employed eight persons. Employee responsibilities include accounting, construction, leasing, property coordination and administrative functions for the Properties. The Company's employees are not covered by a collective bargaining agreement and the Company considers its employee relations to be satisfactory. Financial Information About Industry Segments The Company is in the business of development, acquisition and management of shopping centers and free-standing properties. The Company considers its activities to consist of a single industry -6- 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 The Properties consist of 14 neighborhood and community shopping centers and 28 free-standing properties. As of December 31, 1999, approximately 98% of GLA in the portfolio was leased, and approximately 95% of the Company's base rental income was attributable to, national and regional retailers. Such retailers include Kmart, Borders, Roundy's and Walgreen which, at December 31, 1999, collectively represented approximately 69% of current base rental income. A substantial portion of the Company's 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 the Company of a percentage of such tenant's sales. However, the payments of percentage rents to the Company historically have not been material and the Company does not anticipate that they will become material in the future. Although a majority of the leases require the Company to make roof and structural repairs, as needed, a number of leases place that responsibility on the tenant. The Company's management places a strong emphasis on sound construction and maintenance on its properties. Location of Properties in the Portfolio Total Gross Percent of Number of Leasable Area GLA Leased on State Properties (Sq. feet) December 31, 1999 ----- ---------- ------------- ----------------- California 1 38,015 100% Florida 5 (1) 487,269 93 Indiana 1 (1) 15,844 100 Illinois 1 20,000 100 Kansas 2 45,000 100 Kentucky 1 135,009 100 Maryland 1 28,000 100 Michigan 18 (1) 1,875,642 99 Nebraska 2 (1) 55,000 100 Ohio 2 108,543 100 Oklahoma 4 (1) 99,282 100 Pennsylvania 1 37,004 100 Wisconsin 3 523,036 99 ---- --------- ---- Total/Average 42 3,467,644 98% ==== ========= ==== - ------------ (1) Includes Joint Venture Properties in which the Company owns interests ranging from 8% to 20%. -7- Community Shopping Centers Fourteen of the Company's 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 (2), Illinois (1), Kentucky (1), Michigan (7) and Wisconsin (3). The location, general character and primary occupancy information with respect to the community shopping centers at December 31, 1999 are set forth below:
Summary of Community Shopping Centers at December 31, 1999 (2) (3) (4) Gross (1) Average Percent Percent Year Land Leasable Annualized Base Leased at Occupied Anchor Tenants Completed/ Area Area Base Rent per at Dec 31, at Dec 31, (Lease expiration/ Property Location Expanded (acres) (Sq. Ft.) Rent Sq. Ft. 1999 1999 Option expiration) - ------------------------------------------------------------------------------------------------------------------------ Capital Plaza 1978/ 11.58 135,009 $ 418,768 $ 3.10 100% 100% Kmart (2003/2053) Frankfort, KY 1991 Winn Dixie (2010/2035) Fashion Bug (2004/2024) Charleviox Commons 1991 14.79 137,375 658,495 4.97 96% 70% Kmart (2015/2065) Charlevoix, MI Roundy's (2011/2031) Chippewa Commons 1991 16.37 168,311 890,983 5.29 100% 100% Kmart (2014/2064) Chippewa Falls, WI Roundy's (2011/2031) Fashion Bug (2001/2021) Iron Mountain Plaza 1991 21.20 176,352 876,223 5.03 99% 79% Kmart (2015/2065) Iron Mountain, MI Roundy's (2011/2031) Fashion Bug (2002/2022) Ironwood Commons 1991 23.92 185,535 951,234 5.13 100% 100% Kmart (2015/2065) Ironwood, MI Super Value (2011/2036) J.C. Penney Co. (2006/2026) Fashion Bug (2002/2022) Marshall Plaza 1990 10.74 119,279 632,055 5.30 100% 100% Kmart (2015/2065) Marshall, MI Fashion Bug (2002/2022) -8- Summary of Community Shopping Centers at December 31, 1999 (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 at Dec 31, at Dec 31, (Lease expiration/ Property Location Expanded (acres) (Sq. Ft.) Rent Sq. Ft. 1999 1999 Option expiration) - ------------------------------------------------------------------------------------------------------------------------ Mt Pleasant Shopping 1973/ 24.51 241,458 $ 1,001,894 $ 4.25 98% 98% Kmart (2008/2048) Center 1997 J.C. Penney Co. (2000/2020) Mt. Pleasant, MI Staples, Inc. (2005/2025) Fashion Bug (2006/2026) North Lakeland Plaza 1987 16.67 171,334 1,238,186 7.30 99% 99% Kmart (2011/2061) Lakeland, FL Best Buy (2013/2028) Petoskey Town Center 1990 22.08 174,870 927,328 5.58 95% 95% Kmart (2015/2065) Petoskey, MI Roundy's (2010/2030) Fashion Bug (2002/2022) Plymouth Commons 1990 16.30 162,031 868,369 5.48 98% 98% Kmart (2015/2065) Plymouth, WI Roundy's (2010/2030) Fashion Bug (2001/2021) Rapids Associates 1990 16.84 173,557 992,177 5.72 100% 100% Kmart (2015/2065) Big Rapids, MI Roundy's (2010/2030) Fashion Bug (2001/2021) Shawano Plaza 1990 17.91 192,694 1,012,448 5.25 100% 100% Kmart (2014/2064) Shawano, WI Roundy's (2010/2030) J.C. Penney Co. (2005/2025) Fashion Bug (2001/2021) West Frankfort Plaza 1982 1.45 20,000 109,500 5.48 100% 100% Fashion Bug (2002/2007) West Frankfort, IL -9- Summary of Community Shopping Centers at December 31, 1999 (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 at Dec 31, at Dec 31, (Lease expiration/ Property Location Expanded (acres) (Sq. Ft.) Rent Sq. Ft. 1999 1999 Option expiration) - ------------------------------------------------------------------------------------------------------------------------ Winter Garden Plaza 1988 22.34 228,476 $ 978,723 $ 4.98 86% 58% Kmart (2013/2063) Winter Garden, FL Food Lion (2009/2029) Sears Roebuck & Co. (2000/2010) ------ --------- ----------- ------ -- -- Total/Average 236.70 2,286,281 $11,556,383 $ 5.10 97% 91% ====== ========= =========== ====== == == (1) Total annualized base rents of the Company as of December 31, 1999 (2) Calculated as total annualized base rents, divided by gross leasable area actually leased as of December 31, 1999 (3) Roundy's does not currently occupy the space it leases at Iron Mountain Plaza (35,285 square feet, rented at a rate of $5.87 per square foot) and Charlevoix Commons (35,896 square feet, rented at a rate of $5.97 per square foot). Both of these leases expire in 2011 (assuming they are not extended by Roundy's). Sears, Roebuck & Co. leases but does not currently occupy, the 50,000 square feet it leases at Winter Garden Plaza. This lease expires in 2000 (and is not expected to be extended by Sears) and is rented at a rate of $5.00 per square foot. Walgreen leases but does not currently occupy, the 13,500 square feet it leases at Winter Garden Plaza. This lease will expire February 29, 2000 and was rented at a rate of $8.50 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 the Company.
-10- Annualized Base Rent of the Company's Properties The following is a breakdown of base rents in place at December 31, 1999 for each type of retail tenant: Percent of Annualized Annualized Type of Tenant Base Rent (1) Base Rent -------------- ------------- ---------- National (2) $17,687,659 85% Regional (3) 1,956,813 10 Local 1,140,946 5 ----------- --- Total $20,785,418 100% ----------- --- - -------------------- (1) Includes the Company's share of annualized base rent for each of the Joint Venture Properties. (2) Includes the following national tenants: Kmart, Borders, Walgreen, Fashion Bug, Winn Dixie, Rite Aid, JC Penney, Avco Financial, GNC Group, Radio Shack, On Cue, Super Value, Maurices, Payless Shoes, Food Lion, Blockbuster Video, Family Dollar, H&R Block, Sally Beauty, Jo Ann Fabrics, Staples, Best Buy, Dollar Tree, Sears, A&P, TGI Friday's and Circuit City. (3) Includes the following regional tenants: Roundy's, Dunham's Sports, Brauns Fashions and Hollywood Video. Free-Standing Properties Twenty-eight (28) of the Properties are free-standing properties net leased to A&P (1), Borders (17), Circuit City Stores (1), Kmart (3) and Walgreen (6), which Properties contain, in the aggregate, approximately 1,181,000 square feet of gross leasable area. The free-standing properties range in size from 13,686 to 226,000 square feet of gross leasable area and are located in the following states: California (1), Florida (3), Indiana (1), Kansas (2), Maryland (1), Michigan (11), Nebraska (2), Ohio (2), Oklahoma (4) and Pennsylvania (1). Included in the Company's retail Properties are 7 Joint Venture Properties in which the Company owns interests ranging from 8% to 20% and 21 wholly-owned Properties. The Company's 21 wholly owned free-standing Properties provide $8,834,716 of annualized base rent at an average base rent per square foot of $11.69 during the 12 months ended December 31, 1999. The Company (or the joint ventures in which the Company has an interest) owns each of the twenty-eight (28) free-standing properties in fee, except as indicated below. The location, and general occupancy information with respect to the wholly-owned free-standing properties are set forth in the following table: -11- Wholly-Owned Free Standing Properties Year Lease expiration (2) Tenant/Location Completed Total GLA (Option expiration) A&P, Roseville, MI 1977 104,000 May 21, 2002 (2022) Borders, (1) Aventura, FL 1996 30,000 Jan 31, 2016 (2036) Borders, Columbus, OH 1996 21,000 Jan 23, 2016 (2036) Borders, Monroeville, PA 1996 37,004 Nov 8, 2016 (2036) Borders, Norman, OK 1996 24,641 Sep 20, 2016 (2036) Borders, Omaha, NE 1995 30,000 Nov 3, 2015 (2035) Borders, Santa Barbara, CA 1995 38,015 Nov 17, 2015 (2035) Borders, Wichita, KS 1995 25,000 Nov 10, 2015 (2035) Borders, (1) Lawrence, KS 1997 20,000 Nov 21, 2020 (2040) Borders, Tulsa, OK 1998 25,000 Nov 21, 2020 (2040) Borders, Columbia, MD 1999 28,000 Nov 21, 2021 (2041) 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 90,470 Sep 30, 2009 (2059) Kmart, Perrysburg, OH 1983 87,543 Oct 31, 2008 (2058) Walgreen, Waterford, MI 1997 13,905 Feb 28, 2018 (2058) Walgreen, Chesterfield, MI 1998 13,686 July 31, 2018 (2058) Walgreen, Pontiac, MI 1998 13,905 Oct 31, 2018 (2058) Walgreen, Grand Blanc, MI 1998 13,905 Feb 28, 2019 (2059) Walgreen, Rochester, MI 1998 13,905 June 30, 2019 (2059) Walgreen, Ypsilanti, MI 1998 15,120 Dec 31, 2020 (2060) ------- Total 729,878 ------- (1) These properties are subject to long-term ground leases where a third party owns the underlying land and has leased the land to the Company to construct or operate two free-standing properties. The Company pays rent for the use of the land and generally is responsible for all costs and expenses associated with the building and improvements. At the end of the lease terms, as extended (Aventura, FL 2036 and Lawrence, KS 2027), the land together with all improvements revert to the land owner. The Company has an option to purchase the Lawrence property during the period October 1, 2006 to September 30, 2016. (2) At the expiration of tenant's initial lease term, each tenant has an option, subject to certain requirements, to extend its lease for an additional period of time. -12- Joint Venture Properties During 1996, the Company developed or acquired seven free-standing Properties which are leased to Borders, including Borders' current corporate headquarters, its former headquarters building and Properties operated as Borders Books and Music. Each of these Properties is owned by a separate limited liability company or a limited partnership that is owned jointly by the Company and an affiliate of Borders (the "Joint Ventures"). The Company's economic interest in the Joint Ventures ranges from 8% to 20%. The financing for the development of the Joint Venture Properties was provided through a financing facility established by Borders and its affiliates (the "Borders Financing Facility"). The lease between Borders and each of the Joint Ventures has a term expiring October 16, 2002, unless the Borders Financing Facility is extended or earlier terminated. At any time during the term of the lease, Borders has the right to refinance the Properties or to purchase the Properties for various percentages of total project costs, provided that, prior to such refinancing or purchase, the Company may elect to provide alternative financing for the Properties or purchase the Properties and purchase the interest of the Borders' affiliate in the Joint Venture. In the event the Company elects to provide financing or to purchase the Properties, and is subsequently unable to obtain the requisite financing, or in the event that the Company defaults in its development obligations to the Joint Venture, Borders may purchase the Properties. If the Company provides refinancing or purchases the Properties, the Company will be required to acquire the interest of the Borders' affiliate in the Joint Ventures, and Borders and the Joint Ventures will enter into a new lease providing for a term of 20 years, with four five-year extension options. Under certain circumstances, the Company may elect to allow Borders to place long-term financing on such Properties, in which case, the Company will maintain its current interest in the Joint Venture and become the sole equity member of the entity which owns such Property. In such a circumstance, the Company will own the Property subject to a first mortgage loan which could exceed 90% of the Property's estimated value, and lease payments received by the Company would be adjusted to reflect Borders' financing. The Company's investment in the seven Joint Venture Properties currently yields approximately $690,000 annualized base rent. Of this amount, the Company estimates that approximately $125,000 is variable based on short-term financing. 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. -13- Joint Venture Properties The Company's Tenant / Location Interest Total GLA Lease Expirations - ----------------- ------------- --------- ----------------- Borders, Inc. Ann Arbor, MI 11% 110,000 October 16, 2002 Borders, Inc. Ann Arbor, MI 8% 226,000 October 16, 2002 Borders, Inc. Boynton Beach, FL 12% 25,000 October 16, 2002 Borders, Inc. Indianapolis, IN 8% 15,844 October 16, 2002 Borders, Inc. Oklahoma City, OK 20% 24,641 October 16, 2002 Borders, Inc. Omaha, NE 18% 25,000 October 16, 2002 Borders, Inc. Tulsa, OK 15% 25,000 October 16, 2002 ------- Total 451,485 ------- Major Tenants The following table sets forth certain information with respect to the Company's major tenants: Annualized Base Percent of Total Number Rent as of Annualized Base Rent as of Leases December 31, 1999 of December 31, 1999 -------------------------------------------------------- Kmart 16 $5,492,667 26% Borders 17 5,047,430 (1) 24 Walgreen 9 2,346,290 11 -- ---------- -- Total 42 $12,886,387 61% -- ---------- -- - -------------- (1) Includes the Company's percentage of base rent for each of the Joint Venture Properties Sixteen of the Properties are anchored by Kmart, a publicly-traded retailer with over 2,150 stores. Kmart's principal business is general merchandise retailing through a chain of department stores and it is one of the world's largest retailers based on sales volume. The Company derived approximately 26% of its base rental income for the year ended December 31, 1999 from, and approximately 31% of the Company's future minimum rentals are attributable to, Kmart. -14- Borders Group, Inc. ("BGI"), is a leading global retailer of books, music, video and other information and entertainment items. BGI is the parent company of Borders, Inc., which operates 290 Borders superstores offering a broad selection of books and multi-media products. In addition, BGI owns Walden Book Company, Inc., which has approximately 900 Waldenbooks stores in malls, shopping centers and airports across the country. The Company derived approximately 24% of its base rental income for the year ended December 31, 1999 from, and approximately 31% of the Company's future minimum rentals are attributable to, Borders. Walgreen is a leader of the U.S. chain drugstore industry and operates over 2,900 stores nationwide. The Company derived approximately 11% of its base rental income for the year ended December 31, 1999 from, and approximately 17% of the Company's future minimum rentals are attributable to, Walgreen. Lease Expirations The following table shows lease expirations for the next 10 years for the Company's community shopping centers and wholly-owned free-standing properties, assuming that none of the tenants exercise renewal options. December 31, 1999 ----------------- Gross Lesable Area Annualized Base Rent ------------------ -------------------- Number Expiration of Leases Square Percent Percent Year Expiring Footage of Total Amount of Total - ------------------------------------------------------------------ 2000 13 158,903 5.27% $ 764,223 3.80% 2001 26 112,160 3.72 870,296 4.33 2002 27 299,613 9.93 2,043,529 10.17 2003 23 179,592 5.95 901,986 4.49 2004 9 31,900 1.06 249,250 1.24 2005 9 70,654 2.34 411,403 2.05 2006 4 60,404 2.00 351,965 1.75 2007 1 2,000 0.07 19,000 0.09 2008 2 167,942 5.57 539,935 2.69 2009 3 171,790 5.70 726,564 3.62 --- --------- ----- ---------- ----- Total 117 1,254,958 41.61% $6,878,151 34.23% --- --------- ----- ---------- ----- Leases on the seven Joint Venture Properties are for an initial term through October 16, 2002. In the event a refinancing is consummated, Borders is required to enter into a twenty year net lease with a fixed lease rate. Item 3. LEGAL PROCEEDINGS The Company is not presently involved in any litigation nor, to management's knowledge, is any litigation threatened against the -15- Company, except for routine litigation arising in the ordinary course of business which is expected to be covered by the Company's liability insurance. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of 1999. Part II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's 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 the Company's Common Stock, as reported on the New York Stock Exchange Composite Tape, and the dividends declared per share of Common Stock by the Company 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, 1998 $22.750 $20.625 $0.46 June 30, 1998 $20.875 $19.813 $0.46 September 30, 1998 $20.063 $17.688 $0.46 December 31, 1998 $19.625 $17.375 $0.46 March 31, 1999 $19.125 $15.875 $0.46 June 30, 1999 $18.875 $15.938 $0.46 September 30, 1999 $18.938 $16.375 $0.46 December 31, 1999 $16.750 $13.375 $0.46 At December 31, 1999, there were 4,364,867 shares of the Company's Common Stock issued and outstanding which were held by approximately 260 stockholders of record. The stockholders of record do not reflect persons or entities who held their shares in nominee or "street" name. The Company intends to continue to declare quarterly dividends to its stockholders. However, distributions by the Company are determined by the Board of Directors and will depend on a number of factors, including the amount of funds from operations, the financial and other condition of its Properties, its capital requirements, the annual distribution requirements under the provisions of the Code applicable to REITs and such other factors as the Board of Directors deems relevant. During the year ended December 31, 1999, there were no sales of unregistered securities by the Company, except the grant, under the Company's 1994 Stock Incentive Plan (the "Plan"), of 18,554 shares of restricted stock to certain employees of the Company. 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. -16- 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. The balance sheet data for the periods ended December 31, 1995 through December 31, 1999 and operating data for each of the periods 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, Operating Data 1999 1998 1997 1996 1995 - -------------- ------ ------ ------ ------ ------ Total Revenue $ 21,931 $ 19,674 $ 18,234 $ 16,291 $ 13,699 --------- --------- --------- --------- --------- Expenses Property expense (1) 3,512 3,050 2,785 2,485 2,049 General and administrative 1,425 1,170 1,107 1,105 966 Interest 5,771 5,231 5,552 6,101 4,335 Depreciation and amortization 3,436 3,073 2,782 2,620 2,317 --------- --------- --------- --------- --------- Total Expenses 14,144 12,524 12,226 12,311 9,667 --------- --------- --------- --------- --------- Other Income (Expense) (2) 69 168 155 653 -- --------- --------- --------- --------- --------- Income before extraordinary item and minority interest 7,856 7,318 6,163 4,633 4,032 Extraordinary Item - Early Extinguishment of Debt -- (319) -- -- -- --------- --------- --------- --------- --------- Income before Minority Interest 7,856 6,999 6,163 4,633 4,032 Minority Interest 1,050 912 943 899 785 --------- --------- --------- --------- --------- Net Income $ 6,806 $ 6,087 $ 5,220 $ 3,734 $ 3,247 ========= ========= ========= ========= ========= Funds from Operations (3) $ 12,093 $ 11,055 $ 9,581 $ 7,076 $ 6,389 ========= ========= ========= ========= ========= Number of Properties 42 39 34 32 20 ========= ========= ========= ========= ========= Number of Square Feet 3,468 3,411 3,103 3,068 2,470 ========= ========= ========= ========= ========= Per Share Data Net income (4) $ 1.56 $ 1.40 $ 1.41 $ 1.41 $ 1.23 ========= ========= ========= ========= ========= Cash dividends $ 1.84 $ 1.84 $ 1.82 $ 1.80 $ 1.80 ========= ========= ========= ========= ========= Weighted average of common shares outstanding 4,365 4,346 3,695 2,649 2,638 ========= ========= ========= ========= ========= Balance Sheet Data Real Estate (before accumulated depreciation) $ 179,858 $ 166,921 $ 142,748 $ 132,474 $ 118,360 Total Assets $ 158,196 $ 149,648 $ 130,492 $ 121,382 $ 108,928 Total debt, including accrued interest $ 95,762 $ 85,650 $ 65,419 $ 88,252 $ 73,741 (1) Property expense includes real estate taxes, property maintenance, insurance, utilities and land lease expense. (2) Other income (expense) is composed of development fee income, gain on land sales, equity in net income (loss) of unconsolidated entities and reorganization costs. (3) See "Funds From Operations" discussed under Item 7 (4) 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
-17- ITEM 7. MANAGEMENT'S DISCUSSION AND ANYALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The Company was established to continue to operate and expand the retail property business of its predecessors. The Company commenced its operations on April 22, 1994 with the sale of 2,500,000 shares of common stock in its initial public offering. The net cash proceeds to the Company from the completion of this offering were approximately $45.4 million, which were used primarily to reduce outstanding indebtedness, pay stock issuance costs and establish a working capital reserve. On May 21, 1997, the Company completed a second offering of 1,625,000 shares of common stock at $20.625 per share; on June 18, 1997 the underwriters exercised their overallotment option for an additional 28,850 shares at the same per share price (collectively, "the 1997 Offering"). The net proceeds from the 1997 Offering of approximately $31.9 million were used to repay amounts outstanding under the Company's Credit Facility. The assets of the Company are held by, and all operations are conducted through, Agree Limited Partnership (the "Operating Partnership"), of which the Company is the sole general partner and held an 86.63% interest as of December 31, 1999. The Company is operating so as to qualify as a real estate investment trust ("REIT") for federal income tax purposes. The following should be read in conjunction with the Consolidated Financial Statements of Agree Realty Corporation, including the respective notes thereto, which are included elsewhere in this Form 10-K. Comparison of Year Ended December 31, 1999 to Year Ended December 31, 1998 Rental income increased $1,931,000, or 11%, to $19,437,000 in 1999, compared to $17,506,000 in 1998. The increase was the result of the development and acquisition of four Properties in 1998 and three Properties in 1999. Operating cost reimbursement, which represents additional rent required by substantially all of the Company's leases to cover the tenants' proportionate share of property operating expenses, increased $360,000, or 17%, to $2,452,000 in 1999, compared to $2,092,000 in 1998. Operating cost reimbursement increased due to the increase in real estate taxes and property operating expenses from 1998 to 1999, as explained below. Management fees and other income decreased $34,000, or 45%, to $42,000 in 1999, compared to $76,000 in 1998. The decrease was the result of a reduction in management fees due to the Company's acquisition of a Property it previously managed. Real estate taxes increased $145,000, or 9%, to $1,701,000 in 1999 compared to $1,556,000 in 1998. The increase is the result of the addition of new Properties. -18- Property operating expenses increased $321,000, or 34%, to $1,269,000 in 1999 compared to $948,000 in 1998. The increase was the result (i) additional property expenses of $83,000 as a result of the acquisition of a shopping center in 1998 and (ii) an increase of $238,000 consisting of increased snow removal costs of $155,000; an increase in shopping center maintenance costs of $94,000; a decrease in utility costs of ($12,000); and an increase in insurance costs of $1,000 in 1999 versus 1998. Land lease payments remained relatively constant at $542,000 in 1999 compared to $545,000 in 1998. General and administrative expenses increased $255,000, or 22%, to $1,425,000 in 1999 compared to $1,170,000 in 1998. The increase was primarily the result of an increase in compensation related expenses, property management expenses and state and local taxes. General and administrative expenses as a percentage of rental income increased from 6.7% for 1998 to 7.3% for 1999. Depreciation and amortization increased $363,000, or 12%, to $3,436,000 in 1999 compared to $3,073,000 in 1998. The increase was the result of the development and acquisition of seven new Properties in 1998 and 1999. Interest expense increased $540,000, or 10%, to $5,771,000 in 1999, from $5,231,000 in 1998. The increase in interest expense was the result of the Company's additional borrowing to finance its continued acquisition and development of properties. Development fee income decreased $135,000, to $41,000 in 1999, from $176,000 in 1998. Development fee income is not included in the Company's calculation of Funds from Operations, due to the non-recurring nature of this type of income. Equity in net income (loss) of unconsolidated entities increased $36,000 to $28,000 in 1999 versus ($8,000) in 1998 as a result of decreased depreciation expense in 1999 related to certain of the Joint Venture Properties in which the Company holds interests ranging from 8% to 20%. The Company recognized an extraordinary item of $319,000 in 1998 relating to the prepayment of a mortgage on a property located in Winter Garden, Florida. There were no extraordinary items in 1999. The Company's income before minority interest increased $858,000 as a result of the foregoing factors. Comparison of Year Ended December 31, 1998 to Year Ended December 31, 1997 Rental income increased $1,354,000, or 8%, to $17,506,000 in 1998, compared to $16,152,000 in 1997. The increase was the result of the development and acquisition of two Properties in 1997 and four Properties in 1998. Operating cost reimbursement, which represents additional rent required by substantially all of the Company's leases to cover the tenants' proportionate share of property operating expenses, increased $95,000, or 5%, to $2,092,000 in 1998, compared to $1,997,000 in 1997. -19- Operating cost reimbursement increased due to the increase in real estate taxes and property operating expenses from 1997 to 1998, as explained below. Management fees and other income decreased $9,000, or 10%, to $76,000 in 1998, compared to $85,000 in 1997. The decrease was the result of a reduction in management fees due to the Company's acquisition of a property it previously managed. Real estate taxes increased $158,000, or 11%, to $1,556,000 in 1998 compared to $1,398,000 in 1997. The increase is the result of the addition of new properties. Property operating expenses (shopping center maintenance, insurance and utilities) increased $13,000, or 1%, to $948,000 in 1998 compared $935,000 in 1997. The increase consisted of decreased snow removal costs of $54,000; an increase in shopping center maintenance costs of $78,000; an increase in utility costs of $38,000; and a decrease in insurance costs of $49,000 in 1998 versus 1997. Land lease payments increased $93,000 to $545,000 in 1998 compared to $452,000 in 1997 as a result of the ground lease on the free standing Property in Lawrence, Kansas developed in 1997. General and administrative expenses increased $63,000, or 6%, to $1,170,000 in 1998 compared to $1,107,000 in 1997. The increase was primarily the result of an increase in compensation related expenses. General and administrative expenses as a percentage of rental income decreased from 6.9% for 1997 to 6.7% for 1998. Depreciation and amortization increased $291,000, or 10%, to $3,073,000 in 1998 compared to $2,782,000 in 1997. The increase was the result of the development and acquisition of six new Properties in 1997 and 1998. Interest expense decreased $321,000, or 9%, to $5,231,000 in 1998, from $5,552,000 in 1997. The decrease in interest expense was the result of the Company using the proceeds of the 1997 Offering to reduce the Company's indebtedness. Development fee income increased $119,000, to $176,000 in 1998, from $57,000 in 1997. Development fee income is not included in the Company's calculation of Funds from Operations, due to the non-recurring nature of this type of income. The Company recognized income of $103,000 on the sale of a parcel of land in 1997. There were no land sales in 1998. Equity in net loss of unconsolidated entities remained relatively constant at to $8,000 in 1998 compared to $6,000 in 1997. The Company recognized an extraordinary item of $319,000 in 1998 relating to the prepayment of a mortgage on a property located in Winter Garden, Florida. The costs represent a prepayment penalty of $93,000 and the write-off of deferred finance costs of $226,000. There were no extraordinary items in 1997. The Company's income before minority interest increased $835,000 as a result of the foregoing factors. -20- Funds From Operations Management considers Funds from Operations ("FFO") to be a supplemental measure of the Company's operating performance. FFO is defined by the National Association of Real Estate Investment Trusts, Inc. to mean net income computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains (or losses) from debt restructuring and sales of property, plus real estate related depreciation and amortization, and after adjustments for unconsolidated entities in which the REIT holds an interest. FFO does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs. FFO should not be considered as an alternative to net income as the primary indicator of the Company's operating performance or as an alternative to cash flow as a measure of liquidity. The following table illustrates the calculation of FFO for the years-ended December 31, 1999, 1998 and 1997:
Year ended December 31, ----------------------- 1999 1998 1997 -------------------------------------------- Income before extraordinary item and minority interest $ 7,856,901 $ 7,318,160 $ 6,163,510 Depreciation of real estate assets 3,349,739 3,003,211 2,726,066 Amortization of leasing costs 67,090 52,542 40,504 Amortization of stock awards 193,972 156,106 113,380 Depreciation of real estate assets held in unconsolidated entities 666,579 700,880 698,141 Gain on sale of assets -- -- (103,270) Development fee income (40,873) (176,193) (57,089) ------------ ------------ ------------ Funds from Operations $ 12,093,408 $ 11,054,706 $ 9,581,242 ------------ ------------ ------------ Weighted average shares and OP Units outstanding 5,038,414 4,997,435 4,333,121 ------------ ------------ ------------
FFO increased $1,039,000, or 9%, for the year ended December 31, 1999 to $12,093,000 as compared to the year ended December 31, 1998. FFO increased $1,473,000, or 15%, for the year ended December 31, 1998, to $11,055,000 as compared to the year ended December 31, 1997. The increase in FFO is primarily the result of the development and acquisition of seven Properties in 1998 and 1999. Liquidity and Capital Resources The Company's principal demands for liquidity are distributions to its stockholders, debt repayment, development of new properties and future property acquisitions. During the quarter ended December 31, 1999, the Company declared a quarterly dividend of $.46 per share. The dividend was paid on January 6, 2000 to holders of record on December 23, 1999. As of December 31, 1999, the Company had total mortgage indebtedness of $52,936,571 with a weighted average interest rate of 6.91%. Future scheduled annual maturities of mortgages payable for the years ending December 31 are as follows: 2000 - $1,297,668; 2001 - -21- $1,409,050; 2002 - $1,509,245; 2003 - $1,616,568; 2004 - $1,731,528. The mortgage debt is all fixed rate debt. In addition, the Operating Partnership has in place a $50 million line of credit facility (the "Credit Facility") which is guaranteed by the Company. The loan matures in August 2000 and can be extended by the Company 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 lender's prime rate less 50 basis points to plus 13 basis points, 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 Properties which are not otherwise encumbered and properties to be acquired or developed. As of December 31, 1999, $27,158,232 was outstanding under the Credit Facility. The Company also has in place a $5 million line of credit (the "Line of Credit"), which matures on December 19, 2000, and which the Company expects 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 the option of the Company. The purpose of the Line of Credit is to provide working capital to the Company and fund land options and start-up costs associated with new projects. As of December 31, 1999, there were no outstanding borrowings under the Line of Credit. The Company's wholly-owned subsidiaries have obtained construction financing of approximately $16,100,000 to fund the development of four retail properties. The notes require quarterly interest payments, based on a weighted average interest rate based on LIBOR, computed by the lender. The notes mature on October 16, 2002 and are secured by the underlying land and buildings. As of December 31, 1999, $13,591,581 was outstanding under these notes. The Company has received funding from an unaffiliated third party for the construction of certain of its Properties. Advances under this arrangement bear no interest and are required to be repaid within sixty 60 days after the date construction has been completed. The advances are secured by the specific land and buildings being developed. As of December 31, 1999, $1,730,490 was outstanding under this arrangement. During the quarter ended December 31, 1999, the Company completed development of two Properties that added 43,120 square feet of gross leasable area to its portfolio. The first Property is located in Columbia, Maryland and the second Property is located in Ypsilanti, Michigan. The development of these retail Properties is expected to have a positive effect on cash generated by operating activities and Funds from Operations. The Company has two development projects under construction that will add an additional 38,905 square feet of retail space to the Company's portfolio. The projects are expected to be completed during the first and second quarter of 2000. Additional Company funding required for these projects is estimated to be $1,400,000 and will come from the Credit Facility and construction financing. Management expects the development of the projects to have a positive effect on cash generated by operating activities and Funds from Operations. -22- The Company intends to meet its short-term liquidity requirements, including capital expenditures related to the leasing and improvement of the Properties, through its cash flow provided by operations and the Line of Credit. Management believes that adequate cash flow will be available to fund the Company's operations and pay dividends in accordance with REIT requirements. The Company may obtain additional funds for future development or acquisitions through other borrowings or the issuance of additional shares of capital stock. The Company intends to incur additional debt in a manner consistent with its policy of maintaining a ratio of total debt (including construction and acquisition financing) to total market capitalization of 65% or less. The Company believes that these financing sources will enable the Company to generate funds sufficient to meet both its short-term and long-term capital needs. The Company plans 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. Management intends to periodically refinance short-term construction and acquisition financing with long-term debt and / or equity in order to reduce its ratio of total debt to market capitalization to 50% or less. Nevertheless, the Company may operate with debt levels or ratios that are in excess of 50% for extended periods of time prior to the completion of this long-term financing process. Inflation The Company's leases generally contain provisions designed to mitigate the adverse impact of inflation on net income. These provisions include clauses enabling the Company to pass through to tenants certain operating costs, including real estate taxes, common area maintenance, utilities and insurance, thereby reducing the Company's exposure to increases in costs and operating expenses resulting from inflation. Certain of the Company's leases contain clauses enabling the Company 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 terms of the leases. In addition, expiring tenant leases permit the Company to seek increased rents upon re-lease at market rates if rents are below the then existing market rates. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS NO. 133 "Accounting for Derivative Instruments and Hedging Activities." This Statement, which is effective in fiscal year 2000, is not expected to have an impact on the Company's financial statements. Item 7A QUANTITATIVE AND QUALATATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to interest rate risk primarily through its 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 the Company's' future financing requirements. -23- Mortgages payable - As of December 31, 1999 the Company had three mortgages outstanding. The first mortgage in the amount of $33,160,787 bears interest at 7.00%. The mortgage matures on November 15, 2005. The second mortgage in the amount of $7,543,092 bears interest at 7.00%. The mortgage matures on April 1, 2013 and is subject to a rate review after the 7th year (April 1, 2006). The third mortgage in the amount of $12,232,692 bears interest at 6.63%. The mortgage matures on February 5, 2017. Construction loans - As of December 31, 1999 the Company had Construction loans outstanding of $13,591,581. Under the terms of the construction loans the Company bears no interest rate risk. Notes payable - As of December 31, 1999 the Company had $27,158,232 outstanding on its Secured Line-of-Credit all of which had a variable interest rate, based on LIBOR. The Company does not enter into financial instruments 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 $200,000. 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 the Company's 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. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated herein by reference to the Company's 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 8, 2000. -24- Item 11. EXECUTIVE COMPENSATION Incorporated herein by reference to the Company's 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 8, 2000. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated herein by reference from the Company's 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 8, 2000. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated herein by reference from the Company's 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 8, 2000. -25- PART IV Item 14. 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. (3) Exhibits 3.1 Articles of Incorporation and Articles of Amendment of the Company (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-11 (Registration Statement No. 33-73858, as amended ("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) 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) -26- 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 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 -27- 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) 21.1 * Subsidiaries of Agree Realty Corporation 23 * Consent of BDO Seidman, LLP 27.1 * Financial Data Schedule - ----------------------------------------------------------------------------- * Filed herewith + Management contract or compensatory plan or arrangement (b) Reports on Form 8-K No reports on form 8-K were filed by the Company during the quarter ending December 31, 1999 -28- 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 23, 2000 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 23rd day of March 2000. By: /s/Richard Agree By: /s/ Farris G. Kalil -------------------------- --------------------- Richard Agree Farris G. Kalil President and Chairman of the Director Board of Directors (Principal Executive Officer) By: /s/ Michael Rotchford ---------------------- Michael Rotchford Director By: /s/Kenneth R. Howe ------------------------- Kenneth R. Howe Vice President, Finance By: /s/ Ellis G. Wachs and Secretary --------------------- (Principal Financial and Ellis G. Wachs Accounting Officer) Director By: /s/ Gene Silverman ---------------------- Gene Silverman By: /s/ Edward Rosenberg Director ------------------------ Edward Rosenberg Director -29- Agree Realty Corporation ============================================================================= Financial Statements Years Ended December 31, 1999, 1998 and 1997 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 Financial Statements F-9 Schedule III - Real Estate and Accumulated Depreciation F-21 F-1 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, 1999 and 1998, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. 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 generally accepted auditing standards. 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, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. Also, in our opinion, the schedule presents fairly, in all material respects, the information set forth therein. BDO SEIDMAN, LLP Troy, Michigan February 10, 2000 F-2 Agree Realty Corporation Consolidated Balance Sheets ============================================================================= December 31, 1999 1998 - ----------------------------------------------------------------------------- Assets Real Estate Investments (Notes 3, 4 and 5) Land $ 40,270,367 $ 37,005,162 Buildings 135,709,128 128,861,505 Property under development 3,878,611 1,054,335 - ----------------------------------------------------------------------------- 179,858,106 166,921,002 Less accumulated depreciation (26,342,296) (23,022,291) - ----------------------------------------------------------------------------- Net Real Estate Investments 153,515,810 143,898,711 Cash and Cash Equivalents 1,064,241 994,159 Accounts Receivable - Tenants 565,133 645,052 Investments In and Advances To Unconsolidated Entities 449,676 1,135,409 Unamortized Deferred Expenses Financing costs 1,587,397 1,533,440 Leasing costs 282,629 302,694 Other Assets 730,651 761,066 - ----------------------------------------------------------------------------- $ 158,195,537 $ 149,270,531 ============================================================================= See accompanying notes to consolidated financial statements. F - 3 Agree Realty Corporation Consolidated Balance Sheets ============================================================================= December 31, 1999 1998 - ----------------------------------------------------------------------------- Liabilities and Stockholders' Equity Mortgages Payable (Note 3) $ 52,936,571 $ 41,299,294 Construction Loans (Note 4) 15,322,071 8,874,326 Notes Payable (Note 5) 27,158,232 35,158,232 Dividends and Distributions Payable (Note 6) 2,317,670 2,309,136 Accrued Interest Payable 344,875 318,362 Accounts Payable Capital expenditures 1,315,597 1,444,517 Operating 855,886 721,485 Tenant Deposits 52,073 48,606 - ----------------------------------------------------------------------------- Total Liabilities 100,302,975 90,173,958 - ----------------------------------------------------------------------------- Minority Interest (Note 7) 5,859,012 6,047,843 - ----------------------------------------------------------------------------- Stockholders' Equity (Notes 6 and 8) Common stock, $.0001 par value; 20,000,000 shares authorized; 4,364,867 and 4,346,313 shares issued and outstanding 436 435 Additional paid-in capital 63,217,235 62,873,987 Deficit (10,673,302) (9,448,351) - ----------------------------------------------------------------------------- 52,544,369 53,426,071 Less: unearned compensation - restricted stock (Note 12) (510,819) (377,341) - ----------------------------------------------------------------------------- Total Stockholders' Equity 52,033,550 53,048,730 - ----------------------------------------------------------------------------- $158,195,537 $149,270,531 ============================================================================= See accompanying notes to consolidated financial statements. F - 4 Agree Realty Corporation Consolidated Statements of Income ============================================================================= Year Ended December 31, 1999 1998 1997 - ----------------------------------------------------------------------------- Revenues Rental income $19,436,694 $17,505,825 $16,152,240 Operating cost reimbursement 2,452,208 2,091,633 1,997,087 Management fees and other (Note 9) 41,838 76,094 84,840 - ----------------------------------------------------------------------------- Total Revenues 21,930,740 19,673,552 18,234,167 - ----------------------------------------------------------------------------- Operating Expenses Real estate taxes 1,700,850 1,556,172 1,398,120 Property operating expenses 1,268,559 947,619 934,584 Land lease payments 541,993 545,194 452,106 General and administrative 1,424,602 1,170,122 1,106,816 Depreciation and amortization 3,435,711 3,073,469 2,782,083 - ----------------------------------------------------------------------------- Total Operating Expenses 8,371,715 7,292,576 6,673,709 - ----------------------------------------------------------------------------- Income From Operations 13,559,025 12,380,976 11,560,458 - ----------------------------------------------------------------------------- Other Income (Expense) Interest expense (5,770,736) (5,231,088) (5,551,734) Development fee income 40,873 176,193 57,089 Equity in net income (loss) of unconsolidated entities 27,739 (7,921) (5,573) Gain on land sales -- -- 103,270 - ----------------------------------------------------------------------------- Total Other Expense (5,702,124) (5,062,816) (5,396,948) - ----------------------------------------------------------------------------- Income Before Extraordinary Item and Minority Interest 7,856,901 7,318,160 6,163,510 Extraordinary Item - Loss on Extinguishment of Debt (Note 10) -- 319,422 -- - ----------------------------------------------------------------------------- Income Before Minority Interest 7,856,901 6,998,738 6,163,510 Minority Interest 1,050,496 911,962 943,287 - ----------------------------------------------------------------------------- Net Income $ 6,806,405 $ 6,086,776 $ 5,220,223 ============================================================================= Earnings Per Share (Note 2) Income before extraordinary item $ 1.56 $ 1.46 $ 1.41 Extraordinary item -- .06 -- - ----------------------------------------------------------------------------- Earnings Per Share $ 1.56 $ 1.40 $ 1.41 ============================================================================= See accompanying notes to consolidated financial statements. F-5 Agree Realty Corporation Consolidated Statements of Stockholders' Equity =============================================================================
Common Stock Additional Unearned --------------------- Paid-In Compensation- Shares Amount Capital Deficit Restricted Stock - ------------------------------------------------------------------------------------------------------------------- Balance, January 1, 1997 2,649,475 $ 265 $ 30,060,908 $ (5,619,136) $ (248,213) Issuance of shares under the Stock Incentive Plan 28,955 3 618,910 -- (235,126) Vesting of restricted stock -- -- -- -- 113,380 Issuance of common stock 1,653,850 165 31,888,031 -- -- Shares forfeited under the Stock Incentive Plan (3,300) -- (64,362) -- 64,362 Dividends declared, $1.82 per share -- -- -- (7,138,998) -- Net income -- -- -- 5,220,223 -- - ----------------------------------------------------------------------------------------------------------------- Balance, December 31, 1997 4,328,980 433 62,503,487 (7,537,911) (305,597) Issuance of shares under the Stock Incentive Plan 19,033 2 405,828 -- (227,850) Vesting of restricted stock -- -- -- -- 156,106 Shares redeemed under the Stock Incentive Plan (1,700) -- (35,328) -- -- Dividends declared, $1.84 per share -- -- -- (7,997,216) -- Net income -- -- -- 6,086,776 -- - ----------------------------------------------------------------------------------------------------------------- Balance, December 31, 1998 4,346,313 435 62,873,987 (9,448,351) (377,341) Issuance of shares under the Stock Incentive Plan 18,554 1 343,248 -- (327,450) Vesting of restricted stock -- -- -- -- 193,972 Dividends declared, $1.84 per share -- -- -- (8,031,356) -- Net income for the year ended December 31, 1999 -- -- -- 6,806,405 -- - ----------------------------------------------------------------------------------------------------------------- Balance, December 31, 1999 4,364,867 $ 436 $ 63,217,235 $(10,673,302) $ (510,819) ================================================================================================================= See accompanying notes to consolidated financial statements.
F-6 Agree Realty Corporation Consolidated Statements of Cash Flows =============================================================================
Year Ended December 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------ Cash Flows From Operating Activities Net income $ 6,806,405 $ 6,086,776 $ 5,220,223 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 3,350,133 2,993,886 2,709,177 Amortization 448,767 511,407 483,267 Stock-based compensation 193,972 156,106 113,380 Write-off of deferred finance costs -- 226,162 -- Equity in net (income) loss of unconsolidated entities (27,739) 7,921 5,573 Minority interests 1,050,496 911,962 943,287 Gain on land sales -- -- (103,270) Decrease (increase) in accounts receivable 79,919 (171,134) 164,817 Decrease (increase) in other assets (6,955) 249,298 (115,131) Increase (decrease) in accounts payable 134,401 118,623 (89,119) Increase (decrease) in accrued interest 26,513 69,620 (106,246) Increase (decrease) in tenant deposits 3,467 (3,467) 846 - ------------------------------------------------------------------------------------------------------ Net Cash Provided By Operating Activities 12,059,379 11,157,160 9,226,804 - ------------------------------------------------------------------------------------------------------ Cash Flows From Investing Activities Acquisition of real estate investments (including capitalized interest of $452,000 in 1999, $470,671 in 1998 and $117,892 in 1997) (11,621,507) (13,688,468) (8,727,691) Investments in and distributions from unconsolidated entities - net 702,226 655,665 4,791 Proceeds from sale of land -- -- 148,270 - ------------------------------------------------------------------------------------------------------ Net Cash Used In Investing Activities (10,919,281) (13,032,803) (8,574,630) - ------------------------------------------------------------------------------------------------------ See accompanying notes to consolidated financial statements.
F-7 Agree Realty Corporation Consolidated Statements of Cash Flows =============================================================================
Year Ended December 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------ Cash Flows From Financing Activities Mortgage proceeds $ 12,390,135 $ -- $ -- Dividends and limited partners' distributions paid (9,262,149) (9,179,457) (7,494,505) Line-of-credit net borrowings (payments) (8,000,000) 26,517,216 16,275,009 Proceeds from construction loans 6,447,745 3,299,235 4,099,043 Payments of payables for capital expenditures (1,428,718) (1,338,399) (596,794) Payments of mortgages payable (752,858) (15,830,943) (2,709,973) Payments for financing costs (417,146) (58,000) (145,410) Payments of leasing costs (47,025) (83,131) (84,898) Payment of related party payables -- (1,757,359) -- Payment of note payable -- (450,000) -- Redemption of restricted stock -- (35,328) -- Net proceeds from the issuance of common stock -- -- 31,888,196 Payment on line-of-credit -- -- (31,250,375) Payment of construction loans -- -- (9,140,888) - ------------------------------------------------------------------------------------------------------ Net Cash Provided By (Used In) Financing Activities (1,070,016) 1,083,834 839,405 - ------------------------------------------------------------------------------------------------------ Net Increase (Decrease) In Cash and Cash Equivalents 70,082 (791,809) 1,491,579 Cash and Cash Equivalents, beginning of year 994,159 1,785,968 294,389 - ------------------------------------------------------------------------------------------------------ Cash and Cash Equivalents, end of year $ 1,064,241 $ 994,159 $ 1,785,968 ===================================================================================================== Supplemental Disclosure of Cash Flow Information Cash paid for interest (net of amounts capitalized) $ 5,395,192 $ 4,790,000 $ 5,313,000 ===================================================================================================== Supplemental Disclosure of Non-Cash Transactions Dividends and limited partners' distributions declared and unpaid $ 2,317,670 $ 2,309,136 $ 2,284,792 Real estate investments financed with accounts payable $ 1,315,597 $ 1,444,517 $ 1,516,379 Shares issued under Stock Incentive Plan $ 343,249 $ 405,830 $ 618,913 Operating partnership units issued for purchase of real estate $ -- $ 691,119 $ -- Shares retired under Stock Incentive Plan $ -- $ -- $ 64,362 ===================================================================================================== See accompanying notes to consolidated financial statements.
F-8 Agree Realty Corporation Notes to Consolidated Financial Statements ============================================================================= 1. The Company Agree Realty Corporation (the "Company") is a self-administered, self-managed real estate investment trust which develops, acquires, owns and operates properties which are primarily leased to national and regional retail companies under net leases. At December 31, 1999, the Company's properties are comprised of fourteen shopping centers and twenty-one single tenant retail facilities located in twelve states. In addition, the Company owns joint venture interests ranging from 8% to 20% in seven free-standing retail properties. During the year ended December 31, 1999, approximately 95% of the Company's base rental revenues were received from national and regional tenants under long-term leases, including approximately 26% from Kmart Corporation and 24% from Borders, Inc. 2. Summary of Significant Principles of Consolidation Accounting Policies 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, 86.63% and 86.58% of the Operating Partnership as of December 31, 1999 and 1998, 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. F-9 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, 1999. 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, 1999, 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. F-10 Agree Realty Corporation Notes to Consolidated Financial Statements ============================================================================= Accounts Receivable - Tenants Accounts receivable from tenants reflect primarily reimbursement of specified common area expenses. No allowance for uncollectible accounts is considered necessary due to past collection results. Investments in Unconsolidated Entities The Company uses the equity method of accounting for investments in non-majority owned entities where the Company has the ability to exercise significant influence over operating and financial policies. The Company's initial investment is recorded at cost, and the carrying amount of the investment is (a) increased by the Company's share of the investees' earnings (as defined in the limited liability company agreements), and (b) reduced by distributions paid from the investees to the Company. Unamortized Deferred Expenses Deferred expenses are stated net of total accumulated amortization. The nature and treatment of these capitalized costs are as follows: (1) financing costs, consisting of expenditures incurred to obtain long-term financing, are being amortized using the interest method over the term of the related loan, and (2) leasing costs, which are amortized on a straight-line basis over the term of the related lease. Other Assets The Company records prepaid expenses, deposits and miscellaneous receivables as "other assets" in the accompanying balance sheets. Accounts Payable - Capital Expenditures Included in accounts payable are amounts related to the construction of buildings. Due to the nature of these expenditures, they are reflected in the statements of cash flows as a financing activity. F-11 Agree Realty Corporation Notes to Consolidated Financial Statements ============================================================================= Minority Interest This amount represents the limited partners' interest ("OP Units") of 13.37% (convertible into 673,547 shares) and 13.42% (convertible into 673,547 shares) in the Operating Partnership as of December 31, 1999 and 1998, respectively. Revenue Recognition Base rental income attributable to leases is recorded when due from tenants. Certain leases provide for additional 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. The Company acts as the construction developer on certain properties. Related development fee income is recognized upon completion of construction. 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 95% 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. F-12 Agree Realty Corporation Notes to Consolidated Financial Statements ============================================================================= The Company declared dividends per share of $1.84, $1.84, and $1.82 during the years ended December 31, 1999, 1998, and 1997, respectively; the dividends have been reflected for federal income tax purposes as follows: December 31, 1999 1998 1997 -------------------------------------- Ordinary income $1.44 $1.32 $1.20 Return of capital .40 .52 .62 -------------------------------------- Total $1.84 $1.84 $1.82 ====================================== The aggregate federal income tax basis of Real Estate Investments is approximately $17.3 million less than the financial statement basis. 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, 1999 1998 1997 ---------------------------------------------------------------------- Numerator Net income $6,806,405 $6,086,776 $5,220,223 Income allocated to minority interests 1,050,496 911,962 943,287 ---------------------------------------------------------------------- Numerator for Basic and Diluted Earnings Per Share - Income Available to Shareholders After Assumed Conversions $7,856,901 $6,998,738 $6,163,510 ======================================================================
F-13 Agree Realty Corporation Notes to Consolidated Financial Statements =============================================================================
December 31, 1999 1998 1997 -------------------------------------------------------------------------- Denominator Weighted average shares outstanding 4,364,867 4,346,313 3,695,162 Weighted average OP Units outstanding, Assuming conversion 673,547 651,122 637,959 -------------------------------------------------------------------------- Denominator for Basic Earnings Per Share - Adjusted Weighted Average Shares and Assumed Conversions 5,038,414 4,997,435 4,333,121 Employee Stock Options -- 685 1,406 -------------------------------------------------------------------------- Denominator for Diluted Earnings Per Share 5,038,414 4,998,120 4,334,527 ===========================================================================
Reclassifications Certain amounts in prior years' financial statements have been reclassified to conform with current year's presentation. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities." This statement, which was subsequently amended by SFAS No. 137, will become effective in fiscal 2001, and is not expected to have an impact on the Company's financial statements. F-14 Agree Realty Corporation Notes to Consolidated Financial Statements ============================================================================= 3. Mortgages Payable Mortgages payable consisted of the following:
December 31, 1999 1998 ------------------------------------------------------------------- Note payable in monthly installments of $249,750 including interest at 7.0% per annum, with the remaining balance due November 2005; collateralized by related real estate and tenants' leases $33,160,787 $33,600,000 Note payable in monthly installments of $99,598 including interest at 6.63% per annum, collateralized by related real estate and tenants' leases 12,232,692 -- Note payable in monthly installments of $61,948 including interest at 7.0% per annum (with rate to be modified to prevailing interest rate in December 2005), collateralized by related real estate and tenants' leases, final balloon installment scheduled to be due April 2013 7,543,092 7,699,294 ------------------------------------------------------------------ Total $52,936,571 $41,299,294 ==================================================================
Future scheduled annual maturities of mortgages payable for years ending December 31 are as follows: 2000 - $1,297,668; 2001 - $1,409,050; 2002 - $1,509,245; 2003 - $1,616,568; 2004 - $1,731,528 and $45,372,512 thereafter. F-15 Agree Realty Corporation Notes to Consolidated Financial Statements ============================================================================= 4. Construction Loans The Company's wholly-owned subsidiaries have obtained construction financing totalling approximately $16,100,000, which is available to fund the development of four retail properties, three of which have been completed and are operating. (The fourth property will be completed in 2000). Quarterly interest payments are made based on LIBOR. The notes mature on October 16, 2002 and are secured by the related land and buildings. The Company owed $13,591,581 and $7,143,836 for these loans at December 31, 1999 and 1998, respectively. The Company has also received funding from an unaffiliated third party for certain of its single tenant retail properties. Borrowings under this arrangement bear no interest and are required to be repaid within sixty (60) days after the date the construction has been completed. The advances are secured by the specific land and buildings being developed. As of December 31, 1999 and 1998, $1,730,490 was outstanding under this arrangement. 5. Notes Payable The Operating Partnership has entered into a $50 million line-of-credit agreement which is guaranteed by the Company. The agreement expires on August 7, 2000 and can be extended, solely at the option of the Operating Partnership, for an additional three years. Advances under this credit facility bear interest within a range of either LIBOR plus 150 basis points to 213 basis points, or the bank's prime rate less 50 basis points to plus 13 basis points, 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 specific properties. At December 31, 1999 and 1998, $27,158,232 and $35,158,232, respectively, was outstanding under this facility. 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, 1999 and 1998, there were no outstanding borrowings under this agreement. F-16 Agree Realty Corporation Notes to Consolidated Financial Statements ============================================================================= 6. Dividends and Distributions On December 6, 1999, the Company Payable declared a dividend of $.46 per share for the quarter ended December 31, 1999; approximately 22% percent of the dividend represented a return of capital. The holders of OP Units were entitled to an equal distribution per OP Unit held as of December 31, 1999. The dividends and distributions payable are recorded as liabilities in the Company's balance sheet at December 31, 1999. 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, 2000. 7. Minority Interest The following summarizes the changes in minority interest since January 1, 1997:
---------------------------------------------------------------- Minority Interest at January 1, 1997 $ 5,869,014 Minority interests' share of income for the year 943,287 Distributions for the year (1,160,954) ---------------------------------------------------------------- Minority Interest at December 31, 1997 5,651,347 Acquisition of Mt. Pleasant Shopping Center (see Note 9) 691,119 Minority interests' share of income for the year 911,962 Distributions for the year (1,206,585) ---------------------------------------------------------------- Minority Interest at December 31, 1998 6,047,843 Minority interests' share of income for the year 1,050,496 Distributions for the year (1,239,327) ---------------------------------------------------------------- Minority Interest at December 31, 1999 $ 5,859,012 ==================================================================
F-17 Agree Realty Corporation Notes to Consolidated Financial Statements ============================================================================= 8. Issuance of Common Stock During May and June 1997, the Company sold 1,653,850 shares of common stock. The cash proceeds (net of underwriting fees and related issuance costs) to the Company from the stock issuance sales were approximately $31.9 million, which was used to reduce outstanding indebtedness. 9. Related Party Transactions In August 1998 the Operating Partnership purchased the Mt. Pleasant Shopping Center. An independent appraisal determined the purchase price of $9,076,000. Payment consisted of $8,385,000 in debt assumption, with the balance paid through the issuance of 35,588 OP Units. The sellers are members of the Agree organization and are existing limited partners in the Operating Partnership. The Company currently manages 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 "Management fees and other" in the accompanying consolidated statements of income. 10. Extraordinary Item During the fourth quarter of 1998, the Company recognized an extraordinary loss related to loan prepayment penalties and the write-off of deferred financing costs for debt that was repaid prior to its scheduled due date. 11. 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. The total of 23,275 options were exercisable at December 31, 1999 and 1998. No options were exercised during either 1999 or 1998. The Company has adopted the disclosure-only provisions of SFAS No. 123 "Accounting for Stock-Based Compensation." However, since no compensation cost would have been recognized pursuant to SFAS No. 123 under the Plan in either 1999 or 1998, there is no effect on the Company's net income for these years. F-18 Agree Realty Corporation Notes to Consolidated Financial Statements ============================================================================= 12. Unearned Compensation As part of the Company's stock -Restricted Stock incentive plan, restricted common shares are granted to certain employees. The restricted shares vest 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, 1999, 1998 and 1997:
December 31, 1999 1998 1997 -------------------------------------------------------------------------- Restricted shares outstanding January 1 66,778 49,445 23,790 Restricted shares granted during the year 18,554 19,033 28,955 Restricted shares redeemed during the year -- (1,700) -- Restricted shares forfeited during the year -- -- (3,300) -------------------------------------------------------------------------- Restricted shares outstanding December 31 85,332 66,778 49,445 ========================================================================= Compensation Expense Recorded Related to Restricted Common Shares $193,972 $156,106 $113,380 =========================================================================
13. 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 1999, 1998 or 1997. 14. 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; however, such amounts earned by the Company historically have not been material. F-19 Agree Realty Corporation Notes to Consolidated Financial Statements ============================================================================= As of December 31, 1999, 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): 2000 $ 18,943 2001 18,027 2002 17,048 2003 16,190 2004 15,648 Thereafter 155,214 ------------------------------------ Total $241,070 ==================================== Of these future minimum rentals, approximately 31% of the total is attributable to Kmart Corporation, approximately 31% is attributable to Borders, Inc. and approximately 17% is attributable to Walgreen Company. Kmart's principal business is general merchandise retailing through a chain of discount department stores, Borders is a major operator of book superstores in the United States and Walgreen operates in the national chain drugstore industry. 15. Lease Commitments The Company has entered into certain land lease agreements for four of its properties. As of December 31, 1999, future annual lease commitments under these agreements are as follows: Year Ended December 31, ------------------------------------- 2000 $ 717,910 2001 721,160 2002 723,949 2003 725,443 2004 725,443 Thereafter 14,347,041 ===================================== F-20 Agree Realty Corporation Notes to Consolidated Financial Statements ============================================================================= 16. Interim Results The following summary represents the (Unaudited) unaudited results of operations of the Company, expressed in thousands except per share amounts, for the periods from January 1, 1998 through December 31, 1999:
Three Months Ended -------------------------------------------------------------------------- 1999 March 31, June 30, September 30, December 31, =================================================================================== Revenues $5,382 $5,374 $5,490 $5,685 ================================================================================ Income before minority interest $1,832 $2,037 $2,020 $1,968 Minority interest 245 272 270 263 -------------------------------------------------------------------------------- Net Income $1,587 $1,765 $1,750 $1,705 ================================================================================ Earnings Per Share $ .36 $ .40 $ .40 $ .40 ================================================================================ Three Months Ended -------------------------------------------------------------------------- 1998 March 31, June 30, September 30, December 31, =================================================================================== Revenues $4,720 $4,716 $4,974 $5,264 ================================================================================ Income before minority interest and extraordinary item $1,753 $1,765 $1,955 $1,845 Extraordinary item -- -- -- 319 Minority interest 226 224 256 206 -------------------------------------------------------------------------------- Net Income $1,527 $1,541 $1,699 $1,320 ================================================================================ Earnings Per Share Income before extraordinary item $ .35 $ .36 $ .39 $ .36 Extraordinary item -- -- -- .06 ================================================================================ Earnings Per Share $ .35 $ .36 $ .39 $ .30 ================================================================================
F-21 Agree Realty Corporation
Schedule III - Real Estate and Accumulated Depreciation December 31, 1999 ============================================================================= Column A Column B Column C Column D - -------- ------------ -------------------------- ------------- Initial Cost Costs -------------------------- Capitalized Building and Subsequent to Description Encumbrance Land Improvements Acquisition - ------------------------------------------------------------------------------------- Completed Retail Facilities Borman Center, MI $ 1,613,199 $ 550,000 $ 562,404 $ 1,066,115 Capital Plaza, KY 1,433,955 7,379 2,240,607 534,115 Charlevoix Common, MI 3,929,553 305,000 5,152,992 46,718 Chippewa Commons, WI 5,037,124 1,197,150 6,367,560 214,250 Grayling Plaza, MI 1,002,139 200,000 1,778,657 -- Iron Mountain Plaza, MI 2,723,971 677,820 7,014,996 491,900 Ironwood Commons, MI 3,261,704 167,500 8,181,306 244,753 Marshall Plaza Two, MI 3,362,504 -- 4,662,230 69,159 North Lakeland Plaza, FL 7,543,092 1,641,879 6,364,379 512,870 Oscoda Plaza, MI 1,116,203 183,295 1,872,854 -- Perrysburg Plaza, OH -- 21,835 2,291,651 350,696 Petoskey Town Center, MI 5,504,691 875,000 8,895,289 18,542 Plymouth Commons, WI 4,748,625 535,460 5,667,504 239,397 Rapids Associates, MI 5,053,703 705,000 6,854,790 27,767 Shawano Plaza, WI 5,524,587 190,000 9,133,934 101,471 West Frankfort Plaza, IL 296,025 8,002 784,077 36,807 Winter Garden Plaza, FL -- 1,631,448 8,459,024 -- Omaha Store, NE 1,664,800 1,705,619 2,053,615 2,152 Wichita Store, KS 1,344,332 1,039,195 1,690,644 24,666 Santa Barbara Store, CA 2,767,424 2,355,423 3,240,557 2,650 Monroeville, PA 4,068,303 6,332,158 2,249,724 -- Norman, OK 1,178,667 879,562 1,626,501 -- Columbus, OH 1,347,048 826,000 2,336,791 -- Aventura, FL 1,379,638 -- 3,173,121 -- Boyton Beach, FL 3,529,824 3,103,942 2,043,122 -- Lawrence, KS 3,181,670 -- 3,000,000 155,407 Waterford, MI 2,948,079 971,009 1,562,869 133,993 Chesterfield Township, MI 3,231,877 1,350,590 1,757,830 (46,164) F - 22 Agree Realty Corporation Schedule III - Real Estate and Accumulated Depreciation December 31, 1999 ============================================================================= Column E Column F Column G Column H -------------------------------------- ------------- ------------ ------------ Life on Which Gross Amount at Which Carried Depreciation at Close of Period in Latest -------------------------------------- Income Building and Accumulated Date of Statement Land Improvements Total Depreciation Construction is Computed - ----------------------------------------------------------------------------------------------------------------------- Completed Retail Facilities Borman Center, MI $ 550,000 $ 1,628,519 $ 2,178,519 $ 1,000,399 1977 40 Years Capital Plaza, KY 7,379 2,774,722 2,782,101 1,272,829 1978 40 Years Charlevoix Common, MI 305,000 5,199,710 5,504,710 1,190,074 1991 40 Years Chippewa Commons, WI 1,197,150 6,581,810 7,778,960 1,545,956 1990 40 Years Grayling Plaza, MI 200,000 1,778,657 1,978,657 714,330 1984 40 Years Iron Mountain Plaza, MI 677,820 7,506,896 8,184,716 1,537,311 1991 40 Years Ironwood Commons, MI 167,500 8,426,059 8,593,559 1,787,688 1991 40 Years Marshall Plaza Two, MI -- 4,731,389 4,731,389 1,029,255 1990 40 Years North Lakeland Plaza, FL 1,641,879 6,877,249 8,519,128 2,166,718 1987 40 Years Oscoda Plaza, MI 183,295 1,872,854 2,056,149 745,891 1984 40 Years Perrysburg Plaza, OH 341,531 2,322,651 2,664,182 932,728 1983 40 Years Petoskey Town Center, MI 875,000 8,913,831 9,788,831 1,995,657 1990 40 Years Plymouth Commons, WI 535,460 5,906,901 6,442,361 1,336,904 1990 40 Years Rapids Associates, MI 705,000 6,882,557 7,587,557 1,583,328 1990 40 Years Shawano Plaza, WI 190,000 9,235,405 9,425,405 2,202,013 1990 40 Years West Frankfort Plaza, IL 8,002 820,884 828,886 351,308 1982 40 Years Winter Garden Plaza, FL 1,631,448 8,459,024 10,090,472 2,326,150 1988 40 Years Omaha Store, NE 1,705,619 2,055,767 3,761,386 211,994 1995 40 Years Wichita Store, KS 1,039,195 1,715,310 2,754,505 176,815 1995 40 Years Santa Barbara Store, CA 2,355,423 3,243,207 5,598,630 334,447 1995 40 Years Monroeville, PA 6,332,158 2,249,724 8,581,882 175,507 1996 40 Years Norman, OK 879,562 1,626,501 2,506,063 131,960 1996 40 Years Columbus, OH 826,000 2,336,791 3,162,791 228,807 1996 40 Years Aventura, FL -- 3,173,121 3,173,121 294,175 1996 40 Years Boyton Beach, FL 3,103,942 2,043,122 5,147,064 157,303 1996 40 Years Lawrence, KS -- 3,155,407 3,155,407 165,186 1997 40 Years Waterford, MI 971,009 1,696,862 2,667,871 83,882 1997 40 Years Chesterfield Township, MI 1,350,590 1,711,666 3,062,256 64,765 1998 40 Years F - 22 Agree Realty Corporation Schedule III - Real Estate and Accumulated Depreciation December 31, 1999 ============================================================================= Column A Column B Column C Column D - -------- ------------ ------------------------ ------------- Initial Cost Costs ------------------------ Capitalized Building and Subsequent to Description Encumbrance Land Improvements Acquisition - ------------------------------------------------------------------------------------ Grand Blanc, MI 3,088,755 1,104,285 1,998,919 27,837 Pontiac, MI 2,963,981 1,144,190 1,808,955 (73,506) Mt. Pleasant Shopping Center, MI -- 907,600 8,081,968 40,000 Tulsa, OK 4,002,873 1,100,000 2,394,512 -- Columbia, MD 3,599,452 1,545,509 2,093,700 -- Rochester, MI -- 2,438,740 2,188,050 -- Ypsilanti, MI -- 2,050,000 2,222,097 -- - ------------------------------------------------------------------------------------ Sub Total 92,447,798 37,750,590 131,807,229 4,221,595 - ------------------------------------------------------------------------------------ Retail Facilities Under Development Germantown, MD 2,807,586 1,400,000 1,679,591 -- Waterford, MI -- 800,081 232,834 -- New Baltimore, MI -- -- 42,611 -- Petoskey, MI 161,490 -- 1,708,190 -- Flint, MI -- -- 112,190 -- Flint, MI -- -- 103,195 -- - ------------------------------------------------------------------------------------ 2,969,076 2,200,081 3,878,611 -- - ------------------------------------------------------------------------------------ Total $95,416,874 $39,950,671 $135,685,840 $4,221,595 ==================================================================================== F-23 Agree Realty Corporation Schedule III - Real Estate and Accumulated Depreciation December 31, 1999 ============================================================================= Column E Column F Column G Column H --------------------------------------- ------------- ----------- ------------ Life on Which Gross Amount at Which Carried Depreciation at Close of Period in Latest --------------------------------------- Income Building and Accumulated Date of Statement Land Improvements Total Depreciation Construction is Computed =============================================================================================================== Grand Blanc, MI $ 1,104,285 2,026,756 3,131,041 50,669 1998 40 Years Pontiac, MI 1,144,190 1,735,449 2,879,639 54,692 1998 40 Years Mt. Pleasant Shopping Center, MI 907,600 8,121,968 9,029,568 370,549 1973 40 Years Tulsa, OK 1,100,000 2,394,512 3,494,512 84,454 1998 40 Years Columbia, MD 1,545,509 2,093,700 3,639,209 11,201 1999 40 Years Rochester, MI 2,438,740 2,188,050 4,626,790 27,351 1999 40 Years Ypsilanti, MI 2,050,000 2,222,097 4,272,097 -- 1999 40 Years - --------------------------------------------------------------------------------------------------------------- Sub Total 38,070,286 135,709,128 173,779,414 26,342,296 - --------------------------------------------------------------------------------------------------------------- Retail Facilities Under Development Germantown, MD 1,400,000 1,679,591 3,079,591 -- N/A N/A Waterford, MI 800,081 232,834 1,032,915 -- N/A N/A New Baltimore, MI -- 42,611 42,611 -- N/A N/A Petoskey, MI -- 1,708,190 1,708,190 -- N/A N/A Flint, MI -- 112,190 112,190 -- N/A N/A Flint, MI -- 103,195 103,195 -- N/A N/A - --------------------------------------------------------------------------------------------------------------- 2,200,081 3,878,611 6,078,692 -- - --------------------------------------------------------------------------------------------------------------- Total $40,270,367 $139,587,739 $179,858,106 $26,342,296 ===============================================================================================================
F-23 Agree Realty Corporation Notes to Schedule III December 31, 1999 ============================================================================= 1) Reconciliation of Real Estate Properties The following table reconciles the Real Estate Properties from January 1, 1997 to December 31, 1999: 1999 1998 1997 ============================================================================= Balance at January 1 $166,921,002 $142,748,449 $132,474,243 Construction and acquisition costs 12,937,104 24,172,553 10,319,206 Sales -- -- (45,000) - ----------------------------------------------------------------------------- Balance at December 31 $179,858,106 $166,921,002 $142,748,449 ============================================================================= 2) Reconciliation of Accumulated Depreciation The following table reconciles the accumulated depreciation from January 1, 1997 to December 31, 1999: 1999 1998 1997 ============================================================================= Balance at January 1 $23,022,291 $20,043,235 $17,339,353 Current year depreciation expense 3,320,005 2,979,056 2,703,882 - ----------------------------------------------------------------------------- Balance at December 31 $26,342,296 $23,022,291 $20,043,235 ============================================================================= 3) Tax Basis of Buildings and Improvements The aggregate cost of Building and Improvements for federal income tax purposes is approximately $1,358,000 less than the cost basis used for financial statement purposes. F - 24 EX-10.17 2 THIRD AMENDMENT TO AMENDED AND RESTATED BUSINESS LOAN AGREEMENT THIS THIRD AMENDMENT TO AMENDED AND RESTATED BUSINESS LOAN AGREEMENT ("Third Amendment"), made as of December 19, 1999, by and between AGREE LIMITED PARTNERSHIP, a Delaware limited partnership, whose address is 31850 Northwestern Highway, Farmington Hills, Michigan 48334 (the "Borrower") and MICHIGAN NATIONAL BANK, a national banking association, whose address is 27777 Inkster Road (10-02), Farmington Hills, Michigan 48333-9065 (the "Bank"). Capitalized terms used but not defined in this Third Amendment shall have the meaning assigned to such terms in the Restated Agreement (as defined below). RECITALS WHEREAS, Borrower and Bank entered into an Amended and Restated Business Loan Agreement dated September 30, 1996, but effective September 21, 1996, as amended by First Amendment and Second Amendment thereto ("Restated Agreement"), whereby Bank agreed to make a $5,000,000 Line of Credit Loan ("Loan") available to Borrower; WHEREAS, the Loan has been extended but will mature December 19, 1999; and WHEREAS, Borrower has requested Bank to extend the maturity date of the Loan and modify and amend certain terms of the Restated Agreement to evidence the extension of the Loan and Bank has agreed to do so upon the terms and condition of this Third Amendment. AGREEMENT NOW, THEREFORE, in consideration of and in reliance upon the foregoing recitals of fact and the agreements among the parties set forth in this Agreement, the Restated Agreement is hereby amended as follows: A. AMENDMENT OF RESTATED AGREEMENT. 1. Amendment of Section I. The MATURITY DATE AND LOAN DATE set forth in Section I of the Restated Agreement are changed to read "December 19, 2000" and "December 19, 1999", respectively. B. REPRESENTATIONS AND WARRANTIES. Borrower represents, warrants, covenants and agrees that as of the date hereof, after giving effect to the consummation of the transactions contemplated by this Third Amendment: 1. Authority. Each of Borrower and Guarantor, as applicable, has full power, authority and legal right to enter into the Third Amendment and the Note (as defined below). The execution, delivery and performance by Borrower and Guarantor of the applicable Third Amendment documents: (a) have been duly authorized by all necessary partnership or corporate action, as applicable, of Borrower and Guarantor; (b) do not and will not, by lapse of time, the giving of notice or otherwise, contravene the terms of Borrower's or Guarantor's respective partnership agreement or certificate, articles of incorporation or bylaws or of any indenture, agreement or undertaking to which Borrower or Guarantor is a party or by which Borrower or Guarantor is or any of their respective property are bound; (c) do not and will not require any governmental consent, registration or approval; (d) do not and will not, by lapse of time, the giving of notice or otherwise, contravene any material contractual or governmental restriction to which Borrower or Guarantor, or any of their respective property may be subject; and (e) do not and will not, except as contemplated herein, result in the imposition of any lien, charge, security interest or encumbrance upon any property of Borrower or Guarantor under any existing indenture, mortgage, deed of trust, loan or credit agreement or other material agreement or instrument to which Borrower or Guarantor is a party or by which Borrower or Guarantor or any of their respective property may be bound or affected. 2. Binding Effect. Each of the Third Amendment documents is the legal, valid and binding obligation of Borrower and Guarantor, as appropriate, and is enforceable against Borrower and Guarantor, as appropriate, in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by equitable principles (whether or not any action to enforce such document is brought at law or in equity). 3. Agreement Representations and Warranties. The warranties and representations of Borrower contained in the Restated Agreement and the Related Documents are true, correct and complete on and as of the Effective Date and the date hereof, to the same extent as though made on and as of that date, and taking into account any revised Exhibits attached to this Third Amendment. 4. Default. Upon closing of the Third Amendment transaction, no Event of Default or Default has occurred and is continuing, and neither Borrower or Guarantor has any defense, setoff or counterclaim with respect to the Note, the Restated Agreement or any documents executed in connection therewith. 2 C. CONDITIONS TO CLOSING. In addition to those conditions set forth elsewhere in the Restated Agreement, the obligations of Bank under this Third Amendment are conditioned upon (a) the fulfillment, in a manner satisfactory to Bank on or before the date hereof, of each of the following terms and conditions or (b) the delivery on or before the date hereof, duly executed, in form and substance satisfactory to Bank (and their counsel) of the following documents, as the case may be: 1. Third Amendment Documents. (a) Third Amendment. Borrower and Guarantor shall have executed and delivered this Third Amendment to Bank. (b) Fifth Amended and Restated Note. Borrower shall have executed and delivered the Fifth Amended and Restated Note ("Note"). (c) Other Agreements. Borrower shall have executed and delivered to Bank such other agreements and documents in connection with the Loan as Bank may request in form and substance satisfactory to Bank and its counsel. 2. Organizational Documents. Bank shall have received (i) with respect to Guarantor, the certificate of incorporation of Guarantor, as amended, modified or supplemented to the date hereof, certified to be true, correct and complete by the appropriate Secretary of State, together with a good standing certificate from such Secretary of State, and (ii) with respect to Borrower, the agreement of limited partnership of Borrower, as amended, modified or supplemented to the date hereof, certified to be true, correct and complete by a general partner of Borrower, together with a copy of the certificate of limited partnership of Borrower, as amended, modified or supplemented to the date hereof, certified to be true, correct and complete by the appropriate Secretary of State. 3. Certified Resolutions. Bank shall have received a certificate of the secretary or assistant secretary of Guarantor and dated the date hereof, certifying (i) the names and true signatures of the incumbent officers of Guarantor authorized to sign the applicable Third Amendment documents and (ii) the resolutions of Guarantor's board of directors approving and authorizing the execution, delivery and performance of all Third Amendment documents executed by Guarantor. 4. Additional Matters. Bank shall have received such other certificates, opinions, documents and instruments relating to the Third Amendment transaction as may have been reasonably requested by Bank, and all corporate and other proceedings and all other documents and all legal matters in connection with the Third Amendment transaction shall be satisfactory in form and substance to Bank. 3 D. AMENDMENT AND AFFIRMATION OF LOAN DOCUMENTS. 1. Affirmation of Loan Documents. Borrower and Guarantor acknowledge and affirm that (i) the Restated Agreement, as amended by the Third Amendment, the Mortgages, the Assignments and the Guaranty are enforceable against the Borrower and Guarantor, as applicable, and remain in full force and effect and shall be unamended, unchanged and unmodified, except as specifically set forth in the Third Amendment; and (ii) the Collateral and the Guaranty shall continue to secure and/or guaranty the repayment of the Obligations, whether or not the Obligations were contemplated by Borrower, Guarantor or Bank at the time of the execution of the Restated Agreement and the Related Documents, as amended hereby. E. MISCELLANEOUS. 1. Section Titles. The section titles contained in this Third Amendment shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties. 2. Parties. Whenever in this Third Amendment reference is made to any of the parties hereto, such reference shall be deemed to include, wherever applicable, a reference to the successors and assigns of the Borrower, Guarantor and Bank. 3. References. Any reference to the Restated Agreement contained in any notice, request, certificate, or other document executed concurrently with or after the execution and delivery of this Third Amendment shall be deemed to include this Third Amendment unless the context shall otherwise require. 4. Continued Effectiveness. Notwithstanding anything contained herein, the terms of this Third Amendment are not intended to and do not serve to effect a novation as to the Restated Agreement. The parties hereto expressly do not intend to extinguish the Restated Agreement; instead, it is the express intention of the parties hereto to reaffirm Borrower's Obligations created under the Restated Agreement, as amended by this Third Amendment. 5 Counterparts. This Third Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. 6 Release of Claims; Limitation of Liability. In consideration of Bank entering into this Third Amendment, Borrower and Guarantor do each hereby release and discharge Bank of and from any and all claims, harm, injury, and damage of any and every kind, known or unknown, legal or equitable, which Borrower or Guarantor have against Bank through the date of this Third Amendment. Borrower and Guarantor confirm to Bank that they have reviewed the effect of this release with competent legal counsel of their choice, or have been afforded the opportunity to do so, prior to execution of this Third Amendment and each acknowledge and agree that Bank is relying upon this release in entering into this Third Amendment. No claim may be made by Borrower, Guarantor, or any other Person against Bank or the affiliates, directors, officers, employees, attorneys or Bank of any of such Persons for any special, indirect, consequential or punitive damages in respect of any claim for 4 breach of contract or any other theory of liability arising out of or related to the transactions contemplated by the Agreement or any other transactions, or any act, omission or event occurring in connection therewith; and Borrower and Guarantor hereby waive, release and agree not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. 7. Entire Agreement. This Third Amendment, the exhibits attached hereto, and the other Third Amendment documents represent the entire agreement between the parties hereto relating to the Third Amendment and may not be altered or modified in any respect, except upon the execution by the parties hereto of a written document or instrument so providing. IN WITNESS WHEREOF, this Third Amendment has been duly executed as of the day and year first above written. AGREE LIMITED PARTNERSHIP, a Delaware limited partnership By: AGREE REALTY CORPORATION, its sole general partner, a Maryland corporation By: ________________________ Name: Richard Agree Title: President MICHIGAN NATIONAL BANK, a national banking association By: ___________________________ Name: Irwin S. Knox Title: Vice President 5 AGREEMENT OF GUARANTOR By executing this Third Amendment the undersigned "Guarantor" agrees that the Indebtedness of Borrower is and, notwithstanding this Third Amendment, will continue to be guaranteed to Bank in accordance with the terms of the Amended and Restated Guaranty made September 30, 1996 ("Guaranty") and executed and delivered by Guarantor to Bank, without limit. In addition, Guarantor: (1) acknowledges and agrees that the Guarantor has completely read and understands this Third Amendment; (2) consents to all of the provisions of this Third Amendment relating to Borrower; (3) acknowledges and agrees that the Guaranty continues in full force and effect; (4) acknowledges receipt of good and lawful consideration for execution of the Guaranty and this Third Amendment; (5) agrees promptly to furnish such Financial Statements to Bank concerning the Guarantor as Bank shall reasonably request; (6) agrees to all of those portions of this Third Amendment which apply to Guarantor; (7) acknowledges and agrees that this Third Amendment has been freely executed without duress and after an opportunity was provided to Guarantor for review of this Third Amendment by competent legal counsel of Guarantor's choice; and (8) acknowledges that the Bank has provided Guarantor with a copy of this Third Amendment and such other Related Documents as Guarantor has requested. GUARANTOR: AGREE REALTY CORPORATION, a Maryland corporation By: ________________________ Richard A. Agree Its: President 0667104.02 6 EX-21.1 3 EXHIBIT 21.1 AGREE REALTY CORPORATION SUBSIDIARIES OF THE REGISTRANT AS OF DECEMBER 31, 1999 Agree Realty Corporation; through its Operating Partnership, Agree Limited Partnership is the sole member of the following Limited Liability Companies: SUBSIDIARY JURISDICTION OF ORGANIZATION - ---------- ---------------------------- Agree - Columbia Crossing Project, L.L.C. Delaware Agree - Milestone Center Project, L.L.C. Delaware Agree Facility No. 1, L.L.C. Delaware Tulsa Store No. 264, L.L.C. Delaware Mt Pleasant Shopping Center L.L.C. Michigan Agree Realty Corporation, through its Operating Partnership, Agree Limited Partnership, owns a 99% interest in the following Limited Liability Company: Lawrence Store No. 203, L.L.C. Delaware EX-23 4 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Agree Realty Corporation Farmington Hills, Michigan We hereby consent to the incorporation by reference of our report dated February 10, 2000 relating to the financial statements and schedule of Agree Realty Corporation ("the Company"), appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 1999, into the Company's previously filed Form S-3 Registration Statement File No. 333-21293. BDO SEIDMAN, LLP Troy, Michigan March 10, 2000 EX-27.1 5
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1999 DEC-31-1999 1,064,241 0 565,133 0 0 0 179,858,106 26,342,296 158,195,537 0 95,416,874 436 0 0 52,033,550 158,195,537 0 21,930,740 0 8,371,715 0 0 5,770,736 0 0 0 0 0 0 6,806,405 1.56 1.56 -----END PRIVACY-ENHANCED MESSAGE-----