UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q |X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2002 OR |_| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to __________ Commission File Number 1-12928 AGREE REALTY CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) MARYLAND 38-3148187 - -------------------------------------------------------------------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 31850 NORTHWESTERN HIGHWAY, FARMINGTON HILLS, MICHIGAN 48334 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, included area code: (248) 737-4190 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No |X| |_| 4,446,031 Shares of Common Stock, $.0001 par value, were outstanding as of May 9, 2002
AGREE REALTY CORPORATION FORM 10-Q INDEX <TABLE> <CAPTION> <S> <C> <C> PART I: FINANCIAL INFORMATION PAGE Item 1. Interim Consolidated Financial Statements 3 Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001 4-5 Consolidated Statements of Income for the three months ended 6 March 31, 2002 and 2001 Consolidated Statement of Stockholders' Equity for the three months ended 7 March 31, 2002 Consolidated Statements of Cash Flows for the three months ended 8 March 31, 2002 and 2001 Notes to Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and 10-15 Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 16 PART II: OTHER INFORMATION Item 1. Legal Proceedings 17 Item 2. Changes in Securities 17 Item 3. Defaults Upon Senior Securities 17 Item 4. Submission of Matters to a Vote of Security Holders 17 Item 5 Other Information 17 Item 6. Exhibits and Reports on Form 8-K 17 SIGNATURES 18 </TABLE> 2
AGREE REALTY CORPORATION PART I: FINANCIAL INFORMATION ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS 3
AGREE REALTY CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) <TABLE> <CAPTION> MARCH 31, December 31, 2002 2001 - --------------------------------------------------------------------------------------------------------- <S> <C> <C> ASSETS REAL ESTATE INVESTMENTS Land $ 46,838,530 $ 46,838,530 Buildings 150,040,482 148,283,359 Property under development 415,453 1,363,939 - --------------------------------------------------------------------------------------------------------- 197,294,465 196,485,828 Less accumulated depreciation (34,584,833) (33,634,461) - --------------------------------------------------------------------------------------------------------- NET REAL ESTATE INVESTMENTS 162,709,632 162,851,367 CASH AND CASH EQUIVALENTS 203,465 1,101,861 ACCOUNTS RECEIVABLE - TENANTS, net of allowance of $107,000 and $50,000 for possible losses 321,804 666,749 INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED ENTITIES 261,927 255,203 UNAMORTIZED DEFERRED EXPENSES Financing 1,311,602 1,355,864 Leasing costs 358,987 352,441 OTHER ASSETS 994,294 927,861 - --------------------------------------------------------------------------------------------------------- $ 166,161,711 $ 167,511,346 ========================================================================================================= </TABLE> See accompanying notes to consolidated financial statements. 4
AGREE REALTY CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) <TABLE> <CAPTION> MARCH 31, December 31, 2002 2001 - --------------------------------------------------------------------------------------------------------------------- <S> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY MORTGAGE PAYABLE $ 68,706,795 $ 69,209,337 CONSTRUCTION LOANS 16,546,752 16,560,202 NOTES PAYABLE 19,758,232 19,958,232 DIVIDENDS AND DISTRIBUTIONS PAYABLE 2,355,006 2,341,591 ACCRUED INTEREST PAYABLE 202,443 218,598 ACCOUNTS PAYABLE Operating 839,468 1,244,950 Capital expenditures 296,013 598,362 TENANT DEPOSITS 81,003 50,020 - --------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 108,785,712 110,181,292 - --------------------------------------------------------------------------------------------------------------------- MINORITY INTEREST 5,682,634 5,698,101 - --------------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Common stock, $.0001 par value; 20,000,000 shares authorized, 4,446,031 and 4,416,869 shares issued and outstanding 445 442 Additional paid-in capital 64,457,522 63,937,682 Deficit (11,827,613) (11,724,832) - --------------------------------------------------------------------------------------------------------------------- 52,630,354 52,213,292 Less: unearned compensation - restricted stock (936,989) (581,339) - --------------------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 51,693,365 51,631,953 - --------------------------------------------------------------------------------------------------------------------- $ 166,161,711 $ 167,511,346 ===================================================================================================================== </TABLE> See accompanying notes to consolidated financial statements. 5
AGREE REALTY CORPORATION CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) <TABLE> <CAPTION> THREE MONTHS ENDED Three Months Ended MARCH 31, 2002 March 31, 2001 - ---------------------------------------------------------------------------------------------------------- <S> <C> <C> REVENUES Minimum rents $ 5,476,530 $ 5,379,997 Percentage rents 35,196 124,529 Operating cost reimbursement 653,811 666,228 Management fees and other 3,907 11,413 - ---------------------------------------------------------------------------------------------------------- TOTAL REVENUES 6,169,444 6,182,167 - ---------------------------------------------------------------------------------------------------------- OPERATING EXPENSES Real estate taxes 441,012 431,596 Property operating expenses 548,654 436,803 Land lease payments 184,740 184,740 General and administrative 475,005 382,055 Depreciation and amortization 979,160 952,175 - ---------------------------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES 2,628,571 2,387,369 - ---------------------------------------------------------------------------------------------------------- INCOME FROM OPERATIONS 3,540,873 3,794,798 - ---------------------------------------------------------------------------------------------------------- OTHER INCOME (EXPENSE) Interest expense, net (1,477,695) (1,849,962) Equity in net income of unconsolidated entities 173,580 173,580 - ---------------------------------------------------------------------------------------------------------- TOTAL OTHER EXPENSE (1,304,115) (1,676,382) - ---------------------------------------------------------------------------------------------------------- INCOME BEFORE MINORITY INTEREST 2,236,758 2,118,416 MINORITY INTEREST 294,365 280,274 - ---------------------------------------------------------------------------------------------------------- NET INCOME $ 1,942,393 $ 1,838,142 ========================================================================================================== EARNINGS PER SHARE $ .44 $ .42 ========================================================================================================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 4,446,031 4,416,869 ========================================================================================================== </TABLE> See accompanying notes to consolidated financial statements. 6
AGREE REALTY CORPORATION CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED) <TABLE> <CAPTION> Unearned Common Stock Additional Compensation - ---------------------------- Paid-In Restricted Shares Amount Capital Deficit Stock - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> BALANCE, January 1, 2002 4,416,869 $ 442 $ 63,937,682 $(11,724,832) $ (581,339) Issuance of shares under Stock Incentive Plan 35,162 3 630,780 - (433,650) Shares redeemed under the stock Incentive Plan (6,000) - (110,940) - - Vesting of restricted stock - - - - 78,000 Dividends declared for the period January 1, 2002 to March 31, 2002 - - - (2,045,174) - Net income for the period January 1, 2002 to March 31, 2002 - - - 1,942,393 - - --------------------------------------------------------------------------------------------------------------------------- BALANCE, March 31, 2002 4,446,031 $ 445 $ 64,457,522 $(11,827,613) $ (936,989) =========================================================================================================================== </TABLE> See accompanying notes to consolidated financial statements. 7
AGREE REALTY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) <TABLE> <CAPTION> THREE MONTHS ENDED Three Months Ended MARCH 31, 2002 March 31, 2001 - ------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,942,393 $ 1,838,142 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 960,188 934,483 Amortization 89,122 112,191 Stock-based compensation 78,000 67,000 Equity in net income of unconsolidated entities (173,580) (173,580) Minority interests 294,365 280,274 Decrease in accounts receivable 344,945 297,365 (Decrease) increase in other assets (84,861) 39,239 Decrease in accounts payable (405,482) (525,761) (Decrease) in accrued interest (16,155) (26,234) Increase in tenant deposits 30,983 - - ------------------------------------------------------------------------------------------------------------------------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 3,059,918 2,843,119 - ------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of real estate investments (including capitalized interest of $45,000 in 2002 and $61,000 in 2001) (512,624) (259,541) Distributions from unconsolidated entities 173,580 173,580 - ------------------------------------------------------------------------------------------------------------------------------ NET CASH USED IN INVESTING ACTIVITIES (339,044) (85,961) - ------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES Dividends and limited partners' distributions paid (2,341,591) (2,331,379) Payments of payables for capital expenditures (401,229) (1,040,673) Payments of mortgages payable (502,542) (343,578) Line-of-credit proceeds (payments) (200,000) 100,000 Redemption of restricted stock (110,940) (70,000) Payment of construction loan (13,450) (13,450) Payment of leasing costs (23,630) (7,037) Payments for financing costs (25,888) (500) Construction loan proceeds - - - ------------------------------------------------------------------------------------------------------------------------------ NET CASH USED IN FINANCING ACTIVITIES (3,619,270) (3,706,617) - ------------------------------------------------------------------------------------------------------------------------------ NET DECREASE IN CASH AND CASH EQUIVALENTS (898,396) (949,459) CASH AND CASH EQUIVALENTS, beginning of period 1,101,861 1,119,072 - ------------------------------------------------------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS, end of period $ 203,465 $ 169,613 ============================================================================================================================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest (net of amounts capitalized) $ 1,449,199 $ 1,782,754 ============================================================================================================================== SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS Dividends and limited partners' distributions declared and unpaid $ 2,355,006 $ 2,341,591 Real estate investments financed with accounts payable $ 296,013 $ 386,355 Shares issued under Stock Incentive Plan $ 630,783 $ 375,251 ============================================================================================================================== </TABLE> See accompanying notes to consolidated financial statements. 8
AGREE REALTY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF The accompanying unaudited 2002 consolidated PRESENTATION financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The consolidated balance sheet at December 31, 2001 has been derived from the audited consolidated financial statements at that date. Operating results for the three months ended March 31, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002, or for any other interim period. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report for the year ended December 31, 2001. 2. EARNINGS PER SHARE Earnings per share has been computed by dividing the income by the weighted average number of common shares outstanding. The per share amounts reflected in the consolidated statements of income are presented in accordance with Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per Share"; the amounts of the Company's "basic" and "diluted" earnings per share (as defined in SFAS No. 128) are the same. 9
AGREE REALTY CORPORATION PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- OVERVIEW The Company was established to continue to operate and expand the retail property business of its Predecessors. The Company commenced its operations on April 22, 1994. The assets of the Company are held by, and all operations are conducted through, Agree Limited Partnership (the "Operating Partnership"), of which the Company is the sole general partner and held an 86.84% interest as of March 31, 2002. The Company is operating so as to qualify as a real estate investment trust ("REIT") for federal income tax purposes. The Company has entered into sixteen (16) leases with Kmart Corporation. Thirteen (13) of the Kmart stores are anchors in the Company's Community Shopping Centers and three (3) Kmart stores are free-standing properties. Kmart Corporation and 37 of its U.S. subsidiaries have filed voluntary petitions for reorganization under chapter 11 of the U.S. Bankruptcy Code. Kmart has outlined certain strategic operational and financial initiatives that it intends to continue or implement during the reorganization process. One of its initiatives is to evaluate the performance of every store and the terms of every lease in its portfolio, with the objective of closing unprofitable or under performing stores. The Kmart stores in the Company's Portfolio provided 24% of the Company's Annual Base Rent as of December 31, 2001. Seven of the Kmart stores pay percentage rent in addition to their minimum rent. All Kmart stores in the Company's Portfolio are open and operating as Kmart discount stores. On March 8, 2002, Kmart announced that it intends to close 284 under-performing stores as part of its initial Chapter 11 financial objectives review. None of the Company's Kmart stores were included in this initial list of stores to be closed. However, there can be no assurance that Kmart won't announce additional store closing in the future which may include some of the Company's 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 in this Form 10-Q. COMPARISON OF THREE MONTHS ENDED MARCH 31, 2002 TO THREE MONTHS ENDED MARCH 31, 2000 Minimum rental income increased $97,000, or 2%, to $5,477,000 in 2002, compared to $5,380,000 in 2001. The increase was the result of rental increases of $104,000 from existing properties; a reduction of ($144,000) from four properties whose rent is based on an interest rate constant and an increase of $137,000 from the development of two properties in 2001. 10
AGREE REALTY CORPORATION PART I Percentage rental income decreased $90,000, or 72%, to $35,000 in 2002, compared to $125,000 in 2001. The decrease was primarily the result of an agreement with a tenant to increase base rent in exchange for the elimination of their percentage rent provision. Operating cost reimbursement, which represents additional rent required by substantially all of the Company's leases to cover the tenants' proportionate share of real estate taxes and property operating expenses, decreased $12,000, or 2%, to $654,000 in 2002, compared to $666,000 in 2001. Operating cost reimbursement decreased due to a $57,000 charge in 2002 for a possible collection loss related to Kmart and the increase in real estate taxes and property operating expenses. Management fees and other income decreased $7,000, or 66%, to $4,000 in 2002, compared to $11,000 in 2001. The decrease was the result of the termination of the management agreements between the Company and two properties it previously managed. Real estate taxes increased 9,000, or 2%, to $441,000 in 2002 compared to $432,000 in 2001. The increase is the result of general assessment changes on the Company's properties. Property operating expenses (shopping center maintenance, insurance and utilities) increased $112,000, or 26%, to $549,000 in 2002 compared to $437,000 in 2001. The increase was the result of increased snow removal costs of $97,000; an increase in shopping center maintenance costs of $11,000; a decrease in utility costs of ($8,000) and an increase in insurance cost of $12,000. Land lease payments remained constant at $185,000 for 2002 and 2001. General and administrative expenses decreased $93,000, or 24%, to $475,000 in 2002 compared to $382,000 in 2001. The increase was primarily the result of increased compensation related expenses related to the expensing of certain wages previously capitalized and wage increases. General and administrative expenses as a percentage of rental income increased from 6.9% for 2001 to 8.6% for 2002. Depreciation and amortization increased $27,000, or 3%, to $979,000 in 2002 compared to $952,000 in 2001. The increase was the result of the development of two properties in 2001. Interest expense decreased $372,000, or 20%, to $1,478,000 in 2002, from $1,850,000 in 2001. The decrease in interest expense was the result of decreased interest rates on variable rate notes payable. Equity in net income of unconsolidated entities remained constant at $174,000 for 2002 and 2001. The Company's income before minority interest increased $119,000, or 6%, to $2,237,000 in 2002, from $2,118,000 in 2001 as a result of the foregoing factors. 11
AGREE REALTY CORPORATION PART I FUNDS FROM OPERATIONS Management considers Funds from Operations ("FFO") to be a supplemental measure of the Company's operating performance. FFO is defined by the National Association of Real Estate Investments Trusts, Inc. ("NAREIT") to mean net income computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains (or losses) from sales of depreciable operating property, plus real estate related depreciation and amortization, and after adjustments for unconsolidated entities in which the REIT holds an interest. FFO does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs. FFO should not be considered as an alternative to net income as the primary indicator of the Company's operating performance or as an alternative to cash flow as a measure of liquidity. The following tables illustrate the calculation of FFO for the three months ended March 31, 2002 and 2001: <TABLE> <CAPTION> Three Months Ended March 31, 2002 2001 --------------------------------------------------------- ----------------- ------------------- <S> <C> <C> Net income before minority interest $ 2,236,758 $ 2,118,416 Depreciation of real estate assets 955,072 931,056 Amortization of leasing costs 17,084 15,431 Amortization of stock awards 78,000 67,000 --------------------------------------------------------- ----------------- ------------------- FUNDS FROM OPERATIONS $ 3,286,914 $ 3,131,903 --------------------------------------------------------- ----------------- ------------------- WEIGHTED AVERAGE SHARES AND OP UNITS OUTSTANDING 5,119,578 5,090,416 --------------------------------------------------------- ----------------- ------------------- </TABLE> 12
AGREE REALTY CORPORATION PART I FORWARD-LOOKING STATEMENTS Management has included herein certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. When used, statements which are not historical in nature including the words "anticipate," "estimate," "should," "expect," "believe," "intend" and similar expressions are intended to identify forward-looking statements. Such statements are, by their nature, subject to certain risks and uncertainties. Risks and other factors that might cause such a difference include, but are not limited to, the effect of economic and market conditions; risks that the Company's acquisition and development projects will fail to perform as expected; financing risks, such as the inability to obtain debt or equity financing on favorable terms; the level and volatility of interest rates; loss or bankruptcy of one or more of the Company's major retail tenants; and failure of the Company's properties to generate additional income to offset increases in operating expenses. LIQUIDITY AND CAPITAL RESOURCES The Company's principal demands for liquidity are distributions to its stockholders, debt repayment, development of new properties and future property acquisitions. During the quarter ended March 31, 2002, the Company declared a quarterly dividend of $.46 per share. The dividend was paid on April 11, 2002, to holders of record on March 29, 2002. As of March 31, 2002, the Company had total mortgage indebtedness of $68,706,795 with a weighted average interest rate of 6.91%. Future scheduled annual maturities of mortgages payable for the years ending March 31 are as follows: 2003 - $2,028,078; 2004 - $2,243,033; 2005 - $2,402,609; 2006 - $30,451,396; and 2007 - $1,676,391. This mortgage debt is all fixed rate debt. In addition, the Operating Partnership has in place a $50 million line of Credit Facility (the "Credit Facility") which is guaranteed by the Company. The loan matures in August 2003 and can be extended by the Company for an additional three years. Advances under the Credit Facility bear interest within a range of one-month to six-month LIBOR plus 150 basis points to 213 basis points or the 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. As of March 31, 2002, $19,758,232 was outstanding under the Credit Facility bearing a weighted average interest rate of 3.26%. 13
AGREE REALTY CORPORATION PART I The Company also has in place a $5 million line of credit (the "Line of Credit"), which matures on April 30, 2002, and which the Company expects to renew for an additional 12-month period. The Line of Credit bears interest 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. The purpose of the Line of Credit is to provide working capital to the Company and fund land options and start-up costs associated with new projects. As of March 31, 2002, no amounts were outstanding under the Line of Credit. The Company's wholly owned subsidiaries have obtained construction financing of approximately $16,100,000 to fund the development of four retail properties. The notes require quarterly interest payments, based on a weighted average interest rate based on LIBOR, computed by the lender. The notes mature on October 16, 2002 and are secured by the underlying land and buildings. As of March 31, 2002, $14,896,962 was outstanding under these notes. The Company has received funding from an unaffiliated third party for the construction of certain of its Properties. Advances under this agreement bear no interest and are secured by the specific land and buildings being developed. As of March 31, 2002, $1,649,790 was outstanding under this arrangement. The Company intends to meet its short-term liquidity requirements, including capital expenditures related to the leasing and improvement of the Properties, through its cash flow provided by operations and the Line of Credit. Management believes that adequate cash flow will be available to fund the Company's operations and pay dividends in accordance with REIT requirements. The Company may obtain additional funds for future development or acquisitions through other borrowings or the issuance of additional shares of capital stock. The Company intends to incur additional debt in a manner consistent with its policy of maintaining a ratio of total debt (including construction and acquisition financing) to total market capitalization of 65% or less. 14
AGREE REALTY CORPORATION PART I The Company plans to begin construction of additional pre-leased developments and may acquire additional properties, which will initially be financed by the Credit Facility and Line of Credit. Management intends to periodically refinance short-term construction and acquisition financing with long-term debt and/or equity. Upon completion of refinancing, the Company intends to lower the ratio of total debt to market capitalization to 50% or less. Nevertheless, the Company may operate with debt levels or ratios which are in excess of 50% for extended periods of time prior to such refinancing. INFLATION The Company's leases generally contain provisions designed to mitigate the adverse impact of inflation on net income. These provisions include clauses enabling the Company to pass through to tenants certain operating costs, including real estate taxes, common area maintenance, utilities and insurance, thereby reducing the Company's exposure to increases in costs and operating expenses resulting from inflation. Certain of the Company's leases contain clauses enabling the Company to receive percentage rents based on tenants' gross sales, which generally increase as prices rise, and, in certain cases, escalation clauses, which generally increase rental rates during the terms of the leases. In addition, expiring tenant leases permit the Company to seek increased rents upon re-lease at market rates if rents are below the then existing market rates. 15
AGREE REALTY CORPORATION PART I ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to interest rate risk primarily through its borrowing activities. There is inherent rollover risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and the Company's future financing requirements. Mortgages payable - As of March 31, 2002 the Company had four mortgages outstanding. The first mortgage in the amount of $31,518,075 bears interest at 7.00%. The mortgage matures on November 15, 2005. The second mortgage in the amount of $7,019,934 bears interest at 7.00%. The mortgage matures on April 1, 2013 and is subject to a rate review after the 7th year (April 1, 2006). The third mortgage in the amount of $11,303,319 bears interest at 6.63%. The fourth mortgage in the amount of $18,865,467 bears interest at 6.90%. The mortgage matures January 1, 2020. Construction loans - As of March 31, 2002 the Company had Construction loans outstanding of $16,600,552. Under the terms of the construction loans the Company bears no interest rate risk. Notes Payable - As of March 31, 2002 the Company had $19,758,232 outstanding on its Lines-of-Credit which were subject to interest at a variable interest rate based on LIBOR. 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 annual increase in interest expense of approximately $65,000. 16
AGREE REALTY CORPORATION PART II OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) 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) (b) Reports on Form 8-K None 17
AGREE REALTY CORPORATION SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has fully caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AGREE REALTY CORPORATION /s/ RICHARD AGREE ----------------------------------------------- Richard Agree President and Chief Executive Officer /s/ KENNETH R. HOWE ----------------------------------------------- Kenneth R. Howe Vice-President - Finance and Secretary (Principal Financial Officer) Date: May 9, 2002 ----------------------------------------------- 18