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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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
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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:)
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Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, $.0001 par value New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
(Title of Class)
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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
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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
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TABLE OF CONTENTS
Part I
Page
Numbers
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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
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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
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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
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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
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Total/Average 42 3,467,644 98%
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(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:
<TABLE>
<CAPTION>
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)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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-
<CAPTION>
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)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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-
<CAPTION>
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)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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%
====== ========= =========== ====== == ==
<FN>
(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.
</TABLE>
-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
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(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
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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.
<TABLE>
<CAPTION>
(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
- -------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
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
<FN>
(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
</TABLE>
-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:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1999 1998 1997
--------------------------------------------
<S> <C> <C> <C>
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
------------ ------------ ------------
</TABLE>
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
=============================================================================
<TABLE>
<CAPTION>
Common Stock Additional Unearned
--------------------- Paid-In Compensation-
Shares Amount Capital Deficit Restricted Stock
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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)
=================================================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
F-6
Agree Realty Corporation
Consolidated Statements of Cash Flows
=============================================================================
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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)
- ------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
F-7
Agree Realty Corporation
Consolidated Statements of Cash Flows
=============================================================================
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
=====================================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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:
<TABLE>
<CAPTION>
December 31, 1999 1998 1997
----------------------------------------------------------------------
<S> <C> <C> <C>
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
======================================================================
</TABLE>
F-13
Agree Realty Corporation
Notes to Consolidated Financial Statements
=============================================================================
<TABLE>
<CAPTION>
December 31, 1999 1998 1997
--------------------------------------------------------------------------
<S> <C> <C> <C>
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
===========================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
December 31, 1999 1998
-------------------------------------------------------------------
<S> <C> <C>
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
==================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
----------------------------------------------------------------
<S> <C>
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
==================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
December 31, 1999 1998 1997
--------------------------------------------------------------------------
<S> <C> <C> <C>
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
=========================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------------
1999 March 31, June 30, September 30, December 31,
===================================================================================
<S> <C> <C> <C> <C>
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
================================================================================
</TABLE>
F-21
Agree Realty Corporation
<TABLE>
<CAPTION>
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
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
<CAPTION>
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
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
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
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
<CAPTION>
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
===============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
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
===============================================================================================================
</TABLE>
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
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
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
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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM 10K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,064,241
<SECURITIES> 0
<RECEIVABLES> 565,133
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 179,858,106
<DEPRECIATION> 26,342,296
<TOTAL-ASSETS> 158,195,537
<CURRENT-LIABILITIES> 0
<BONDS> 95,416,874
<COMMON> 436
0
0
<OTHER-SE> 52,033,550
<TOTAL-LIABILITY-AND-EQUITY> 158,195,537
<SALES> 0
<TOTAL-REVENUES> 21,930,740
<CGS> 0
<TOTAL-COSTS> 8,371,715
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,770,736
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,806,405
<EPS-BASIC> 1.56
<EPS-DILUTED> 1.56
