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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-K


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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004


		OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to


		Commission File Number: 1-12928

AGREE REALTY CORPORATION

(Exact name of Registrant as specified in its charter)


Maryland		38-3148187
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

31850 Northwestern Highway		(248) 737-4190
Farmington Hills, Michigan 48334		(Registrant’s telephone number,
(Address of principal executive offices)		including area code)

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

		Name of each exchange on
Title of each class		which registered

Common Stock, $.0001 par value		New York Stock Exchange

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

None
(Title of Class)

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

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

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

The aggregate market value of the Registrant’s shares of common stock held by non-affiliates was approximately $163,614,366 as of June 30, 2004, based on the closing price of $25.30 on the NYSE on that date.

DOCUMENTS INCORPORATED BY REFERENCE


Document		Incorporated into Form 10-K
Portions of the Registrant’s Proxy Statement for its		Part III
Annual Meeting of Shareholders to be held on May 9, 2005		Items 10-13

Part I

FORWARD LOOKING STATEMENTS

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

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

•   Our inability to effect the development or acquisition of properties on favorable terms.

•   The effect of economic conditions. If an economic downturn occurs, any corresponding decrease in disposable income could result in consumers being less willing to purchase goods from our tenants which could adversely affect our financial condition and results of operations. Our financial condition and results of operations could also be adversely affected if our tenants are otherwise unable to make lease payments or fail to renew their leases.

•   Our inability to obtain long-term financing at interest rates that will allow us to offer attractive rental rates to our tenants in order to continue the development or acquisition of retail properties leased to national tenants on a long-term basis.

•   Actions of our competitors. We seek to remain competitive in the development of real estate assets in the markets that we currently serve. With regard to our acquisition of properties, we compete with insurance companies, credit companies, pension funds, private individuals, investment companies and other REITs, some of which have greater resources than we do.

•   Failure to qualify as a REIT. Although we believe that we were organized and have been operating in conformity with the requirements for qualification as a REIT under the Internal Revenue Code, we cannot assure you that we will continue to qualify as a REIT.

•   Changes in government regulations, tax rates and similar matters, For example, changes in real estate and zoning laws, environmental uncertainties and natural disasters could adversely affect our financial condition and results of operations.

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

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in or incorporated by reference into this Form 10-K might not occur.

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

Item 1. BUSINESS

General

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

At December 31, 2004, our portfolio consisted of 54 properties, located in 14 states and contained an aggregate of approximately 3.5 million square feet of gross leasable area (GLA). As of December 31, 2004 our portfolio includes 41 freestanding net leased properties and 13 community shopping centers that were 99% leased with a weighted average lease term of approximately 12 years. As of December 31, 2004, approximately 65% of our annualized lease revenue is derived from our top three tenants: Borders Group, Inc. (Borders) – 32%, Walgreen Co. (Walgreen) – 18% and Kmart Corporation (Kmart) - 15%. As of December 31, 2004 approximately 89% of our annualized lease revenue is derived from national tenants.

We expect to continue to grow our asset base primarily through the development of new retail properties that are pre-leased on a long-term basis to national tenants. Since our initial public offering in 1994, we have developed 45 of our 54 properties. We developed 32 of our 41 freestanding properties and all 13 of our community shopping centers. As of December 31, 2004, the properties that we developed (including the community shopping centers) accounted for 86% of our annualized base rent. We focus on development because we believe it generally provides us a higher return on investment than the acquisition of similarly located properties. We expect to continue to expand our tenant relationships and diversify our tenant base to include other quality national tenants.

Growth Strategy

Our growth strategy is to continue to develop retail properties pre-leased on a long-term basis to national tenants. We believe that a development strategy combined with substantial pre-leasing will produce superior risk adjusted returns. To effect this strategy, we identify a land parcel that we believe is an attractive retail location for one of our tenant relationships. The location must be in a concentrated retail corridor, have high traffic counts, good visibility and demographics compatible with the needs of the particular retail tenant. Then we propose to that tenant that we execute a long-term net lease for the finished development on that site.

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

Financing Strategy

The majority of our indebtedness is fixed rate, non-recourse and long-term in nature. Whenever possible, we use long-term financing for our properties to match the underlying long-term leases. As of December 31, 2004, the average weighted maturity of our long- term debt was 15.4 years. We intend to limit our floating rate debt to borrowings under our credit facilities, which are primarily used to finance new development and acquisitions. Once development of a project is completed, we typically refinance this floating rate debt with long-term, fixed rate, non-recourse debt. As of December 31, 2004, our total debt was approximately $93 million, consisting of approximately $53.8 million of fixed rate debt at an average interest rate of 6.63% and approximately $39.2 million of floating rate

debt, consisting primarily of the credit facilities, at an aggregate weighted average interest rate of 3.78%. We intend to maintain a ratio of total indebtedness (including construction and acquisition financing) to market capitalization of 65% or less.

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

Property Management

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

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

Agree Limited Partnership

Our assets are held by, and all of our operations are conducted through, Agree Limited Partnership (Operating Partnership), of which we are the sole general partner and held a 90.59% interest as of December 31, 2004. Under the partnership agreement of the Operating Partnership, we, as the sole general partner, have exclusive responsibility and discretion in the management and control of the Operating Partnership.

Recent Developments

In January 2005 we priced a public offering of 1,000,000 shares of our common stock at an offering price of $28.28 per share resulting in net proceeds of approximately $27.1 million. The net proceeds were used to repay part of our outstanding indebtedness under our credit facility and line of credit.

In February 2005 the underwriters exercised their over allotment option for an additional 150,000 shares of our common stock at the per share price of $28.28, resulting in net proceeds of approximately $4.1 million. The net proceeds were also used to repay part of our outstanding indebtedness under our credit facility and line of credit.

Headquarters

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

Risk Factors

General

We rely significantly on three major tenants. As of December 31, 2004, we derived approximately 65% of our annualized base rent from three major tenants, Borders, Walgreen and Kmart. In the event of a default by any of these tenants under their leases, we may experience delays in enforcing our rights as lessor and may incur substantial costs in protecting our investment. The bankruptcy or insolvency of any of the major tenants would likely have a material adverse effect on the properties affected and the income produced by those properties and correspondingly our ability to make distributions.

In November 2004, Kmart announced that Kmart and Sears, Roebuck and Co. had entered into an agreement and plan of merger. In the event the combined operations result in the closing or sale of certain stores, our portfolio of properties could be affected which could have a material adverse effect on our operations.

In the event that certain tenants cease to occupy a property, although under most circumstances such a tenant would remain liable for its lease payments, such an action may result in certain other tenants having the right to terminate their leases at the affected property, which could adversely affect the future income from that property. As of December 31, 2004, 13 of our properties had tenants with those provisions in their leases.

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

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

Risks associated with borrowing, including loss of properties in the event of a foreclosure. At December 31, 2004, our ratio of indebtedness to market capitalization was approximately 29.1%. The use of leverage presents an additional element of risk in the event that (1) the cash flow from lease payments on our properties is insufficient to meet debt obligations, (2) we are unable to refinance our debt obligations as necessary or on as favorable terms or (3) there is an increase in interest rates. If a property is mortgaged to secure payment of indebtedness and we are unable to meet mortgage payments, the property could be foreclosed upon with a consequent loss of income and asset value to us. Under the “cross-default” provisions contained in mortgages encumbering some of our properties, our default under a mortgage with a lender would result in our default under mortgages held by the same lender on other properties resulting in multiple foreclosures.

Risks associated with our development and acquisition activities. We intend to continue development of new properties and to consider possible acquisitions of existing properties. New project development is subject to a number of risks, including risks of construction delays or cost overruns that may increase project costs, risks that the properties will not achieve anticipated occupancy levels or sustain anticipated rent levels, and new project commencement risks such as receipt of zoning, occupancy and other required governmental permits and authorizations and the incurrence of development costs in connection with projects that are not pursued to completion. In addition, we anticipate that our new development will be financed under lines of credit or other forms of construction financing that will result in a risk that permanent financing on newly developed projects might not be available or would be available only on disadvantageous terms. In addition, the fact that we must distribute 90% of our taxable income in order to maintain our qualification as a REIT will limit our ability to rely upon income

from operations or cash flow from operations to finance new development or acquisitions. As a result, if permanent debt or equity financing was not available on acceptable terms to refinance new development or acquisitions undertaken without permanent financing, further development activities or acquisitions might be curtailed or cash available for distribution might be adversely affected. Acquisitions entail risks that investments will fail to perform in accordance with expectations and that judgments with respect to the costs of improvements to bring an acquired property up to standards established for the market position intended for that property will prove inaccurate, as well as general investment risks associated with any new real estate investment.

We are currently in litigation with Borders concerning the rental rate for our Ann Arbor, Michigan property. This litigation could adversely affect our relationship with Borders including future development and acquisition activities. To the extent we are unable to complete future development and acquisition activities with Borders, our operations could be negatively impacted.

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

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

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

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

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

Risks Associated With Investment In Real Estate

There are risks associated with owning and leasing real estate. Although our lease terms obligate the tenants to bear substantially all of the costs of operating our properties, investing in real estate involves a number of risks, including:

• The risk that tenants will not perform under their leases, reducing our income from the leases or requiring us to assume the cost of performing obligations (such as taxes, insurance and maintenance) that are the tenant’s responsibility under the lease.

•   The risk that changes in economic conditions or real estate markets may adversely affect the value of our properties.

•   The risk that local conditions (such as oversupply of similar properties) could adversely affect the value of our properties.

•   The risk that we may not always be able to lease properties at favorable rental rates.

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

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

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

Uncertainties relating to lease renewals and re-letting of space. We are subject to the risks that, upon expiration of leases for space located in our properties, the premises may not be re-let or the terms of re-letting (including the cost of concessions to tenants) may be less favorable than current lease terms. If we are unable to re-let promptly all or a substantial portion of our retailers or if the rental rates upon such re-letting were significantly lower than expected rates, our net income and ability to make expected distributions to stockholders would be adversely affected. There can be no assurance that we will be able to retain tenants in any of our properties upon the expiration of their leases.

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

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

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

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

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

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

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

Our leases require our tenants to operate the properties in compliance with environmental laws and to indemnify us against environmental liability arising from the operation of the properties. However, we could be subject to strict liability under environmental laws because we own the properties. There is also a risk that tenants may not satisfy their environmental compliance and indemnification obligations under the leases. Any of these events could substantially increase our cost of operations, require us to fund environmental indemnities in favor of our secured lenders and reduce our ability to service our secured debt and pay dividends to stockholders and any debt security interest payments. Environmental problems at any properties could also put us in default under loans secured by those properties, as well as loans secured by unaffected properties.

Real estate investments are relatively illiquid. We may desire to sell a property in the future because of changes in market conditions or poor tenant performance or to avail ourselves of other opportunities. We may also be required to sell a property in the future to meet secured debt obligations or to avoid a secured debt loan default. Real estate projects cannot always be sold quickly, and we cannot assure you that we could always obtain a favorable price. We may be required to invest in the restoration or modification of a property before we can sell it.

Tax Risks

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

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

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

• We could be subject to the federal alternative minimum tax and possibly increased state and local taxes.

• Unless we are entitled to relief under statutory provisions, we could not elect to be treated as a REIT for four taxable years following the year in which we were disqualified.

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

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

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

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

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

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

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

Major Tenants

As of December 31, 2004, approximately 66% of our gross leasable area was leased to Borders, Walgreen, and Kmart and approximately 65% of our total annualized base rents were attributable to these tenants. At December 31, 2004, Borders occupied approximately 28% of our gross leasable area and accounted for approximately 32% of the annualized base rent. At December 31, 2004, Walgreen Co. occupied approximately 6% of our gross leasable area and accounted for approximately 18% of the annualized base rent. At December 31, 2004, Kmart Corporation occupied approximately 32% of our gross leasable area and accounted for approximately 15% of the annualized base rent. No other tenant accounted for more than 10% of gross leasable area or annualized base rent in 2004. The loss of any of these anchor tenants or the inability of any of them to pay rent would have an adverse effect on our business.

Tax Status

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

Competition

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

Potential Environmental Risks

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

We conducted Phase I environmental studies on the two properties we developed and the three properties we acquired in 2004. The results of these Phase I studies required the Company to perform a Phase II environmental site assessment on two of the properties (which involves soil sampling or ground water analysis). The results of the Phase II environmental study conducted on the properties indicated that no further action was required on one property and that we obtain a baseline environmental assessment on the second property. The baseline environmental assessment also confirmed that no further action was required. In addition, we have no knowledge of any hazardous substances existing on any of our properties in violation of any applicable laws; however, no assurance can be given that such substances are not located on any of the properties. We carry no insurance coverage for the types of environmental risks described above.

We believe that we are in compliance, in all material respects, with all federal, state and local ordinances and regulations regarding hazardous or toxic substances. Furthermore, we have not been notified by any governmental authority of any noncompliance, liability or other claim in connection with any of the properties.

Employees

As of February 28, 2005, we employed eight persons. Employee responsibilities include accounting, construction, leasing, property coordination and administrative functions for the properties. Our employees are not covered by a collective bargaining agreement, and we consider our employee relations to be satisfactory.

Financial Information About Industry Segments

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

ITEM 2. PROPERTIES

Our properties consist of 41 freestanding net leased properties and 13 community shopping centers, that as of December 31, 2004 were 99% leased, with a weighted average lease term of 12 years. Approximately 89% of our base rental income was attributable to national retailers. Among these retailers are Borders, Walgreen and Kmart which, at December 31, 2004, collectively represented approximately 65% of our annualized base rent. A majority of our properties were built for or are leased to national tenants who require a high quality location with strong retail characteristics. We developed 32 of our 41 freestanding properties and all 13 of our community shopping centers. Five of our freestanding properties, although not built by us, were acquired as part of our relationship with Borders. Properties we have developed (including our community shopping centers) account for approximately 86% of our annualized base rent for 2005. Our 41 freestanding properties are comprised of 40 retail locations and Borders’ corporate headquarters.

A substantial portion of our income consists of rent received under net leases. Most of the leases provide for the payment of fixed base rentals monthly in advance and for the payment by tenants of a pro rata share of the real estate taxes, insurance, utilities and common area maintenance of the shopping center as well as payment to us of a percentage of the tenant’s sales. We received percentage rents of $63,031, $185,620 and $247,994 for the fiscal years 2004, 2003 and 2002, respectively, and these amounts represented 0.2%, 0.7% and 1.0%, respectively, of our total revenue for these periods. Included in those amounts were percentage rents from Kmart of $-0-, $106,282 and $162,419 for fiscal years 2004, 2003 and 2002, respectively. Leases with Borders do not contain percentage rent provisions. Leases with Walgreen do contain percentage rent provisions; however no percentage rent was received from Walgreen during these periods. Some of our leases require us to make roof and structural repairs, as needed.

Development and Acquisition Summary

During 2004 we completed the development of two (2) freestanding net leased properties that added 28,210 square feet of gross leasable area to our operating portfolio and cost approximately $6.7 million. The properties are located in Flint, Michigan and are leased to Walgreen Co.

During 2004 we acquired three (3) freestanding net leased properties that added 27,626 square feet of gross leasable area to our operating portfolio and cost approximately $10.1 million. The properties are located in Webster, New York, Albion, New York and Lansing, Michigan and are leased to Eckerd Drugs (2) and the Fajita Factory.

During 2004, Borders, our tenant, in two joint venture properties located in Ann Arbor, Michigan and Boynton Beach, Florida repaid $13.8 million that had been contributed by our joint venture partner. As a result of this repayment we became the sole member of the limited liability companies holding the properties. Total assets of the two properties were approximately $13.8 million.

During 2004 we completed the sale of a single tenant property for $2.2 million. The property was leased to Kmart and was located in Perrysburg, Ohio.

Major Tenants

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


			Annualized Base		Percent of Total
	Number		Rent as of		Annualized Base Rent as
	of Leases		December 31, 2004		of December 31, 2004
Borders		18	$	9,103,265		32	%
Walgreen		14		5,206,306		18
Kmart		13		4,213,717		15

Total		45	$	18,523,288		65	%

Borders Group, Inc., (Borders), is a FORTUNE 500 company that trades on the New York Stock Exchange under the symbol “BGP”. Borders, is a leading global retailer of books, music, movies and other information and entertainment items. Headquartered in Ann Arbor, Michigan, Borders operates over 460 Borders Books and Music stores in the United States, as well as 41 international Borders stores, approximately 700 Waldenbooks locations and three United Kingdom based Books etc. stores. BGI employs more than 32,000 people worldwide. We derive approximately 32% of our annualized base rent as of December 31, 2004 from Borders. Borders has reported that its annual revenues for its 2003 fiscal year ended January 25, 2004 were approximately $3,731,000,000; its annual net income for 2003 was approximately $120,000,000 and its total stockholders’ equity at fiscal year end 2003 was approximately of $1,153,000,000.

Walgreen is a leader of the U.S. chain drugstore industry and trades on the New York Stock Exchange under the symbol “WAG”. It operates over 4,580 stores in 44 states and Puerto Rico and has total assets of approximately $13.3 billion as of August 31, 2004. As of September 15, 2004, Walgreen had a Standard and Poor’s rating of A+ and a Moody’s rating of Aa3. We derived approximately 18% of our annualized base rent as off December 31, 2004 from Walgreen. For its fiscal year ended August 31, 2004, Walgreen reported that its annual net sales were $37,508,200,000 and its annual net income was $1,360,200,000 and that it had shareholders’ equity of $8,228,000,000.

Kmart is a retailer that operates over 1,500 stores following it emergence from bankruptcy proceedings in May 2003. Kmart’s principal business is general merchandise retailing through a chain of department stores. We derived approximately 15% of our annualized base rent as of December 31, 2004 from Kmart. As of October 27, 2004 Kmart had total liabilities of $4,606,000,000 and shareholders equity of $3,059,000,000. All of our Kmart properties are in the “Big K” format and these Kmart properties average 85,000 square feet per property. In November 2004, Kmart announced it was merging with Sears, Roebuck and Co

The financial information set forth above with respect to Borders, Walgreen and Kmart was derived from the annual reports on Form 10-K filed by Borders and Walgreen with the SEC with respect to their 2003 fiscal years and the quarterly report on form 10-Q filed by Kmart with the SEC with respect to the third quarter of 2004. Additional information regarding Borders, Walgreen or Kmart may be found in their respective public filings. These filings can be accessed at www.sec.gov.

Location of Properties in the Portfolio


	Number		Total Gross		Percent of GLA Leased
	of		Leasable Area		on
State	Properties		(Sq. feet)		December 31, 2004
California		1		38,015		100	%
Florida		4		258,793		100
Indiana		1		15,844		100
Illinois		1		20,000		90
Kansas		2		45,000		100
Kentucky		1		135,009		100
Maryland		2		53,000		100
Michigan		29		2,134,242		99
Nebraska		2		55,000		100
New York		2		27,626		100
Ohio		1		21,000		100
Oklahoma		4		99,282		100
Pennsylvania		1		37,004		100
Wisconsin		3		523,036		100

Total/Average		54		3,462,851		99	%

Lease Expirations

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


			December 31, 2004
			Gross Leasable Area					Annualized Base Rent
	Number
	of Leases		Square		Percent					Percent
Expiration Year	Expiring		Footage		of Total			Amount		of Total
2005		19		141,395		4.1	%	$	781,915		2.8	%
2006		38		180,024		5.2	%		1,457,649		5.2	%
2007		13		68,330		2.0	%		491,710		1.7	%
2008		26		314,595		9.1	%		1,333,143		4.7	%
2019		10		162,490		4.7	%		732,864		2.6	%
2010		10		226,385		6.5	%		1,365,727		4.8	%
2011		6		178,903		5.2	%		1,163,938		4.1	%
2012		—		—		—			—		—
2013		1		51,868		1.5	%		492,746		1.7	%
2014		3		172,958		5.0	%		824,206		2.9	%

Thereafter		48		1,965,903		56.7	%		19,716,896		69.5	%


Total		174		3,462,851		100.0	%	$	28,360,794		100.0	%

We have made preliminary contact with the 19 tenants whose leases expire in 2005. Of those tenants, seven (7) tenants, at their option, have the right to extend their lease term; ten (10) tenants have leases expiring in 2005 and we expect to negotiate lease extensions; and two (2) tenants have a month to month lease arrangement.

Annualized Base Rent of our Properties

The following is a breakdown of base rents in place at December 31, 2004 for each type of retail tenant:


			Percent of
	Annualized		Annualized
Type of Tenant	Base Rent		Base Rent
National(1)	$	25,122,072		89	%
Regional(2)		1,999,713		7
Local		1,239,009		4


Total	$	28,360,794		100	%

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

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

Freestanding Properties

Forty-one (41) of our Properties are freestanding properties which at December 31, 2004 were leased to Borders (18), Circuit City Stores (1), Rite Aid (1), Eckerd Drugs (2), Fajita Factory (1), Citizens Bank (1), Kmart (2), Walgreen (14) and Wal-Mart (1). Our freestanding properties provided $17,469,475, or approximately 61.6% of our total annualized base rent as of December 31, 2004, at an average base rent per square foot of $11.95. These properties contain, in the aggregate, 1,405,046 square feet of gross leasable area or approximately 41% of our total gross leasable area. Our freestanding properties tend to have high traffic counts, are generally located in densely populated areas and are leased to a single tenant on a long term basis. Thirty-two (32) of our forty-one (41) freestanding properties were developed by us. Five (5) of our 41 freestanding properties, although not developed by us, were acquired as part of our relationship with Borders. As of December 31, 2004 our freestanding properties have a weighted average lease term of 15.3 years.

Our freestanding properties range in size from 4,426 to 458,729 square feet of gross leasable area and are located in the following states: California (1), Florida (3), Indiana (1), Kansas (2), Maryland (2), Michigan (22), Nebraska (2), New York (2), Ohio (1), Oklahoma (4) and Pennsylvania (1).

Freestanding Properties


	Year Completed/				Lease Expiration(2)
Tenant/Location	Expanded	Total GLA				(Option expiration)
Borders,(1) Aventura, FL	1996		30,000		Jan 31, 2016 (2036)
Borders, Columbus, OH	1996		21,000		Jan 23, 2016 (2036)
Borders, Monroeville, PA	1996		37,004		Nov 8, 2016 (2036)
Borders, Norman, OK	1996		24,641		Sep 20, 2016 (2036)
Borders, Omaha, NE	1995		30,000		Nov 3, 2015 (2035)
Borders, Santa Barbara, CA	1995		38,015		Nov 17, 2015 (2035)
Borders, Wichita, KS	1995		25,000		Nov 10, 2015 (2035)
Borders,(1) Lawrence, KS	1997		20,000		Oct 16, 2022 (2042)
Borders, Tulsa, OK	1998		25,000		Sep 30, 2018 (2038)
Borders, Oklahoma City, OK	2002		24,641		Nov 17, 2017 (2037)
Borders, Omaha, NE	2002		25,000		Nov 17, 2017 (2037)
Borders, Indianapolis, IN	2002		15,844		Nov 17, 2017 (2037)
Borders, Columbia, MD	1999		28,000		Oct 16, 2022 (2042)
Borders, Germantown, MD	2000		25,000		Oct 16, 2022 (2042)
Borders Headquarters, Ann Arbor, MI	1996/1998		458,729		Jan 29, 2023 (2043)
Borders, Tulsa, OK	1996		25,000		Sep 30, 2018 (2038)
Borders, Boynton Beach, FL	1996		25,000		July 20, 2024 (2044)
Borders, Ann Arbor, MI	1996		110,000		July 20, 2024 (2044)
Circuit City, Boynton Beach, FL	1996		32,459		Dec 15, 2016 (2036)
Citizens Bank, Flint, MI	2003		4,426		Apr 15, 2023
Eckerd Drugs, Webster, NY	2004		13,813		Feb 24, 2024 (2044)
Eckerd Drugs, Albion, NY	2004		13,813		Oct 12, 2024 (2044)
Fajita Factory, Lansing, MI	2004		(3	)	Aug 31,2014 (2032)
Kmart, Grayling, MI	1984		52,320		Sep 30, 2009 (2059)
Kmart, Oscoda, MI	1984/1990		90,470		Sep 30, 2009 (2059)
Rite Aid, Canton Twp, MI	2003		11,180		Oct 31, 2019 (2049)
Sam’s Club, Roseville, MI	2002		(4	)	Aug 4, 2022 (2082)
Walgreen, Waterford, MI	1997		13,905		Feb 28, 2018 (2058)
Walgreen, Chesterfield, MI	1998		13,686		July 31, 2018 (2058)
Walgreen, Pontiac, MI	1998		13,905		Oct 31, 2018 (2058)


	Year Completed/			Lease Expiration(2)
Tenant/Location	Expanded	Total GLA			(Option expiration)
Walgreen, Grand Blanc, MI	1998		13,905	Feb 28, 2019 (2059)
Walgreen, Rochester, MI	1998		13,905	June 30, 2019 (2059)
Walgreen, Ypsilanti, MI	1999		15,120	Dec 31, 2019 (2059)
Walgreen,(1) Petoskey, MI	2000		13,905	Apr 30, 2020 (2060)
Walgreen, Flint, MI	2000		14,490	Dec 31, 2020 (2060)
Walgreen, Flint, MI	2001		15,120	Feb 28, 2021 (2061)
Walgreen, N Baltimore, MI	2001		14,490	Aug 31, 2021 (2061)
Walgreen, Flint, MI	2002		14,490	Apr 30, 2027 (2077)
Walgreen, Big Rapids, MI	2003		13,560	Apr 30, 2028 (2078)
Walgreen, Flint, MI	2004		14,560	Feb 28, 2029 (2079)
Walgreen, Flint, MI	2004		13,650	Oct 31, 2029 (2079)


Total			1,405,046

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

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

(3)	This 2.03 acre property is leased from us by Fajita Factory, LLC pursuant to a ground lease.

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

Joint Venture Properties

During 1996, seven free-standing properties which we leased to Borders, including Borders’ current corporate headquarters, its former headquarters building and properties operated as Borders Books and Music were developed or acquired directly by seven limited liability companies which we identify as joint ventures, but which are accounted for by us as partnerships. In July 2004, we acquired the interest of our final joint venture partner. Of the seven joint venture properties, we have entered into long-term leases with Borders for six properties. With respect to the seventh property located in Ann Arbor, Michigan, a lease has not been executed because we have not been able to reach agreement with our tenant, Borders, concerning the rental rate. On October 22, 2004, we filed a complaint against Borders pursuant to which we are seeking a judgment ordering Borders to execute a lease for the Ann Arbor property at our determined rental rate. Borders filed an answer disputing our rent calculation and a counterclaim against the plaintiff and a third party complaint against Agree Realty Corporation, seeking a declaratory judgment relating to the rent payable under the long-term lease, damages and other relief. Our Company and Borders have agreed to engage in a non-binding facilitation process in an effort to resolve the dispute. This process is expected to commence during March 2005. The acquired properties are located in Oklahoma City, Oklahoma, Omaha, Nebraska, Indianapolis, Indiana, Boynton Beach, Florida, Tulsa, Oklahoma and Ann Arbor, Michigan (two properties).

Community Shopping Centers

Thirteen (13) of our properties are community shopping centers ranging in size from 20,000 to 241,458 square feet of gross leaseable area. The community shopping centers are located in five states as follows: Florida (1), Illinois (1), Kentucky (1), Michigan (7) and Wisconsin (3). Our community shopping centers tend to be located in high traffic, market dominant centers in which customers of our tenants purchase day-to-day necessities. Our community shopping centers are anchored by national tenants.

The location, general character and primary occupancy information with respect to the community shopping centers as of December 31, 2004 are set forth below:


			Gross				Average		Percent			Percent
	Year		Leasable				Base		Occupied at			Leased at			Anchor Tenants (Lease
	Completed/		Area		Annualized		Rent per		December 31,			December 31,			expiration/Option period
Property Location	Expanded		Sq. Ft.		Base Rent (2)		Sq. Ft. (3)		2004			2004 (4)			expiration) (5)
Capital Plaza,(1)		1978/ 1991		135,009	$	368,568	$	2.73		75	%		100	%	Kmart(2008/2053)
Frankfort, KY															Winn Dixie(2010/2035)
															Fashion Bug(2005/2025

Charlevoix Commons		1991		137,375		654,245		4.96		72	%		98	%	Kmart (2015/2065)
Charlevoix, MI															Roundy’s (2011-2031)

Chippewa Commons		1991		168,311		950,983		5.65		100	%		100	%	Kmart (2014/2064)
Chippewa Falls, WI															Roundy’s (2011/2031)
															Fashion Bug (2006/2021)

Iron Mountain Plaza		1991		176,352		872,443		5.09		97	%		97	%	Kmart (2015/2065)
Iron Mountain, MI															Roundy’s (2011/2031)
															Fashion Bug (2007/2022)

Ironwood Commons		1991		185,535		907,327		5.00		98	%		98	%	Kmart (2015/2065)
Ironwood, MI															Super Value (2011/2036)
															Fashion Bug (2007/2022)

Marshall Plaza		1990		119,279		665,081		5.58		100	%		100	%	Kmart (2015/2065)
Marshall, MI

Mt. Pleasant Shopping Center		1973/1997		241,458		1,093,535		4.53		100	%		100	%	Kmart (2008/2048) J.C. Penney Co. (2005/2020)
Mt. Pleasant, MI															Staples, Inc. (2010/2025)
															Fashion Bug (2006/2026)

North Lakeland Plaza		1987		171,334		1,267,921		7.40		100	%		100	%	Best Buy (2013/2028)
Lakeland, FL															Beall’s (2015/2025)

Petoskey Town Center		1990		174,870		1,067,542		6.10		100	%		100	%	Kmart (2015/2065)
Petoskey, MI															Roundy’s (2010/2030)
															Fashion Bug (2007/2022)

Plymouth Commons		1990		162,031		976,521		6.03		100	%		100	%	Kmart (2015/2065)
Plymouth, WI															Roundy’s (2010/2030)
															Fashion Bug (2006/2021)


			Gross				Average		Percent			Percent
	Year		Leasable				Base		Occupied at			Leased at			Anchor Tenants (Lease
	Completed/		Area		Annualized		Rent per		December 31,			December 31,			expiration/Option period
Property Location	Expanded		Sq. Ft.		Base Rent (2)		Sq. Ft. (3)		2004			2004 (4)			expiration) (5)
Rapids Associates		1990		173,557		958,482		5.52		74	%		100	%	Kmart (2015/2065)
Big Rapids, MI															Roundy’s (2010/2030)
															Fashion Bug (2006/2021)

Shawano Plaza		1990		192,694		994,671		5.16		100	%		100	%	Kmart (2014/2064)
Shawano, WI															Roundy’s (2010/2030)
															J.C. Penney Co. (2005/2025)
															Fashion Bug (2006/2021)

West Frankfort Plaza		1982		20,000		114,000		6.33		90	%		90	%	Fashion Bug (2007)
West Frankfort, IL


Total/Average				2,057,805	$	10,891,319	$	5.33		94	%		99	%

(1)		All community shopping centers except Capital Plaza (which is subject to a long-term ground lease expiring in 2053 from a third party) are wholly-owned by us.

(2)		Total annualized base rents of the Company as of December 31, 2004.

(3)		Calculated as total annualized base rents, divided by gross leaseable area actually leased as of December 31, 2004.

(4)		Roundy’s has sub-leased the space it leases at Iron Mountain Plaza (35,285 square feet, rented at a rate of $5.87 per square foot) and leases but does not currently occupy, the 35,896 square feet it leases at Charlevoix Commons at a rate of $5.97 per square foot and the 44,478 square feet it leases at Rapids Associates at a rate of $6.00 per square foot. The Iron Mountain and Charlevoix leases expire in 2011 and the Rapids Associates lease expires in 2010 (assuming they are not extended by Roundy’s).

(5)		The option to extend the lease beyond its initial term is only at the option of the tenant.

ITEM 3. LEGAL PROCEEDINGS

On October 22, 2004, we filed a complaint against Borders pursuant to which we are seeking a judgment ordering Borders to execute a lease for the Ann Arbor property at our determined rental rate. Borders filed an answer disputing our rent calculation and a counterclaim against the plaintiff and a third party complaint against Agree Realty Corporation, seeking a declaratory judgment relating to the rent payable under the long-term lease, damages and other relief. Our Company and Borders have agreed to engage in a non-binding facilitation process in an effort to resolve the dispute.

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

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

No matter was submitted to a vote of security holders during the fourth quarter of 2004.

Part II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

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

Market Information


					Dividends Per
	High		Low		Common Share
Quarter Ended

March 31, 2004	$	32.75	$	27.67	$	0.485
June 30, 2004	$	32.55	$	22.78	$	0.485
September 30, 2004	$	29.05	$	24.50	$	0.490
December 31, 2004	$	31.88	$	27.60	$	0.490

March 31, 2003	$	20.44	$	17.00	$	0.480
June 30, 2003	$	25.62	$	19.35	$	0.485
September 30, 2003	$	24.98	$	22.68	$	0.485
December 31, 2003	$	28.50	$	24.41	$	0.485

At December 31, 2004, there were 6,487,846 shares of our common stock issued and outstanding which were held by approximately 215 stockholders of record. The stockholders of record do not reflect persons or entities who held their shares in nominee or “street” name.

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

During the year ended December 31, 2004, we did not sell any unregistered securities, except the grant, under our 1994 Stock Incentive Plan (the Plan), of 41,126 shares of restricted stock to certain of our employees. The transfer restrictions on such shares lapse in equal annual installments over a five-year period from the date of the grant, but the holder thereof is entitled to receive dividends on all such shares from the date of the grant. On January 1, 2004 the Company redeemed 6,000 shares of restricted stock previously issued under the Plan.

In January 2005 we priced a public offering of 1,000,000 shares or our common stock at an offering price of $28.28 per share resulting in net proceeds of approximately $27.1 million. In February 2005 the underwriters exercised their over allotment option for an additional 150,000 shares at the same per share price resulting in net proceeds of approximately $4.1 million.

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth our selected financial information on a historical basis and should be read in conjunction with “Management Discussion and Analysis of Financial Condition and Results of Operations” and all of the financial statements and notes thereto included elsewhere in this Form 10-K. Certain amounts have been reclassified to conform to the current presentation of discontinued operations. The balance sheet for the periods ending December 31, 2000 through 2004 and operating date for each of the periods presented were derived from our audited financial statements.

Selected Financial Data


	Year Ended			Year Ended			Year Ended			Year Ended			Year Ended
	Dec 31,			Dec 31,			Dec 31,			Dec31,			Dec 31,
	2004			2003			2002			2001			2000
Operating Data

Total Revenue	$	29,929		$	27,227		$	24,032		$	23,128		$	22,183

Expenses

Property expense (1)		4,524			4,418			4,014			3,622			3,554
General and administrative		2,849			2,275			2,012			1,807			1,557

Interest		4,507			5,684			6,196			6,720			7,045
Early extinguishment of debt		—			961			—			—			—
Depreciation and amortization		4,437			4,024			3,654			3,565			3,414


Total Expenses		16,317			17,362			15,876			15,714			15,570


Other Income (2)		217			438			674			913			522

Income before Minority Interest and Discontinued Operations		13,829			10,303			8,830			8,327			7,135

Minority Interest		1,304			1,167			1,161			1,102			948


Income before Discontinued Operations		12,525			9,136			7,669			7,225			6,187
Gain on Sale of Asset From Discontinued Operations		523			740			—			—			—
Income From Discontinued Operations		75			596			1,103			841			911

Net Income	$	13,123		$	10,472		$	8,772		$	8,066		$	7,098


Number of Properties		54			50			48			47			45

Number of Square Feet		3,463			3,495			3,699			3,556			3,526

Percentage Leased		99	%		97	%		99	%		99	%		96	%

Per Share Data

Income before discontinued operations	$	1.94		$	1.77		$	1.75		$	1.66		$	1.43
Discontinued operations		.09			.22			.22			.17			.18

Net income	$	2.03		$	1.99		$	1.97		$	1.83		$	1.61


Cash dividends	$	1.95		$	1.94		$	1.84		$	1.84		$	1.84


Weighted average of common shares outstanding – Dilutive		6,475			5,276			4,447			4,417			4,396


Balance Sheet Data
Real Estate (before accumulated depreciation)	$	253,293		$	221,225		$	210,986		$	196,486		$	191,048

Total Assets	$	215,702		$	191,686		$	178,162		$	167,511		$	166,052
Total debt, including accrued interest	$	93,307		$	84,203		$	115,534		$	105,946		$	104,407

(1)

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

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

(3)		Net income per share has been computed by dividing the net income by the weighted average number of shares of Common Stock outstanding. The per share amounts are presented in accordance with SFAS No. 128 “Earnings per share.” The Company’s basic and diluted earnings per share are the same.


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

Overview

We were established to continue to operate and expand the retail property business of our predecessor. We commenced our operations in April 1994. Our assets are held by, and all operations are conducted through, Agree Limited Partnership (the Operating Partnership), of which Agree Realty Corporation is the sole general partner and held a 90.59% interest as of December 31, 2004. We are operating so as to qualify as a real estate investment trust (REIT) for federal income tax purposes.

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

On January 25, 2005 we completed an offering of 1,000,000 shares of common stock at $28.28 per share; on February 7, 2005 the underwriter exercised its over allotment option for an additional 150,000 shares at the same per share price (collectively the 2005 Offering). The net proceeds from the 2005 Offering of approximately $31.2 million were used to repay amounts outstanding under our credit facility.

We have thirteen (13) leases with Kmart Corporation. Eleven (11) of the Kmart stores are currently anchors in our community shopping centers and two (2) Kmart stores are freestanding net leased properties. The Kmart stores in our portfolio provided 15% of our annual base rent as of December 31, 2004. As of December 31, 2004, all of our Kmart stores were open and operating as Kmart discount stores.

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

Recent Accounting Pronouncements

In December 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 123(R), to expand and clarify SFAS No. 123 in several areas. The Statement requires companies to measure the cost of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. The cost is recognized over the requisite service period (usually the vesting period) for the estimated number of instruments where service is expected to be rendered. This statement is effective for the interim reporting periods beginning after June 15, 2005. We do not expect that our financial statements will be materially impacted by SFAS No. 123(R).

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

Critical Accounting Policies

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

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

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

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

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

Comparison of Year Ended December 31, 2004 to Year Ended December 31, 2003

Minimum rental income increased $2,672,000, or 11%, to $26,778,000 in 2004, compared to $24,106,000 in 2003. The increase resulted from rental increases of $251,000 from existing properties; an increase of $909,000 due to additional rent resulting from the acquisition of our joint venture partner’s interest in two joint venture properties in 2003 and two joint venture properties in 2004; an increase of $640,000 from the acquisition of one property in 2003 and three properties in 2004; an increase of $533,000 from the development of one property in 2003 and two properties in 2004; and the receipt of a lease termination payment from Kmart with regard to their Lakeland, Florida store in the amount of $339,000.

Percentage rents decreased $123,000, or 66%, to $63,000 in 2004, compared to $186,000 in 2003. The decrease was primarily the result of decreased tenant sales ($89,000) and the refund of ($34,000) pertaining to percentage rent paid in error by a tenant in 2003.

Operating cost reimbursements increased $123,000, or 4%, to $3,055,000 in 2004, compared to $2,932,000 in 2003. Operating cost reimbursement increased due to the increase in the reimbursable property operating expenses as explained below. Included in 2004 and 2003 operating cost reimbursements are bad debt recoveries of $100,000 and $65,000, respectively as a result of the decrease in the allowance for bad debts.

Other income increased $30,000 to $33,000 in 2004, compared to $3,000 in 2003. Other income increased due to the sale of signage at one of our properties.

Real estate taxes increased $33,000, or 2%, to $1,806,000 in 2004 compared to $1,773,000 in 2003. The increase is the result of general assessment increases on the properties and additional real estate taxes related to a closed Kmart store.

Property operating expenses (shopping center maintenance, snow removal, insurance and utilities) increased $72,000, or 4%, to $1,980,000 in 2004 compared to $1,908,000 in 2003. The increase was the result of a reduction in shopping center maintenance expenses of ($73,000); increased snow removal costs of $98,000; a decrease in utility costs of ($7,000); and an increase in insurance costs of $54,000 in 2004 versus 2003.

Land lease payments remained constant at $737,000 for 2004 and 2003.

General and administrative expenses increased $573,000, or 25%, to $2,848,000 in 2004 compared to $2,275,000 in 2003. The increase was primarily the result of an increase in compensation related expenses of $244,000; increased general state taxes of $80,000; increased contracted services to investigate development opportunities of $196,000; costs associated with Sarbanes-Oxley compliance of $24,000 and property management related expenses of $23,000. General and administrative expenses as a percentage of rental income increased from 9.4% for 2003 to 10.6% for 2004.

Depreciation and amortization increased $413,000, or 10%, to $4,437,000 in 2004 compared to $4,024,000 in 2003. The increase was the result the acquisition of one property in 2003 and three properties in 2004; the acquisition of the joint venture partner’s interest in one joint venture property in 2003 and two Joint Venture Properties in 2004 and the development of two properties in 2003 and two properties in 2004.

Interest expense decreased $1,177,000, or 21%, to $4,507,000 in 2002, from $5,684,000 in 2003. The decrease in interest expense was the result of decreased borrowings as a result of the reduction in outstanding indebtedness from the net proceeds from the issuance of additional common stock.

Early extinguishment of debt totaled $961,000 in 2003, as a result of our repaying in 2003 three mortgages totaling approximately $37,000,000 prior to their scheduled maturity. In connection with these repayments we incurred pre-payment penalties of $555,000 and wrote-off unamortized mortgage costs in the amount of $406,000. There was no early extinguishment of debt in 2004.

Equity in net income of unconsolidated entities decreased $221,000 to $217,000 in 2004 compared to $438,000 in 2003 as a result of the acquisition of the joint venture partner’s interest in one joint venture property in 2003 and two joint venture properties in 2004.

The Company’s income before minority interest and discontinued interest increased $3,526,000, or 34%, to $13,829,000 in 2004, from $10,303,000 in 2003 as a result of the foregoing factors.

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

Minimum rental income increased $2,877,000, or 14%, to $24,106,000 in 2003, compared to $21,229,000 in 2002. The increase was the result of rental increases of $511,000 from existing properties; an increase of $1,953,000 due to additional rent resulting from the acquisition of our joint venture partner’s interest in three joint venture properties in 2002 and two joint venture properties in 2003; an increase of $387,000 from the development of one property in 2002 and two properties in 2003; and an increase of $26,000 from the acquisition of one property in 2003.

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

Operating cost reimbursements increased $386,000, or 15%, to $2,932,000 in 2003, compared to $2,546,000 in 2002. Operating cost reimbursement increased due to the increase in the reimbursable property operating expenses as explained below.

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

Real estate taxes increased $79,000, or 5%, to $1,773,000 in 2003 compared to $1,694,000 in 2002. The increase is the result of general assessment increases of $32,000 and additional real estate taxes of $47,000 which we are now required to pay as a result of the closing of the Kmart store in Lakeland, Florida.

Property operating expenses increased $327,000, or 21%, to $1,908,000 in 2003 compared to $1,581,000 in 2002. The increase was the result of additional shopping center maintenance of $57,000; increased snow removal costs of $36,000; an increase in utility costs of $22,000; and an increase in insurance costs of $212,000 in 2003 versus 2002.

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

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

Depreciation and amortization increased $370,000, or 10%, to $4,024,000 in 2003 compared to $3,654,000 in 2002. The increase was the result of the development of one property in 2002 and two properties in 2003; the acquisition of one property in 2003; and the acquisition of the joint venture partner’s interest in three joint venture properties in 2002 and two joint venture properties in 2003.

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

Early extinguishment of debt totaled $961,000 in 2003, as a result of the Company repaying in 2003 three mortgages totaling approximately $37,000,000 prior to their scheduled maturity. In connection with these repayments we incurred pre-payment penalties of $555,000 and wrote-off unamortized mortgage costs in the amount of $406,000. There was no early extinguishment of debt in 2002.

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

The Company’s income before minority interest and discontinued operations increased $1,473,000, or 17%, to $10,303,000 in 2003, from $8,830,000 in 2002 as a result of the foregoing factors.

Liquidity and Capital Resources

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

During the quarter ended December 31, 2004, we declared a quarterly dividend of $.49 per share. The dividend was paid on January 6, 2005 to holders of record on December 23, 2004.

As of December 31, 2004, we had total mortgage indebtedness of $53,808,689 with a weighted average interest rate of 6.63%. Future scheduled annual maturities of mortgages payable for the years ending December 31 are as follows: 2005 - $2,189,578; 2006 - $2,454,764; 2007 - $2,621,920; 2008 - $2,781,076; 2009 - $2,970,466. The mortgage debt is all fixed rate, self-amortizing debt.

In addition, the Operating Partnership has in place a $50 million credit facility with Standard Federal Bank, as the agent (Credit Facility), which is guaranteed by the Company. The Credit Facility matures in November 2006 and can be extended for an additional three years. During the three year extension period we will have no further ability to borrow under this facility and will be required to repay a portion of the unpaid principal on a quarterly basis. Advances under the Credit Facility bear interest within a range of one-month to six-month LIBOR plus 150

basis points to 213 basis points or the lender’s prime rate, at the our option, based on certain factors such as debt to property value and debt service coverage. The Credit Facility is used to fund property acquisitions and development activities and is secured by most of the properties which are not otherwise encumbered and properties to be acquired or developed. As of February 15, 2005, $13,000,000 was outstanding under the Credit Facility bearing a weighted average interest rate of 3.87%.

We also have in place a $5 million line of credit (Line of Credit), which matures on June 30, 2005, and which we expect to renew for an additional 12-month period. The Line of Credit bears interest at the lender’s prime rate less 50 basis points or 175 basis points in excess of the one-month LIBOR rate, at our option. The purpose of the Line of Credit is to provide working capital and fund land options and start-up costs associated with new projects. As of February 15, 2005, $-0- was outstanding under the Line of Credit.

The following table outlines our contractual obligations (in thousands) as of December 31, 2004.


	Total		Yr 1		2-3 Yrs		4-5 Yrs		Over 5 Yrs

Mortgages Payable	$	53,809	$	2,190	$	5,077	$	5,751	$	40,791

Notes Payable		39,200		200		1,040		37,960		—

Land Lease Obligations		14,347		765		1,543		1,512		10,527

Other Long-Term Liabilities		—		—		—		—


Total	$	107,356	$	3,155	$	7,660	$	45,223	$	51,318

We have three development projects under construction that will add an additional 44,199 square feet of GLA to our portfolio. The projects are expected to be completed during the second quarter of 2005. Additional funding required for this project is estimated to be approximately $5,500,000 and will come from the Credit Facility.

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

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

Inflation

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

Funds from Operations

We consider Funds from Operations (“FFO”) to be a useful supplemental measure to evaluate our operating performance because, by excluding gains or losses on dispositions and excluding depreciation, FFO can help an investor compare the operating performance of our real estate between periods or compare such performance to that of different companies. Management uses FFO as a supplemental measure to conduct and evaluate our business because there are certain limitations associated with using GAAP net income by itself as the primary measure of our operating performance. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, management believes that the presentation of operating results for real estate companies that uses historical cost accounting is insufficient by itself.

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

The following table illustrates the calculation of FFO for the years ended December 31, 2004, 2003 and 2002:


	Year ended December 31,
	2004			2003			2002

Net income	$	13,123,020		$	10,471,746		$	8,772,330
Depreciation of real estate assets		4,379,912			4,164,691			3,840,636
Amortization of leasing costs		45,178			55,182			68,325
Minority interest		1,366,347			1,338,046			1,328,233
Gain on sale of assets		(577,168	)		(834,669	)		—


Funds from Operations	$	18,337,289		$	15,194,996		$	14,009,524

Weighted average shares and OP Units outstanding		7,148,664			5,946,070			5,120,338

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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


	2005		2006		2007		2008		2009		Thereafter		Total
Fixed rate debt		2,189		2,455		2,622		2,781		2,971		40,791		53,809
Average interest rate		6.63		6.63		6.63		6.63		6.63		6.63		—

Variable rate debt		200		260		1,040		1,040		36,660		—		39,200

Average interest rate		4.75		3.77		3.77		3.77		3.77		—		—

The fair value (in thousands) is estimated at $54,000 and $39,200 for fixed rate debt and variable rate debt, respectively.

The table above incorporates those exposures that exist as of December 31, 2004; it does not consider those exposures or position, which could arise after that date. As a result, our ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period and interest rates.

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

A 10% adverse change in interest rates on the portion of the Company’s debt bearing interest at variable rates would result in an increase in interest expense of approximately $153,000.


ITEM 8		FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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


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

During our last two fiscal years, there have been no changes in the independent accountants or disagreements with such accountants as to accounting and financial disclosures of the type required to be disclosed in this Item 9.


ITEM 9A		CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report (the “Evaluation Date”).

Based on this evaluation, and due to the material weakness in our internal control over financial reporting (as described below in Management’s Report on Internal Control over Financial Reporting), our chief executive officer and chief financial officer concluded that as of December 31, 2004, our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. There was no change in our internal control over financial reporting during its most recently completed fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

Our audit committee will engage independent third party consultants to perform periodic reviews of our financial reporting process to help mitigate the material weakness in our internal controls described in Management’s Report on Internal Control and Financial Reporting.

Because of its inherent limitations, our disclosure controls and procedures may not prevent or detect misstatements. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issued and instances of fraud, if any, have been detected.

Report of Management on Agree Realty Corporation’s Internal Control Over Financial Reporting

We, as members of management of Agree Realty Corporation, are responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, our internal controls and procedures may not prevent or detect misstatements. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Management has identified and reported to the audit committee a material weakness in our internal controls regarding the segregation of duties resulting from the fact that we do not have an accounting staff sufficient to enable us to comply with acceptable internal controls under Section 404 of Sarbanes-Oxley of 2002. At December 31, 2004, we had seven employees, one of which (our Chief Financial Officer) was engaged full time in the period-end financial reporting process.

We, under the supervision of and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, assessed the our internal control over financial reporting as of December 31, 2004, based on criteria for effective internal control over financial reporting described in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of the material weakness described above, management has concluded that our internal control was not effective as of December 31, 2004.

Management’s assessment of the effectiveness of our internal control over financial reporting has been audited by BDO Seidman, LLP, an independent registered public accounting firm, as stated in their report that is included herein.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Owners of Agree Realty Corporation

We have audited management’s assessment, included in the accompanying “Report of Management on Agree Realty Corporation’s Internal Control Over Financial Reporting”, that Agree Realty Corporation (the “Company”) did not maintain effective internal control over financial reporting as of December 31, 2004, because of the effect of the lack of segregation of duties over the period-end financial reporting process, based on criteria established in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Agree Realty Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether

effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weakness has been identified and included in management’s assessment. The Company has identified a material weakness as a result of the lack of segregation of duties in the period-end financial reporting process. The Chief Financial Officer (“CFO”) is the only employee with any significant knowledge of generally accepted accounting principles. The CFO is also the sole employee in charge of the general ledger (including the preparation of routine and non-routine journal entries and journal entries involving accounting estimates), the preparation of account reconciliations, the selection of accounting principles, and the preparation of interim and annual financial statements (including report combinations, consolidation entries and footnote disclosures) in accordance with generally accepted accounting principles. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2004 financial statements, and this report does not affect our report dated February 11, 2005 on those financial statements.

In our opinion, management’s assessment that Agree Realty Corporation did not maintain effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, Agree Realty Corporation has not maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

BDO Seidman, LLP
Troy, Michigan
February 11, 2005

Changes in Internal Control over Financial Reporting

There were not changes in our internal control over financial reporting identified in connection with the above-referenced evaluation by management of the effectiveness of our internal control over financial reporting that occurred during our fourth quarter ended December 31, 2004.

PART III


ITEM 10.		DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the year covered by this Form 10-K with respect to its Annual Meeting of Stockholders to be held on May 9, 2005.


ITEM 11.		EXECUTIVE COMPENSATION

The following table summarizes the equity compensation plans under which the Company’s common stock may be issued as of December 31, 2004.


	Number of securities to be		Weighted average
	issued upon exercise of		exercise price of outstanding		Number of securities
	outstanding options,		options, warrants and		remaining available for
Plan category	warrants and rights		rights		future issuance

Equity compensation plans approved by security holders		4,900	$	19.50		191,147

Equity compensation plans not approved by security holders		—		—		—

Total		4,900	$	19.50		191,147


ITEM 12.		SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated herein by reference from our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to its Annual Meeting of Stockholders to be held on May 9, 2005.


ITEM 13.		CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


ITEM 14.		PRINCIPAL ACCOUNTANT FEES AND SERVICES

PART IV


ITEM 15.		EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES


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

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

(b)	Exhibits


3.1		Articles of Incorporation and Articles of Amendment of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-11 (Registration Statement No. 33-73858, as amended (“Agree S-11”))

3.2		Bylaws of the Company (incorporated by reference to Exhibit 3.3 to Agree S-11)

4.1		Rights Agreement by and between Agree Realty Corporation and BankBoston, N.A. as Rights Agent dated as of December 7, 1998 (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on December 7, 1998)

10.1		First Amended and Restated Agreement of Limited Partnership of Agree Limited Partnership, dated as of April 22, 1994, by and among the Company, Richard Agree, Edward Rosenberg and Joel Weiner (incorporated by reference to Exhibit 10.6 to the 1996 Form 10-K)

10.2		Amended and Restated Registration Rights Agreement, dated July 8, 1994 by and among the Company, Richard Agree, Edward Rosenberg and Joel Weiner (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1994)

10.3		Contribution Agreement, dated as of April 21, 1994, by and among the Company, Richard Agree, Edward Rosenberg and the co-partnerships named therein (incorporated by reference to Exhibit 10.10 to the 1996 Form 10-K)

10.4	+	Agree Realty Corporation Profit Sharing Plan (incorporated by reference to Exhibit 10.13 to the 1996 Form 10-K)

10.5		Line of Credit Agreement by and among Agree Limited Partnership, the Company, the lenders parties thereto, and Michigan National Bank as Agent (incorporated by reference to Exhibit 10.10 to the 1995 Form 10-K)

10.6		First amendment to $5 million business loan agreement dated September 21, 1997 between Agree Limited Partnership and Michigan National Bank (incorporated by reference to Exhibit 10.2 to the September 1997 Form 10-Q)

10.7		Second amendment to amended and restated $5 million business Loan agreement dated October 19, 1998 between Agree Limited Partnership and Michigan National Bank (incorporated by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998)

10.8	+	Employment Agreement, dated July 1, 2004, by and between the Company and Richard Agree (incorporated by reference to exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ending June 30, 2004 (June 2004 Form 10- Q))


10.9	+	Employment Agreement, dated July 1, 2004, by and between the Company, and Kenneth R. Howe (incorporated by reference to exhibit 10.2 to the June 1999 Form 10-Q)

10.10		Third amendment to amended and restated $5 million business Loan agreement dated December 19, 1999 between Agree Limited Partnership and Michigan National Bank (incorporated by reference to exhibit 10.17 to the 1999 Form 10-K)

10.11		Trust Mortgage dated as of June 27, 1999 from Agree Facility No. 1, L.L.C. as Grantor to Manufacturers and Traders Trust Company (incorporated by reference to exhibit 10.4 to the June 1999 Form 10-Q)

10.12	+	Employment Agreement, dated January 10, 2000, by and between the Company, and David J. Prueter (incorporated by reference to exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2000

10.13		Fourth amendment to amended and restated $5 million business Loan agreement dated February 19, 2001 between Agree Limited Partnership and Michigan National Bank (incorporated by reference to exhibit 10.23 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 (the “2000 Form 10-K”))

10.14		Mortgage dated as of December 20, 2001, by Agree Limited Partnership to and in favor of Nationwide Life Insurance Company (incorporated by reference to exhibit 10.25 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001 (the “2001 from 10-K))

10.15		Fifth amendment to amended and restated $5 million business Loan agreement dated April 30, 2002 between Agree Limited Partnership and Standard Federal Bank (incorporated by reference to exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2002 (the “June 2002 Form 10-Q”))

10.16		Project Loan Agreement dated as of April 30, 2002 between Royal Identify Company (together with its successors and assigns) and Lawrence Store No. 203 L.L.C. (together with its permitted successors and assigns) (incorporated by reference to exhibit 10.2 to the June 2002 Form 10-Q)

10.17		Project Loan Agreement dated as of November 25, 2002 between Wilmington Trust Company, not in its individual capacity, but solely as Owner Trustee, and Indianapolis Store No. 16 L.L.C.

10.18		Project Loan Agreement dated as of January 30, 2003 between Modern Woodman of America and Phoenix Drive L.L.C. (incorporated by reference to exhibit 10.1 to the March 31, 2003 Form 10-Q)

10.19		Sixth amendment to amended and restated $5 million business loan agreement dated April 30, 2003, between Agree Limited Partnership and Standard Federal Bank (incorporated by reference to exhibit 10.1 to the June 30, 2003 Form 10-Q)

10.20		Amended and Restated $50 million Line of Credit agreement dated November 5, 2003, among Agree Realty Corporation, Standard Federal Bank and Bank One. (incorporated by reference to exhibit 10.1 to the Sep 30, 2003 Form 10-Q)

10.21		Indemnity Deed of Trust and Security Agreement dated October 31, 2003, by Agree – Columbia Crossing Project, L.L.C., and Nationwide Life Insurance Company

10.22		Indemnity Deed of Trust and Security Agreement dated October 31, 2003, by Agree-Milestone Center Project, L.L.C., and Nationwide Life Insurance Company

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 14, 2005

PURSUANT to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 14^th day of March 2005.


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	By:	/s/ Ellis G. Wachs

	Kenneth R. Howe		Ellis G. Wachs
	Vice President, Finance and		Director
	Secretary
	(Principal Financial and
	Accounting Officer)
		By:	/s/ Gene Silverman

			Gene Silverman
			Director

		By:	/s/ Leon M. Schurgin

			Leon M. Schurgin
			Director

Report of Independent Registered Public Accounting Firm

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

We have audited the accompanying consolidated balance sheets of Agree Realty Corporation (the “Company”) as of December 31, 2004 and 2003, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2004. We have also audited the schedule listed in the accompanying index. These financial statements and the schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Agree Realty Corporation at December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America.

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

We have also audited, in accordance with the Standards of the Public Company Accounting Oversight Board, the effectiveness of Agree Realty Corporation’s internal control over financial reporting as of December 31, 2004, based on criteria established in “Internal Control – Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 11, 2005 expressed an unqualified opinion on management’s assessment of, and an adverse opinion on the effectiveness of internal control over financial reporting.

BDO SEIDMAN, LLP

Troy, Michigan
February 11, 2005

F - 2

Agree Realty Corporation

Consolidated Balance Sheets


December 31,	2004			2003

Assets

Real Estate Investments (Notes 3, 4 and 5)
Land	$	70,592,068		$	56,848,606
Buildings		180,595,915			161,265,188
Property under development		2,104,553			3,110,835


		253,292,536			221,224,629
Less accumulated depreciation		(41,727,987	)		(38,475,767	)


Net Real Estate Investments		211,564,549			182,748,862

Cash and Cash Equivalents		587,524			1,004,090
Cash - Restricted		—			4,309,914
Accounts Receivable - Tenants, net of allowance of $20,000 and $120,000 for possible losses		627,298			622,337

Investments In and Advances To Unconsolidated Entities		—			330,316

Unamortized Deferred Expenses
Financing costs		1,003,169			1,155,427
Leasing costs		258,316			231,344

Other Assets		1,661,504			1,283,424


	$	215,702,360		$	191,685,714

See accompanying notes to consolidated financial statements.

F - 3

Agree Realty Corporation

Consolidated Balance Sheets


December 31,	2004			2003

Liabilities and Stockholders’ Equity

Mortgages Payable (Note 3)	$	53,808,689		$	55,967,378

Construction Loans (Note 4)		—			1,569,000

Notes Payable (Note 5)		39,200,000			26,500,000

Dividends and Distributions Payable (Note 6)		3,509,083			3,447,328

Deferred Revenue		13,483,054			—

Accrued Interest Payable		298,115			167,099

Accounts Payable
Capital expenditures		393,711			570,363
Operating		1,441,877			1,408,272

Tenant Deposits		60,989			47,099


Total Liabilities		112,195,518			89,676,539


Minority Interest (Note 7)		5,874,855			5,821,739


Stockholders’ Equity (Note 6)
Common stock, $.0001 par value; 20,000,000 shares authorized; 6,487,846 and 6,434,345 shares issued and outstanding		649			643
Additional paid-in capital		109,599,965			108,251,813
Deficit		(10,726,663	)		(11,227,636	)


		98,873,951			97,024,820
Less: unearned compensation - restricted stock (Note 9)		(1,241,964	)		(837,384	)


Total Stockholders’ Equity		97,631,987			96,187,436


	$	215,702,360		$	191,685,714

See accompanying notes to consolidated financial statements.

F - 4

Agree Realty Corporation

Consolidated Statements of Income


Year Ended December 31,	2004			2003			2002

Revenues
Minimum rents	$	26,778,024		$	24,106,002		$	21,229,087
Percentage rents		63,031			185,620			247,994
Operating cost reimbursement		3,055,019			2,932,398			2,546,105
Other income		32,716			2,885			9,250


Total Revenues		29,928,790			27,226,905			24,032,436


Operating Expenses
Real estate taxes		1,806,324			1,773,060			1,694,031
Property operating expenses		1,980,263			1,907,568			1,580,804
Land lease payments		737,460			736,793			738,915
General and administrative		2,848,414			2,275,177			2,011,854
Depreciation and amortization		4,437,034			4,023,876			3,654,307


Total Operating Expenses		11,809,495			10,716,474			9,679,911


Income From Continuing Operations		18,119,295			16,510,431			14,352,525


Other Income (Expense)
Interest expense, net		(4,506,712	)		(5,684,200	)		(6,196,153	)
Early extinguishment of debt		—			(961,334	)		—
Equity in net income of unconsolidated entities		216,837			438,489			673,580


Total Other Expense		(4,289,875	)		(6,207,045	)		(5,522,573	)


Income Before Minority Interest and Discontinued Operations		13,829,420			10,303,386			8,829,952

Minority Interest		1,304,115			1,167,267			1,161,148


Income Before Discontinued Operations		12,525,305			9,136,119			7,668,804

Gain on Sale of Asset From Discontinued Operations, net of minority interest of $54,427 and $94,575		522,741			740,094			—

Income From Discontinued Operations, net of minority interest of $7,805, $76,204 and $167,085		74,974			595,533			1,103,526


Net Income	$	13,123,020		$	10,471,746		$	8,772,330


Basic and Diluted Earnings Per Share (Note 2)
Income before discontinued operations	$	1.94		$	1.74		$	1.72
Discontinued operations		.09			.25			.25


Earnings Per Share	$	2.03		$	1.99		$	1.97

See accompanying notes to consolidated financial statements.

F - 5

Agree Realty Corporation

Consolidated Statements of Stockholders’ Equity


						Additional						Unearned
	Common Stock					Paid-In						Compensation -
	Shares			Amount		Capital			Deficit			Restricted Stock

Balance, January 1, 2002		4,416,869		$	442	$	63,937,682		$	(11,724,832	)	$	(581,339	)

Issuance of shares under the Stock Incentive Plan		37,662			3		680,030			—			(482,900	)
Shares redeemed under the Stock Incentive Plan		(6,000	)		—		(110,940	)		—			—
Vesting of restricted stock		—			—		—			—			315,245
Dividends declared, $1.84 per share		—			—		—			(8,182,997	)		—
Net income		—			—		—			8,772,330			—


Balance, December 31, 2002		4,448,531			445		64,506,772			(11,135,499	)		(748,994	)
Issuance of common stock, net of issuance costs		1,955,000			195		43,224,291			—			—
Issuance of shares under the Stock Incentive Plan		36,814			3		622,150			—			(456,300	)
Shares redeemed under the Stock Incentive Plan		(6,000	)		—		(101,400	)		—			—
Vesting of restricted stock		—			—		—			—			367,910
Dividends declared, $1.94 per share		—			—		—			(10,563,883	)		—
Net income		—			—		—			10,471,746			—


Balance, December 31, 2003		6,434,345			643		108,251,813			(11,227,636	)		(837,384	)

Issuance of shares under the Stock Incentive Plan		59,501			6		1,517,832			—			(950,925	)
Shares redeemed under the Stock Incentive Plan		(6,000	)		—		(169,680	)		—			—
Vesting of restricted stock		—			—		—			—			546,345
Dividends declared, $1.95 per share		—			—		—			(12,622,047	)		—
Net income		—			—		—			13,123,020			—


Balance, December 31, 2004		6,487,846		$	649	$	109,599,965		$	(10,726,663	)	$	(1,241,964	)

See accompanying notes to consolidated financial statements.

F - 6

Agree Realty Corporation

Consolidated Statements of Cash Flows


Year Ended December 31,	2004			2003			2002

Cash Flows From Operating Activities
Net income	$	13,123,020		$	10,471,746		$	8,772,330
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		4,418,177			4,188,655			3,861,751
Amortization		204,986			633,922			357,589
Stock-based compensation		546,345			367,910			315,245
Gain on sale of assets		(577,168	)		(834,669	)		—
Equity in net income of unconsolidated entities		(216,837	)		(438,489	)		(673,580	)
Minority interests		1,366,347			1,338,046			1,328,233
Decrease (increase) in accounts receivable		(4,961	)		162,300			(117,888	)
(Increase) in other assets		(431,446	)		(336,483	)		(191,958	)
Increase (decrease) in accounts payable		33,605			228,999			(65,677	)
Decrease in deferred revenue		(307,936	)		—			—
Increase (decrease) in accrued interest		131,016			(82,607	)		31,108
Increase (decrease) in tenant deposits		13,890			(46,039	)		43,118


Net Cash Provided By Operating Activities		18,299,038			15,653,291			13,660,271


Cash Flows From Investing Activities
Acquisition of real estate investments (including capitalized interest of $305,000 in 2004, $213,000 in 2003 and $118,000 in 2002)		(21,711,356	)		(20,116,584	)		(13,910,078	)
Distributions from unconsolidated entities		216,837			438,489			673,580
Decrease in restricted cash		4,309,914			—			—
Net proceeds from sale of assets, less amounts held in escrow		2,046,493			3,887,338			—


Net Cash Used In Investing Activities		(15,138,112	)		(15,790,757	)		(13,236,498	)

See accompanying notes to consolidated financial statements.

F - 7

Agree Realty Corporation

Consolidated Statements of Cash Flows


Year Ended December 31,	2004			2003			2002

Cash Flows From Financing Activities
Line-of-credit net borrowings (payments)		12,700,000			(11,583,232	)		18,125,000
Dividends and limited partners’ distributions paid		(13,873,516	)		(10,776,024	)		(9,407,759	)
Payment on construction loans		—			(4,043,313	)		(7,766,219	)
Payments of mortgages payable		(2,158,689	)		(38,320,636	)		(2,104,010	)
Mortgage proceeds		—			22,699,151			1,301,866
Payments of payables for capital expenditures		(361,769	)		(423,910	)		(401,229	)
Redemption of restricted stock		(169,680	)		(101,400	)		(110,940	)
Payments for financing costs		—			(609,367	)		(43,103	)
Payments of leasing costs		(72,150	)		(19,811	)		(23,630	)
Exercise of stock options		358,312			—			—
Net proceeds from the issuance of common stock		—			43,224,488			—


Net Cash Provided By (Used In) Financing Activities		(3,577,492	)		45,946			(430,024	)


Net Decrease In Cash and Cash Equivalents		(416,566	)		(91,520	)		(6,251	)

Cash and Cash Equivalents, beginning of year		1,004,090			1,095,610			1,101,861


Cash and Cash Equivalents, end of year	$	587,524		$	1,004,090		$	1,095,610


Supplemental Disclosure of Cash Flow Information
Cash paid for interest (net of amounts capitalized)	$	4,243,983		$	5,619,551		$	5,889,778


Supplemental Disclosure of Non-Cash Transactions
Construction loan paid with mortgage	$	—		$	—		$	3,181,670
Dividends and limited partners’ distributions declared and unpaid	$	3,509,083		$	3,447,328		$	2,356,156
Shares issued under Stock Incentive Plan	$	1,159,518		$	622,153		$	680,033
Real estate investments financed with accounts payable	$	393,711		$	570,363		$	589,760
Real estate investments acquired from joint ventures	$	13,790,990		$	—		$	—

See accompanying notes to consolidated financial statements.

F - 8

Agree Realty Corporation

Notes to Consolidated Financial Statements

1. The Company

Agree Realty Corporation (the “Company”) is a self-administered, self-managed real estate investment trust, which develops, acquires, owns and operates properties, which are primarily leased to national and regional retail companies under net leases. At December 31, 2004 the Company’s properties are comprised of forty-one single tenant retail facilities and thirteen shopping centers located in fourteen states. During the year ended December 31, 2004, approximately 96% of the Company’s base rental revenues were received from national and regional tenants under long-term leases, including approximately 32% from Borders, Inc., 18% from Walgreen Co., and 15% from Kmart Corporation.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements of Agree Realty Corporation include the accounts of the Company, its majority-owned partnership, Agree Limited Partnership (the “Operating Partnership”), and its wholly-owned subsidiaries. The Company controlled, as the sole general partner, 90.59% and 90.52% of the Operating Partnership as of December 31, 2004 and 2003, respectively. All material intercompany accounts and transactions are eliminated.

Use of Estimates

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

Fair Values of Financial Instruments

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

F - 9

Agree Realty Corporation

Notes to Consolidated Financial Statements

Valuation of Long-Lived Assets

Long-lived assets such as real estate investments are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows from the use of these assets. When any such impairment exists, the related assets will be written down to fair value. No impairment loss recognition has been required through December 31, 2004.

Real Estate Investments

Real estate assets are stated at cost less accumulated depreciation. All costs related to planning, development and construction of buildings prior to the date they become operational, including interest and real estate taxes during the construction period, are capitalized for financial reporting purposes and recorded as “Property under development” until construction has been completed. As of December 31, 2004, the cost to complete the properties under development is approximately $5,500,000.

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

Cash and Cash Equivalents

Cash and cash equivalents include cash and money market accounts.

Pursuant to an agreement, restricted cash is held in escrow for the acquisition of real estate investments.

F - 10

Agree Realty Corporation

Notes to Consolidated Financial Statements

Accounts Receivable - Tenants

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

Investments in Unconsolidated Entities

The Company uses the equity method of accounting for investments in non-majority owned entities where the Company has the ability to exercise significant influence over operating and financial policies.

The Company’s initial investment is recorded at cost, and the carrying amount of the investment is (a) increased by the Company’s share of the investees’ earnings (as defined in the limited liability company agreements), and (b) reduced by distributions paid from the investees to the Company.

Unamortized Deferred Expenses

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

Other Assets

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

Accounts Payable - Capital Expenditures

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

F - 11

Agree Realty Corporation

Notes to Consolidated Financial Statements

Minority Interest

This amount represents the limited partners’ interest (“OP Units”) of 9.41% and 9.48% (convertible into 637,547 shares) in the Operating Partnership as of December 31, 2004 and 2003, respectively.

Revenue Recognition

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

Operating Cost Reimbursement

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

Income Taxes

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

Stock Options

The Company has elected to adopt the recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123 “Accounting for Stock-Based Compensation” (SFAS 123) using the prospective method beginning January 1, 2003. SFAS 123 establishes a fair value based method of accounting for stock-based compensation plans under which employees receive shares of stock or other equity instruments of the Company or the Company incurs liabilities to employees in amounts based on the price of its stock. No stock options were granted during 2004, 2003 or 2002 and there was no expense for stock options that would be required.

F - 12

Agree Realty Corporation

Notes to Consolidated Financial Statements

Dividends

The Company declared dividends of $1.95, $1.94 and $1.84 per share during the years ended December 31, 2004, 2003, and 2002; the dividends have been reflected for federal income tax purposes as follows:


December 31,	2004		2003		2002

Ordinary income	$	1.95	$	1.78	$	1.84
Return of capital		—		.16		—


Total	$	1.95	$	1.94	$	1.84

The aggregate federal income tax basis of Real Estate Investments is approximately $21.3 million less than the financial statement basis.

Discontinued Operations

In October 2003 the Company completed the sale of a shopping center for approximately $8.5 million and recognized a gain of approximately $740,000, net of minority interest. The shopping center was anchored by Kmart Corporation and Kash N Karry and was located in Winter Garden, Florida. In August 2004 the Company completed the sale of a single tenant property for approximately $2.2 million and recognized a gain of approximately $523,000, net of minority interest. The property was leased to Kmart corporation and was located in Perrysburg, Ohio. The gain on sale and results of operations for these properties are presented as discontinued operations in the Company’s Consolidated Statements of Income.

The revenues from the properties were $137,151, $1,123,998 and $1,791,998 for the years ended December 31, 2004, 2003 and 2002, respectively. The expenses for the properties were $62,177, $528,465 and $688,472, including minority interest charges of $7,805, $76,204 and $167,085, for the years ending December 31, 2004, 2003 and 2002, respectively.

F - 13

Agree Realty Corporation

Notes to Consolidated Financial Statements

Early Extinguishment of Debt

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

Earnings Per Share

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

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


December 31,	2004		2003		2002

Numerator
Net income	$	13,123,020	$	10,471,746	$	8,772,330
Income allocated to minority interests		1,366,347		1,338,046		1,328,233


Numerator for Basic and Diluted Earnings Per Share - Income Available to Shareholders After Assumed Conversions	$	14,489,367	$	11,809,792	$	10,100,563

F - 14

Agree Realty Corporation

Notes to Consolidated Financial Statements


December 31,	2004		2003		2002

Denominator
Weighted average shares outstanding		6,468,351		5,272,523		4,446,791
Weighted average OP Units outstanding, Assuming conversion		673,547		673,547		673,547


Denominator for Basic Earnings Per Share - Adjusted Weighted Average Shares and Assumed Conversions		7,141,898		5,946,070		5,120,338
Employee Stock Options		6,766		3,343		—


Denominator for Diluted Earnings Per Share		7,148,664		5,949,413		5,120,338

Options to purchase shares of common stock were outstanding (see Note 8) but were not included in the computation of diluted earnings per share in 2002 because the options exercise price was greater than the average market price of the common shares and, therefore, any additional shares would be anti-dilutive.

Recent Accounting Pronouncements

In December 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 123(R), to expand and clarify SFAS No. 123 in several areas. The Statement requires companies to measure the cost of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. The cost is recognized over the requisite service period (usually the vesting period) for the estimated number of instruments where service is expected to be rendered. This Statement is effective for the interim reporting periods beginning after June 15, 2005. We do not expect that our financial statements will be materially impacted by SFAS No. 123(R).

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

F - 15

Agree Realty Corporation

Notes to Consolidated Financial Statements

3. Mortgages Payable

Mortgages payable consisted of the following:


December 31,	2004		2003

Note payable in monthly installments of $153,838 including interest at 6.90% per annum, with the final monthly payment due January 2020; collateralized by related real estate and tenants’ leases	$	17,222,287	$	17,856,063

Note payable in monthly installments of $128,205 including interest at 6.20% per annum, with a final monthly payment due November 2018; collateralized by related real estate and tenants’ leases		14,265,790		14,898,328

Note payable in monthly installments of $99,598 including interest at 6.63% per annum, with the final monthly payment due February 2017; collateralized by related real estate and tenants’ leases		9,962,642		10,478,580

Note payable in monthly installments of $57,403 including interest at 6.50% per annum, with the final monthly payment due February 2023; collateralized by related real estate and tenant lease		7,333,400		7,538,278

F - 16

Agree Realty Corporation

Notes to Consolidated Financial Statements


December 31,	2004		2003

Note payable in monthly installments of $25,631 including interest at 7.50% per annum, with the final monthly payment due May 2022; collateralized by related real estate and tenant lease		2,985,794		3,066,134

Note payable in monthly installments of $12,453 including interest at 6.95% per annum, with the final monthly payment due December 2017; collateralized by related real estate and tenant lease		1,173,102		1,239,682

Note payable in monthly installments of $6,449 including interest at 6.00% per annum, with the final monthly payment due July 2023; collateralized by elated real estate and tenant lease		865,674		890,313


Total	$	53,808,689	$	55,967,378

Future scheduled annual maturities of mortgages payable for years ending December 31 are as follows: 2005 - $2,189,578; 2006 - $2,454,764; 2007 - $2,621,920; 2008 - $2,781,076; 2009 - $2,970,466 and $40,790,885 thereafter.

F - 17

Agree Realty Corporation

Notes to Consolidated Financial Statements

4. Construction Loans

The Company received funding from an unaffiliated third party for one of its single tenant retail properties. Borrowings under this arrangement bore no interest. The advances were secured by the specific land and buildings developed. The Company owed $1,569,000 for these advances as of December 31, 2003. The advances were repaid in 2004.

5. Notes Payable

The Operating Partnership has in place a $50 million line-of-credit agreement, which is guaranteed by the Company. The agreement expires in August 2006 and can be extended, solely at the option of the Operating Partnership, for an additional three years. Advances under the Credit Facility bear interest within a range of one-month to six-month LIBOR plus 150 basis points to 213 basis points or the bank’s prime rate, at the option of the Company, based on certain factors such as debt to property value and debt service coverage. The Credit Facility is used to fund property acquisitions and development activities and is secured by most of the Company’s Properties which are not otherwise encumbered and properties to be acquired or developed. At December 31, 2004 and 2003, $39,000,000 and $24,000,000, respectively, was outstanding under this facility with a weighted average interest rate of 3.77% and 2.74%, respectively.

In addition, the Company maintains a $5,000,000 line-of-credit agreement with a bank. Monthly interest payments are required, either at the bank’s prime rate less 50 basis points, or 175 basis points in excess of the one-month LIBOR rate, at the option of the Company. At December 31, 2004 and 2003, $200,000 and $2,500,000, respectively, was outstanding under this agreement with a weighted average interest rate of 4.75% and 3.50%, respectively.

6. Dividends and Distributions Payable

On December 6, 2004 the Company declared a dividend of $.49 per share for the quarter ended December 31, 2004. The holders of OP Units were entitled to an equal distribution per OP Unit held as of December 31, 2004. The dividends and distributions payable are recorded as liabilities in the Company’s balance sheet at December 31, 2004. The dividend has been reflected as a reduction of stockholders’ equity and the distribution has been reflected as a reduction of the limited partners’ minority interest. These amounts were paid on January 6, 2005.

F - 18

Agree Realty Corporation

Notes to Consolidated Financial Statements

7. Minority Interest

The following summarizes the changes in minority interest since January 1, 2002:


Minority Interest at January 1, 2002	$	5,698,101
Minority interests’ share of income for the year		1,328,233
Distributions for the year		(1,239,327	)


Minority Interest at December 31, 2002		5,787,007
Minority interests’ share of income for the year		1,338,046
Distributions for the year		(1,303,314	)


Minority Interest at December 31, 2003		5,821,739
Minority interests’ share of income for the year		1,366,347
Distributions for the year		(1,313,231	)


Minority Interest at December 31, 2004	$	5,874,855

8. Stock Incentive Plan

The Company has established a stock incentive plan (the “Plan”) under which options were granted in April 1994. The options, which have an exercise price equal to the initial public offering price ($19.50/share), can be exercised in increments of 25% on each anniversary of the date of the grant, and expire upon employment termination. There were 4,900, 23,275 and 23,275 options outstanding and exercisable at December 31, 2004, 2003 and 2002, respectively. There were 18,375 options exercised in 2004. No options were granted during 2004, 2003 or 2002.

F - 19

Agree Realty Corporation

Notes to Consolidated Financial Statements

9. Unearned Compensation - Restricted Stock

As part of the Company’s stock incentive plan, restricted common shares are granted to certain employees. On the date of the award,the Company increases unearned compensation - restricted stock on the balance sheet by the stock price multiplied by the number of shares awarded. The restricted shares vest and are charged to expense in increments of 20% per year for five years. Plan participants are entitled to receive the quarterly dividends on their respective restricted shares. The following table summarizes the restricted shares for the years ended December 31, 2004, 2003 and 2002:


	2004			2003			2002

Restricted shares outstanding January 1		199,810			168,996			137,334
Restricted shares granted during the year		41,126			36,814			37,662
Restricted shares redeemed during the year		(6,000	)		(6,000	)		(6,000	)


Restricted shares outstanding December 31		234,936			199,810			168,996


Compensation Expense Recorded Related to Restricted Common Shares	$	546,345		$	367,910		$	315,245

10. Profit-Sharing Plan

The Company has a discretionary profit-sharing plan whereby it contributes to the plan such amounts as the Board of Directors of the Company determines. The participants in the plan cannot make any contributions to the plan. Contributions to the plan are allocated to the employees based on their percentage of compensation to the total compensation of all employees for the plan year. Participants in the plan become fully vested after six years of service. No contributions were made to the plan in 2004, 2003 or 2002.

11. Rental Income

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

F - 20

Agree Realty Corporation

Notes to Consolidated Financial Statements

As of December 31, 2004, the future minimum revenues for the next five years from rental property under the terms of all noncancellable tenant leases, assuming no new or renegotiated leases are executed for such premises, are as follows (in thousands):


2005	$	28,165
2006		26,958
2007		26,478
2008		25,376
2009		24,552
Thereafter		199,098


Total	$	330,627

Of these future minimum rentals, approximately 39% of the total is attributable to Borders, Inc., approximately 27% of the total is attributable to Walgreen and approximately 13% is attributable to Kmart Corporation. Borders is a major operator of book superstores in the United States, Walgreen operates in the national drugstore chain industry and Kmart’s principal business is general merchandise retailing through a chain of discount department stores. The loss of any of these anchor tenants or the inability of any of them to pay rent could have an adverse effect on the Company’s business.

12. Lease Commitments

The Company has entered into certain land lease agreements for four of its properties. As of December 31, 2004, future annual lease commitments under these agreements are as follows:


Year Ended December 31,

2005	$	764,768
2006		768,343
2007		774,619
2008		760,424
2009		751,757
Thereafter		10,527,130


Total	$	14,347,041

F - 21

Agree Realty Corporation

Notes to Consolidated Financial Statements

13. Interim Results (Unaudited)

The following summary represents the unaudited results of operations of the Company, expressed in thousands except per share amounts, for the periods from January 1, 2003 through December 31, 2004. Certain amounts have been reclassified to conform to the current presentation of discontinued operations:


Three Months Ended
2004	March 31,		June 30,		September 30,		December 31,

Revenues	$	7,188	$	7,198	$	7,607	$	7,936


Income before discontinued operations	$	2,864	$	3,025	$	3,361	$	3,275
Discontinued operations, net of minority interest		32		32		534		—


Net Income	$	2,896	$	3,057	$	3,895	$	3,275


Earnings Per Share	$	.45	$	.47	$	.60	$	.51


Three Months Ended
2003	March 31,		June 30,		September 30,		December 31,

Revenues	$	6,623	$	6,725	$	6,675	$	7,204


Income before discontinued operations	$	2,056	$	2,228	$	1,677	$	3,175
Discontinued operations, net of minority interest		188		146		180		822


Net Income	$	2,244	$	2,374	$	1,857	$	3,997


Earnings Per Share	$	.50	$	.53	$	.33	$	.63

F - 22

Agree Realty Corporation

Notes to Consolidated Financial Statements

14. Deferred Revenue

In July 2004, our tenant in two joint venture properties located in Ann Arbor, MI and Boynton Beach, FL repaid $13.8 million that had been contributed by our joint venture partner. As a result of this repayment the Company became the sole member of the limited liability companies holding the properties. Total assets of the two properties were approximately $13.8 million. We have treated the $13.8 million repayment of the capital contribution as deferred revenue and accordingly, will recognize rental income over the term of the related leases.

15. Subsequent Event

In January 2005, the Company priced a public offering of 1,000,000 shares of our common stock at an offering price of $28.88 per share resulting in net proceeds of approximately $27.1 million. In February 2005 the underwriters exercised their over allotment option for an additional 150,000 shares of our common stock at the same per share stock price, resulting in net proceeds of approximately $4.1 million.

F - 23

Agree Realty Corporation

Schedule III - Real Estate and Accumulated Depreciation

December 31, 2004


																				Column H
Column A	Column B		Column C				Column D			Column E						Column F		Column G		Life on Which
							Costs			Gross Amount at Which Carried										Depreciation in
			Initial Cost				Capitalized			at Close of Period										Latest Income
					Buildings and		Subsequent to					Buildings and				Accumulated		Date of		Statement
Description	Encumbrance		Land		Improvements		Acquisition			Land		Improvements		*Total*		Depreciation		Construction		is Computed

Completed Retail Facilities
Sam’s Club, MI	$	1,440,843	$	550,000	$	562,404	$	1,087,596		$	550,000	$	1,650,000	$	2,200,000	$	1,205,529		1977	40 Years
Capital Plaza, KY		1,822,077		7,379		2,240,607		534,115			7,379		2,774,722		2,782,101		1,619,669		1978	40 Years
Charlevoix Common, MI		—		305,000		5,152,992		106,718			305,000		5,259,710		5,564,710		1,846,789		1991	40 Years
Chippewa Commons, WI		—		1,197,150		6,367,560		439,818			1,197,150		6,807,378		8,004,528		2,375,762		1990	40 Years
Grayling Plaza, MI		1,295,879		200,000		1,778,657		—			200,000		1,778,657		1,978,657		930,805		1984	40 Years
Iron Mountain Plaza, MI		5,360,404		677,820		7,014,996		491,900			677,820		7,506,896		8,184,716		2,475,676		1991	40 Years
Ironwood Commons, MI		5,632,686		167,500		8,181,306		251,653			167,500		8,432,959		8,600,459		2,841,558		1991	40 Years
Marshall Plaza Two, MI		—		—		4,662,230		115,294			—		4,777,524		4,777,524		1,625,194		1990	40 Years
North Lakeland Plaza, FL		—		1,641,879		6,364,379		1,511,028			1,641,879		7,875,407		9,517,286		3,051,836		1987	40 Years
Oscoda Plaza, MI		1,346,631		183,295		1,872,854		—			183,295		1,872,854		2,056,149		975,106		1984	40 Years
Petoskey Town Center, MI		—		875,000		8,895,289		223,581			875,000		9,118,870		9,993,870		3,127,803		1990	40 Years
Plymouth Commons, WI		—		535,460		5,667,504		279,073			535,460		5,946,577		6,482,037		2,079,728		1990	40 Years
Rapids Associates, MI		—		705,000		6,854,790		27,767			705,000		6,882,557		7,587,557		2,443,648		1990	40 Years
Shawano Plaza, WI		—		190,000		9,133,934		101,471			190,000		9,235,405		9,425,405		3,356,433		1990	40 Years
West Frankfort Plaza, IL		612,579		8,002		784,077		143,258			8,002		927,335		935,337		465,116		1982	40 Years
Omaha, NE		2,463,439		1,705,619		2,053,615		2,152			1,705,619		2,055,767		3,761,386		468,964		1995	40 Years
Wichita, KS		1,804,004		1,039,195		1,690,644		24,666			1,039,195		1,715,310		2,754,505		391,230		1995	40 Years
Santa Barbara, CA		3,666,702		2,355,423		3,240,557		2,650			2,355,423		3,243,207		5,598,630		739,847		1995	40 Years
Monroeville, PA		5,620,519		6,332,158		2,249,724		—			6,332,158		2,249,724		8,581,882		456,722		1996	40 Years
Norman, OK		1,641,292		879,562		1,626,501		—			879,562		1,626,501		2,506,063		335,275		1996	40 Years
Columbus, OH		2,071,402		826,000		2,336,791		—			826,000		2,336,791		3,162,791		520,907		1996	40 Years
Aventura, FL		2,078,167		—		3,173,121		—			—		3,173,121		3,173,121		690,815		1996	40 Years
Boyton Beach, FL		2,343,376		1,534,942		2,043,122		—			1,534,942		2,043,122		3,578,064		412,693		1996	40 Years
Lawrence, KS		2,985,794		—		3,000,000		155,407			—		3,155,407		3,155,407		569,711		1997	40 Years
Waterford, MI		2,399,004		971,009		1,562,869		135,390			971,009		1,698,259		2,669,268		296,162		1997	40 Years
Chesterfield Township, MI		2,634,123		1,350,590		1,757,830		(46,164	)		1,350,590		1,711,666		3,062,256		278,725		1998	40 Years
Grand Blanc, MI		2,516,563		1,104,285		1,998,919		13,968			1,104,285		2,012,887		3,117,172		302,279		1998	40 Years
Pontiac, MI		2,412,952		1,144,190		1,808,955		(113,506	)		1,144,190		1,695,449		2,839,639		266,622		1998	40 Years
Mt. Pleasant Shopping Center, MI		—		907,600		8,081,968		403,100			907,600		8,485,068		9,392,668		1,748,211		1973	40 Years
Tulsa, OK		—		1,100,000		2,394,512		—			1,100,000		2,394,512		3,494,512		391,429		1998	40 Years
Columbia, MD		3,348,181		1,545,509		2,093,700		286,589			1,545,509		2,380,289		3,925,798		317,888		1999	40 Years
Rochester, MI		3,451,346		2,438,740		2,188,050		1,949			2,438,740		2,189,999		4,628,739		301,101		1999	40 Years

F - 24

Agree Realty Corporation

Schedule III - Real Estate and Accumulated Depreciation
December 31, 2004


Column A	Column B		Column C				Column D			Column E						Column F		Column G		Column H
																				Life on Which
							Costs			Gross Amount at Which Carried										Depreciation in
			Initial Cost				Capitalized			at Close of Period										Latest Income
					Buildings and		Subsequent to					Buildings and				Accumulated		Date of		Statement
Description	Encumbrance		Land		Improvements		Acquisition			Land		Improvements		Total		Depreciation		Construction		is Computed

Ypsilanti, MI		3,117,234		2,050,000		2,222,097		29,624			2,050,000		2,251,721		4,301,721		281,509		1999	40 Years
Germantown, MD		3,148,460		1,400,000		2,288,890		45,000			1,400,000		2,333,890		3,733,890		291,806		2000	40 Years
Petoskey, MI		2,168,286		—		2,332,473		(1,721	)		—		2,330,752		2,330,752		272,720		2000	40 Years
Flint, MI		3,270,512		2,026,625		1,879,700		(1,201	)		2,026,625		1,878,499		3,905,124		187,852		2000	40 Years
Flint, MI		2,814,122		1,477,680		2,241,293		—			1,477,680		2,241,293		3,718,973		217,124		2001	40 Years
New Baltimore, MI		2,400,787		1,250,000		2,285,781		(16,502	)		1,250,000		2,269,279		3,519,279		191,645		2001	40 Years
Flint, MI		—		1,729,851		1,798,091		—			1,729,851		1,798,091		3,527,942		121,752		2002	40 Years
Oklahoma City, OK		4,051,484		1,914,859		2,057,034		—			1,914,859		2,057,034		3,971,893		112,687		2002	40 Years
Omaha, NE		3,717,665		1,530,000		2,237,702		—			1,530,000		2,237,702		3,767,702		122,561		2002	40 Years
Indianapolis, IN		1,173,102		180,000		1,117,617		—			180,000		1,117,617		1,297,617		61,270		2002	40 Years
Big Rapids, MI		—		1,201,675		2,014,107		(2,000	)		1,201,675		2,012,107		3,213,782		88,068		2003	40 Years
Flint, MI		865,674		—		1,310,787		(45,210	)		—		1,265,577		1,285,577		93,318		2003	20 Years
Ann Arbor, MI		7,333,400		1,727,590		6,009,488		—			1,727,590		6,009,488		7,737,078		301,976		2003	40 Years
Tulsa, OK		—		2,000,000		2,740,507		—			2,000,000		2,740,507		4,740,507		90,793		2003	40 Years
Canton Twp., MI		—		1,550,000		2,132,096		23,020			1,550,000		2,155,116		3,705,116		58,318		2003	40 Years
Flint, MI		—		1,537,400		1,961,674		—			1,537,400		1,961,674		3,499,074		40,951		2004	40 Years
Webster, NY		—		1,600,000		2,438,781		—			1,600,000		2,438,781		4,038,781		48,268		2004	40 Years
Albion, NY		—		1,900,000		3,037,864		—			1,900,000		3,037,864		4,937,864		9,493		2004	40 Years
Flint, MI		—		1,029,000		2,165,463		—			1,029,000		2,165,463		3,194,463		6,708		2004	40 Years
Lansing, MI		—		785,000		348,501		—			785,000		348,501		1,133,501		4,353		2004	40 Years
Boynton Beach, FL		—		1,569,000		2,363,524		108,651			1,569,000		2,472,175		4,041,175		65,606		2004	40 Years
Ann Arbor, MI		—		1,700,000		8,308,854		150,000			1,700,000		8,458,854		10,158,854		149,976		2004	40 Years



Sub Total		93,008,689		62,636,987		174,126,781		6,469,134			62,636,987		180,595,915		243,232,902		41,727,987


Retail Facilities
Under Development
Waterford, MI		—		800,081		368,661		—			800,081		368,661		1,168,742		—		N/A		N/A
Livonia, MI		—		1,200,000		94,707		—			1,200,000		94,706		1,294,706		—		N/A		N/A
Midland, MI		—		2,350,000		709,008		—			2,350,000		709,008		3,059,008		—		N/A		N/A
Grand Rapids, MI		—		1,450,000		555,700		—			1,450,000		555,700		2,005,700		—		N/A		N/A
Delta Twp., MI		—		2,075,000		376,478		—			2,075,000		376,478		2,451,478		—		N/A		N/A
Other		—		80,000		—		—			80,000		—		80,000		—		N/A		N/A


		—		7,955,081		2,104,554		—			7,955,081		2,104,553		10,059,634		—


Total	$	93,008,689	$	70,592,068	$	176,231,335	$	6,469,134		$	70,592,068	$	182,700,468	$	253,292,536	$	41,727,987

F - 25

Agree Realty Corporation

Notes to Schedule III
December 31, 2004

1) Reconciliation of Real Estate Properties

The following table reconciles the Real Estate Properties from January 1, 2002 to December 31, 2004:


	2004			2003			2002

Balance at January 1	$	221,224,629		$	210,985,666		$	196,485,828
Construction and acquisition costs		34,736,096			20,686,947			14,499,838
Sale of real estate asset		(2,668,189	)		(10,447,984	)		—


Balance at December 31	$	253,292,536		$	221,224,629		$	210,985,666

2) Reconciliation of Accumulated Depreciation

The following table reconciles the accumulated depreciation from January 1, 2002 to December 31, 2004:


	2004			2003			2002

Balance at January 1	$	38,475,767		$	37,456,301		$	33,634,461
Current year depreciation expense		4,372,362			4,145,898			3,821,840
Sale of real estate asset		(1,120,142	)		(3,126,432	)		—


Balance at December 31	$	41,727,987		$	38,475,767		$	37,456,301

3) Tax Basis of Buildings and Improvements

The aggregate cost of Building and Improvements for federal income tax purposes is approximately $21,294,000 less than the cost basis used for financial statement purposes.

F - 26


Part I
Item 1. Business			4
Item 2. Properties			11
Item 3. Legal Proceedings			18
Item 4. Submission of Matters to a Vote of Security Holders			18
Part II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters			19
Item 6. Selected Financial Data			20
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 7A Quantitative and Qualitative Disclosures about Market Risk			26
Item 8 Financial Statements and Supplementary Data			27
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			27
Item 9A Controls and Procedures			27
Part III
Item 10. Directors and Executive Officers of the Registrant			30
Item 11. Executive Compensation			30
Item 12. Security Ownership of Certain Beneficial Owners and Management			30
Item 13. Certain Relationships and Related Transactions			30
Item 14. Principal Accountant Fees and Services			30
Part IV
Item 15. Exhibits, Financial Statements and Schedules			31
Signatures			34
2005 Equity Incentive Plan
Subsidiaries of Agree Realty Corporation
Consent of BDO Seidman, LLP
Section 302 Certification of Chief Executive Officer
Section 302 Certification of Chief Financial Officer
Section 906 Certification of Chief Executive Officer
Section 906 Certification of Chief Financial Officer


10.23		Mortgage and Security Agreement dated October 31, 2003, by Oklahoma Store No. 151, L.L.C. and Nationwide Life Insurance Company

10.24		Deed of Trust and Security Agreement dated October 31, 2003, by Omaha Store No. 166, L.L.C. and Nationwide Life Insurance Company

10.25	* +	The Company’s 2005 Equity Incentive Plan

21.1	*	Subsidiaries of Agree Realty Corporation

23	*	Consent of BDO Seidman, LLP

31.1	*	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Richard Agree, Chief Executive Officer

32.2	*	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Kenneth R. Howe, Chief Financial Officer

32.1	*	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Richard Agree, Chief Executive Officer

32.2	*	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Kenneth R. Howe, Chief Financial Officer


		Page
Report of Independent Registered Public Accounting Firm		F-2
Financial Statements
Consolidated Balance Sheets		F-3
Consolidated Statements of Income		F-5
Consolidated Statements of Stockholders’ Equity		F-6
Consolidated Statements of Cash Flows		F-7
Notes to Consolidated Financial Statements		F-9
Schedule III - Real Estate and Accumulated Depreciation		F-24

	•	Our inability to effect the development or acquisition of properties on favorable terms.

	•	The effect of economic conditions. If an economic downturn occurs, any corresponding decrease in disposable income could result in consumers being less willing to purchase goods from our tenants which could adversely affect our financial condition and results of operations. Our financial condition and results of operations could also be adversely affected if our tenants are otherwise unable to make lease payments or fail to renew their leases.

	•	Our inability to obtain long-term financing at interest rates that will allow us to offer attractive rental rates to our tenants in order to continue the development or acquisition of retail properties leased to national tenants on a long-term basis.

	•	Actions of our competitors. We seek to remain competitive in the development of real estate assets in the markets that we currently serve. With regard to our acquisition of properties, we compete with insurance companies, credit companies, pension funds, private individuals, investment companies and other REITs, some of which have greater resources than we do.

	•	Failure to qualify as a REIT. Although we believe that we were organized and have been operating in conformity with the requirements for qualification as a REIT under the Internal Revenue Code, we cannot assure you that we will continue to qualify as a REIT.

	•	Changes in government regulations, tax rates and similar matters, For example, changes in real estate and zoning laws, environmental uncertainties and natural disasters could adversely affect our financial condition and results of operations.

	•	The risk that changes in economic conditions or real estate markets may adversely affect the value of our properties.

	•	The risk that local conditions (such as oversupply of similar properties) could adversely affect the value of our properties.

	•	The risk that we may not always be able to lease properties at favorable rental rates.

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

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

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

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

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

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

*		Filed herewith

+		Management contract or compensatory plan or arrangement


Exhibit
Number		Description

10.25	* +	The Company’s 2005 Equity Incentive Plan

21.1	*	Subsidiaries of Agree Realty Corporation

23	*	Consent of BDO Seidman, LLP

31.1	*	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Richard Agree, Chief Executive Officer

32.2	*	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Kenneth R. Howe, Chief Financial Officer

32.1	*	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Richard Agree, Chief Executive Officer

32.2	*	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Kenneth R. Howe, Chief Financial Officer