UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31,June 30, 2003
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
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(Exact name of registrant as specified in its charter)
MARYLAND 38-3148187
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
31850 NORTHWESTERN HIGHWAY, FARMINGTON HILLS, MICHIGAN 48334
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(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|[X] [ ]
Indicate by check mark whether the Registrantregistrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No
|X|[X] [ ]
4,479,3456,434,345 Shares of Common Stock, $.0001 par value, were outstanding as of
May
12,August 14, 2003
AGREE REALTY CORPORATION
FORM 10-Q
INDEX
PART I: FINANCIAL INFORMATION PAGE
----
Item 1. Interim Consolidated Financial Statements
Consolidated Balance Sheets as of March 31,June 30, 2003 and December 31, 2002 33-4
Consolidated Statements of Income for the six months ended June 30, 2003 and 2002 5
Consolidated Statements of Income for the three months ended March 31,June 30, 2003 and 2002 56
Consolidated Statement of Stockholders' Equity for the threesix months ended March 31,June 30, 2003 67
Consolidated Statements of Cash Flows for the threesix months ended March 31,June 30, 2003 and 2002 78
Notes to Consolidated Financial Statements 89
Item 2. Management's Discussion and Analysis of Financial Condition and 10-16
Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 1417
Item 4. Controls and Procedures 1518
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 1619
Item 2. Changes in Securities 16and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 1619
Item 4. Submission of Matters to a Vote of Security Holders 1619
Item 5 Other Information 1619
Item 6. Exhibits and Reports on Form 8-K 1620
SIGNATURES 17
Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 1821
2
AGREE REALTY CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31,JUNE 30, December 31,
2003 2002
- -------------------------------------------------------------------------------------------------------- -------------
ASSETS
REAL ESTATE INVESTMENTS
Land $ 54,905,054 $ 53,177,464
Buildings 163,559,275163,668,782 155,536,789
Property under development 1,131,5761,909,997 2,271,413
- -------------------------------------------------------------------------------------------
219,595,905------------- -------------
220,483,833 210,985,666
Less accumulated depreciation (38,493,278)(39,527,249) (37,456,301)
- -------------------------------------------------------------------------------------------------------- -------------
NET REAL ESTATE INVESTMENTS 181,102,627180,956,584 173,529,365
CASH AND CASH EQUIVALENTS 185,043201,202 1,095,610
ACCOUNTS RECEIVABLE - TENANTS, net of allowance of
$200,000 and $185,000 for possible losses 386,677415,906 784,637
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED ENTITIES 274,757271,946 315,496
UNAMORTIZED DEFERRED EXPENSES
Financing 1,077,3951,030,583 1,117,253
Leasing costs 298,501291,345 307,746
OTHER ASSETS 960,410950,558 1,012,065
- -------------------------------------------------------------------------------------------------------- -------------
$ 184,285,410184,118,124 $ 178,162,172
======================================================================================================== =============
See accompanying notes to consolidated financial statements.
3
AGREE REALTY CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31,JUNE 30, December 31,
2003 2002
- ------------------------------------------------------------------------------------------------------------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
MORTGAGE PAYABLE $ 78,700,75278,071,649 $ 71,588,863
CONSTRUCTION LOANS 5,598,8635,585,413 5,612,313
NOTES PAYABLE 37,658,23237,458,232 38,083,232
DIVIDENDS AND DISTRIBUTIONS PAYABLE 2,473,3882,499,153 2,356,156
ACCRUED INTEREST PAYABLE 245,830241,299 249,706
ACCOUNTS PAYABLE
Operating 668,108836,433 1,179,273
Capital expenditures 177,238345,514 589,760
TENANT DEPOSITS 88,82982,516 93,138
- ------------------------------------------------------------------------------------------------------------------- -------------
TOTAL LIABILITIES 125,611,240125,120,209 119,752,441
- ------------------------------------------------------------------------------------------------------------------- -------------
MINORITY INTEREST 5,801,0895,831,345 5,787,007
- ------------------------------------------------------------------------------------------------------------------- -------------
STOCKHOLDERS' EQUITY
Common stock, $.0001 par value; 20,000,000 shares authorized,
448 445
4,479,345 and 4,448,531 shares issued and outstanding 448 445
Additional paid-in capital 65,027,522 64,506,772
Deficit (11,041,595)(10,840,106) (11,135,499)
- ------------------------------------------------------------------------------------------------------
53,986,375------------- -------------
54,187,864 53,371,718
Less: unearned compensation - restricted stock (1,113,294)(1,021,294) (748,994)
- ------------------------------------------------------------------------------------------------------------------- -------------
TOTAL STOCKHOLDERS' EQUITY 52,873,08153,166,570 52,622,724
- ------------------------------------------------------------------------------------------------------------------- -------------
$ 184,285,410184,118,124 $ 178,162,172
=================================================================================================================== =============
See accompanying notes to consolidated financial statements.
4
AGREE REALTY CORPORATION
CONSOLIDATED STATEMENTSTATEMENTS OF INCOME (UNAUDITED)
SIX MONTHS ENDED Six Months Ended
JUNE 30, 2003 June 30, 2002
---------------- -----------------
REVENUES
Minimum rents $ 12,511,193 $ 11,041,706
Percentage rents 51,060 43,597
Operating cost reimbursements 1,541,303 1,278,492
Other income 1,777 4,565
------------ ------------
TOTAL REVENUES 14,105,333 12,368,360
------------ ------------
OPERATING EXPENSES
Real estate taxes 1,031,557 895,235
Property operating expenses 1,119,003 826,167
Land lease payments 369,480 369,480
General and administrative 1,123,000 963,441
Depreciation and amortization 2,122,400 1,959,262
------------ ------------
TOTAL OPERATING EXPENSES 5,765,440 5,013,585
------------ ------------
INCOME FROM OPERATIONS 8,339,893 7,354,775
------------ ------------
OTHER INCOME (EXPENSE)
Interest expense, net (3,259,020) (3,023,125)
Equity in net income of unconsolidated entities 231,399 347,159
------------ ------------
TOTAL OTHER EXPENSE (3,027,621) (2,675,966)
------------ ------------
INCOME BEFORE MINORITY INTEREST 5,312,272 4,678,809
MINORITY INTEREST (694,311) (615,743)
------------ ------------
NET INCOME $ 4,617,961 $ 4,063,066
============ ============
EARNINGS PER SHARE - BASIC AND DILUTIVE $ 1.03 $ .91
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING - BASIC 4,479,345 4,446,031
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING - DILUTIVE 4,480,654 4,446,031
============ ============
See accompanying notes to consolidated financial statements.
5
AGREE REALTY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED Three Months Ended
MARCH 31,JUNE 30, 2003 March 31,June 30, 2002
- ----------------------------------------------------------------------------------------------------------------------- ------------------
REVENUES
Minimum rents $ 6,211,7856,299,408 $ 5,476,5305,565,176
Percentage rents 41,409 35,1969,651 8,401
Operating cost reimbursement 764,335 653,811reimbursements 776,968 624,681
Other income 1,726 3,907
- -----------------------------------------------------------------------------------------------------51 658
----------- -----------
TOTAL REVENUES 7,019,255 6,169,444
- -----------------------------------------------------------------------------------------------------7,086,078 6,198,916
----------- -----------
OPERATING EXPENSES
Real estate taxes 506,085 441,012525,472 454,223
Property operating expenses 662,484 548,654456,519 277,513
Land lease payments 184,740 184,740
General and administrative 556,597 475,005566,403 488,436
Depreciation and amortization 1,062,700 979,160
- -----------------------------------------------------------------------------------------------------1,059,700 980,102
----------- -----------
TOTAL OPERATING EXPENSES 2,972,606 2,628,571
- -----------------------------------------------------------------------------------------------------2,792,834 2,385,014
----------- -----------
INCOME FROM OPERATIONS 4,046,649 3,540,873
- -----------------------------------------------------------------------------------------------------4,293,244 3,813,902
----------- -----------
OTHER INCOME (EXPENSE)
Interest expense, net (1,584,105) (1,477,695)(1,674,915) (1,545,430)
Equity in net income of unconsolidated entities 118,831 173,580
- -----------------------------------------------------------------------------------------------------112,568 173,579
----------- -----------
TOTAL OTHER EXPENSE (1,465,274) (1,304,115)
- -----------------------------------------------------------------------------------------------------(1,562,347) (1,371,851)
----------- -----------
INCOME BEFORE MINORITY INTEREST 2,581,375 2,236,7582,730,897 2,442,051
MINORITY INTEREST 337,385 294,365
- -----------------------------------------------------------------------------------------------------(356,926) (321,378)
----------- -----------
NET INCOME $ 2,243,9902,373,971 $ 1,942,393
=====================================================================================================2,120,673
=========== ===========
EARNINGS PER SHARE - BASIC AND DILUTIVE $ .50.53 $ .44
=====================================================================================================.48
=========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING - BASIC 4,479,345 4,446,031
=====================================================================================================WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING - DILUTIVE 4,481,962 4,446,031
=========== ===========
See accompanying notes to consolidated financial statements.
56
AGREE REALTY CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
Unearned
Common Stock Additional Compensation -
------------------------------------------------- Paid-In Restricted
Shares Amount Capital Deficit Stock
- -------------------------------------------------------------------------------------------------------------------------------------------- ------------ ------------ ------------- --------------
BALANCE, January 1, 2003 4,448,531 $ 445 $ 64,506,772 $ (11,135,499)$(11,135,499) $ (748,994)
Issuance of shares under
Stock Incentive Plan 36,814 3 622,150 --- (456,300)
Shares redeemed under the (6,000) (101,400)
stock Incentive Plan - - --- -- --
Vesting of restricted stock - - - - 92,000-- -- -- -- 184,000
Dividends declared for the period
(2,150,086)
January 1, 2003 to March 31,June 30, 2003 - - - --- -- -- (4,322,568) --
Net income for the period
2,243,990
January 1, 2003 to March 31,June 30, 2003 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------- -- -- 4,617,961 --
--------- ------------ ------------ ------------ ------------
BALANCE, March 31,June 30, 2003 4,479,345 $ 448 $ 65,027,522 $(10,840,106) $ (11,041,595) $(1,113,294)
===================================================================================================================================(1,021,294)
========= ============ ============ ============ ============
See accompanying notes to consolidated financial statements.
67
AGREE REALTY CORPORATION
CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWS (UNAUDITED)
THREESIX MONTHS ENDED ThreeSix Months Ended
MARCH 31,JUNE 30, 2003 March 31,June 30, 2002
- --------------------------------------------------------------------------------------------------------------------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,243,9904,617,961 $ 1,942,3934,063,066
Adjustments to reconcile net income to net cash provided by
operating activitiesActivities
Depreciation 1,046,567 960,1882,090,134 1,921,318
Amortization 62,945 89,122
Stock-based compensation 92,000 78,000125,890 178,244
Stock based-compensation 184,000 156,000
Equity in net income of unconsolidated entities (118,831) (173,580)(231,399) (347,159)
Minority interests 337,385 294,365694,311 615,743
Decrease in accounts receivable 397,960 344,945368,731 486,635
Decrease (increase) in other assets 80,918 (84,861)82,098 (9,729)
Decrease in accounts payable (511,165) (405,482)
Decrease(342,840) (437,169)
Increase (decrease) in accrued interest (3,876) (16,155)(8,407) 12,492
Increase (decrease) in tenant deposits (4,309)(10,622) 30,983
- ---------------------------------------------------------------------------------------------------------------------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,623,584 3,059,918
- -----------------------------------------------------------------------------------------------------------7,569,857 6,670,424
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of real estate investments (including capitalized
(8,433,001) (512,624)
interest of $60,000$91,000 in 2003 and $45,000$59,000 in 2002) (9,152,653) (841,188)
Distributions from unconsolidated entities 118,831 173,580
- -----------------------------------------------------------------------------------------------------------231,399 347,159
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (8,314,170) (339,044)
- -----------------------------------------------------------------------------------------------------------(8,921,254) (494,029)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Mortgage proceeds 7,699,151 ---
Dividends and limited partners' distributions paid (2,356,156) (2,341,591)(4,829,544) (4,696,597)
Payments of mortgages payable (587,262) (502,542)(1,216,365) (1,019,539)
Line-of-credit proceedsnet borrowings (payments) (425,000)(625,000) (200,000)
PaymentsRepayment of payables for capital expendituresexpenditure payables (423,910) (401,229)
Redemption of restricted stock (101,400) (110,940)
Payments on construction loan (26,900) (26,900)
Payment of construction loan (13,450) (13,450)
Paymentsleasing costs (12,089) (23,630)
Payment for financing costs (6,954) (25,888)
Payment of leasing costs (5,000) (23,630)
- -----------------------------------------------------------------------------------------------------------(37,951)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 3,780,019 (3,619,270)
- -----------------------------------------------------------------------------------------------------------456,989 (6,516,786)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (910,567) (898,396)(894,408) (340,391)
CASH AND CASH EQUIVALENTS, beginning of period 1,095,610 1,101,861
- ---------------------------------------------------------------------------------------------------------------------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 185,043201,202 $ 203,465
===========================================================================================================761,470
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest (net of amounts capitalized) $ 1,541,1703,173,823 $ 1,449,199
===========================================================================================================2,875,402
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Construction loan paid with mortgage $ -- $ 3,181,670
Dividends and limited partners' distributions declared and unpaid $ 2,473,3882,499,153 $ 2,355,006
Real estate investments financed with accounts payable $ 177,238345,514 $ 296,013148,326
Shares issued under Stock Incentive Plan $ 622,153 $ 630,783
====================================================================================================================== ===========
See accompanying notes to consolidated financial statements.
78
AGREE REALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF The accompanying unaudited 2003 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, 2002 has been derived
from the audited consolidated financial statements at
that date. Operating results for the three months
ended March 31, 2003 are not necessarily indicative
of the results that may be expected for the year
ending December 31, 2003, 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 on
Form 10-K for the year ended December 31, 2002.
2. EARNINGS Earnings per share has been computed by dividing the
PER SHARE 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.
8- -------------------------------------------------------------------------------
1. BASIS OF The accompanying unaudited 2003 consolidated financial statements have been prepared in
PRESENTATION 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, 2002 has been derived from the
audited consolidated financial statements at that date. Operating results for the three months ended
June 30, 2003 are not necessarily indicative of the results that may be expected for the year
ending December 31, 2003, 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 on
Form 10-K for the year ended December 31, 2002.
2. EARNINGS PER SHARE Earnings per share has been computed by dividing the net 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".
3. SUBSEQUENT EVENT On August 4, 2003, the Company 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 the Company's credit facility.
9
AGREE REALTY CORPORATION
PART I
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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.
OVERVIEW
The CompanyAgree Realty Corporation ( the "Company") was established to continue to
operate and expand the retail property business of its predecessors. The
Company commenced its operations in April 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 86.93% interest as of March 31,June 30, 2003. The Company
is operating so as to qualify as a real estate investment trust ("REIT") for
federal income tax purposes.
On August 4, 2003, the Company 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 the Company's credit facility.
The Company has entered into sixteen (16)fifteen (15) leases with Kmart Corporation. Thirteen (13)Twelve (12) of
the Kmart stores are currently 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 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 20%19% of the Company's Annual Base
Rent as of December 31, 2002.June 30, 2003. Nine of the Kmart stores paid percentage rent in
addition to their minimum rent during 2002. As of March 31,June 30, 2003, all of the
Kmart stores in the Company's Portfolio arewere open and operating as Kmart
discount stores; however,stores.
In May 2003, Kmart Corporation emerged from the Company has been notified bybankruptcy proceeding which
it had initiated in January 2002. Pursuant to the confirmed plan of
reorganization, Kmart that it intends to close
one Company store during the second quarter of 2003.
On March 8, 2002, Kmart announced that it intended 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 listclosed a number of stores, to be
closed. On January 24, 2003, Kmart announcedincluding one that it intended to close an
additional 317 stores and emerge from bankruptcy by April 30, 2003. Kmart's
actual date of emergence from bankruptcy was
May 6, 2003. One (1) of the
Company's Kmart stores (a Community Shopping Center store) was included in this
list of stores to be closed. The store is located on our property in Lakeland, Florida. It is
anticipated that Kmart will vacatevacated the premises duringin
Lakeland, Florida in April 2003 and we are actively marketing the second quarter 2003.
Annual rental fromspace
formerly occupied by Kmart. Kmart's annual rent on this Kmart ofproperty was
approximately $489,000$480,000
10
AGREE REALTY CORPORATION
PART I
- -------------------------------------------------------------------------------
and Kmart's annual contribution under the lease for real estate taxes, insurance
and common area maintenance ofwas approximately $110,000 will cease on the actual date Kmart vacates the premises.
Management believes it will take between six to twelve months to release the
Kmart store.$110,000. Certain tenants in the
Lakeland, Florida community shopping center have co-tenancy clauses in their
leases which if the Kmart store closes, provide either for modification of their rental paymentsrent to be based on gross
sales or an option to terminate their lease shouldwhen the Kmart store closes, if we
are unable to obtain a replacement tenant not be obtained. Tenants in other Community Shopping
Centers in whichanchor tenant. As of June 30, 2003, none of
these tenants have indicated that they will exercise their option to terminate
their leases with us. We believe it will take between six to 12 months to re-let
the Kmart islocation. In connection with this re-letting of the anchor tenant,Kmart location, we
may have similar co-tenancy provisions
in their leases.to agree to make capital expenditures with respect to the property. In
addition, the Company haswe have agreed to rent reductions totalingaggregating $300,000 per year onunder
two other Kmart leases. The rent reductions areleases, for a five
(5) year period. Thethe stores receiving the rent reductions are located in Perrysburg, Ohio and Winter Garden,
Florida. There can be no assurance that
Kmart won't announce
9
AGREE REALTY CORPORATION
PART I
additional store closing inIn both cases, the future which may include some of the Company's
stores prior to their emergence from bankruptcy.rent reductions are for a 5-year periods.
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.
CRITICAL ACCOUNTING POLICIES
In the course of developing and evaluating accounting policies and
procedures, the Company used estimates, assumptions and judgements 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 the Company's 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.and insurance. The related revenue from tenant billings is
recognized in the same period the expense is recorded.
The Company elected to be taxed as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), commencing with the Company's 1994 tax year.
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
11
AGREE REALTY CORPORATION
PART I
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COMPARISON OF THREESIX MONTHS ENDED MARCH 31,JUNE 30, 2003 TO THREESIX MONTHS ENDED MARCH 31,JUNE 30, 2002
RentalMinimum rental income increased $735,000,$1,469,000, or 13%, to $6,212,000$12,511,000 in 2003,
compared to $5,477,000$11,042,000 in 2002. The increase was the result of rental
increases of $249,000$371,000 from existing properties; an increase of $394,000$908,000 due
to additional rent as a result of the acquisition of the joint venture
partner's interest in three Joint Venture Properties in 2002 and one Joint
Venture Property in 2003; and an increase of $92,000$190,000 from the development
of one property in 2002.
10
AGREE REALTY CORPORATION
PART I2002 and one property in 2003.
Percentage rental income increased $6,000,$7,000, or 18%17%, to $41,000$51,000 in 2003,
compared to $35,000$44,000 in 2002. The increase was primarily the result of
increased tenant sales.
Operating cost reimbursement,reimbursements, which representsrepresent 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,
increased $110,000,$263,000, or 17%21%, to $764,000$1,541,000 in 2003, compared to $654,000$1,278,000 in
2002. Operating cost reimbursementreimbursements increased due to the increase in thereal
estate taxes and property operating expenses as explained below.
Other income remained relatively constant at $2,000 in 2003, compared to
$4,000$5,000 in 2002.
Real estate taxes increased $65,000,$137,000, or 15%, to $506,000$1,032,000 in 2003 compared
to $441,000$895,000 in 2002. The increase is the result of general assessment
charges on the Company's properties and additional real estate taxes related
to a closed Kmart store.
Property operating expenses (shopping center maintenance, insurance and
utilities), which are reimbursed by the tenants, increased $113,000,$293,000, or 21%35%,
to $662,000$1,119,000 in 2003 compared to $549,000$826,000 in 2002. The increase was the
result of decreasedincreased snow removal costs of ($6,000);$19,000; an increase in shopping
center maintenance costs of $42,000;$118,000; an increase in utilityinsurance costs of
$6,000;$143,000 and an increase in insurance costutilities of $71,000.$13,000 in 2003 as compared to
2002.
Land lease payments remained constant at $185,000$369,000 for 2003 and 2002.
General and administrative expenses increased $82,000,$160,000, or 17%, to
$557,000$1,123,000 in 2003 compared to $475,000$963,000 in 2002. The increase was primarily
the result of increased compensation relatedcompensation-related expenses and property
management related expenses. General and administrative expenses as a
percentage of rental income increased from 8.6%8.7% for 2002 to 8.9% for 2003.
Depreciation and amortization increased $84,000,$163,000, or 9%8%, to $1,063,000$2,122,000 in
2003 compared to $979,000$1,959,000 in 2002. The increase was the result of the
development of one property in 2002;2002 and one property in 2003; the
acquisition of the joint venture partner's interest in three (3) Joint
Venture Properties in 2002 and one (1) Joint ventureVenture Property in 2003.
Interest expense increased $106,000,$236,000, or 7%8%, to $1,584,000$3,259,000 in 2003, from
$1,478,000$3,023,000 in 2002. The increase in interest expense was the result of
increased borrowings to fund acquisitions and developments.
12
AGREE REALTY CORPORATION
PART I
- -------------------------------------------------------------------------------
Equity in net income of unconsolidated entities decreased $55,000,$116,000, or 32%33%,
to $119,000$231,000 in 2003 compared to $347,000 in 2002 as a result of the
acquisition of the joint venture partner's interest in three Joint Venture
Properties in 2002 and one Joint Venture Property in 2003.
The Company's income before minority interest increased $633,000, or 14%, to
$5,312,000 in 2003 from $4,679,000 in 2002 as a result of the foregoing
factors.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 2003 TO THREE MONTHS ENDED JUNE 30,
2002
Minimum rental income increased $734,000, or 13%, to $6,299,000 in 2003,
compared to $5,565,000 in 2002. The increase was the result of rental
increases of $122,000 from existing properties; an increase of $514,000 due
to additional rent as a result of the acquisition of the joint venture
partner's interest in three Joint Venture Properties in 2002 and one Joint
Venture Property in 2003; and an increase of $98,000 from the development of
one property in 2002 and one property in 2003.
Percentage rental income increased $2,000, or 15%, to $10,000 in 2003,
compared to $8,000 in 2002. The increase was the result of increased tenant
sales.
Operating cost reimbursements increased $152,000, or 24%, to $777,000 in
2003, compared to $625,000 in 2002. Operating cost reimbursements increased
due to the increase in real estate taxes and property operating expenses as
explained below.
Other income remained relatively constant at $-0- in 2003, compared to
$1,000 in 2002.
Real estate taxes increased $71,000, or 16%, to $525,000 in 2003 compared to
$454,000 in 2002. The increase is the result of general assessment charges
on the Company's properties and additional real estate taxes related to a
closed Kmart store.
Property operating expenses (shopping center maintenance, insurance and
utilities), which are reimbursed by the tenants, increased $179,000, or 64%,
to $457,000 in 2003 compared $278,000 in 2002. The increase was the result
of increased snow removal costs of $25,000; an increase in shopping center
maintenance of $77,000; an increase in insurance costs of $71,000 and an
increase in utilities of $6,000.
Land lease payments remained constant at $185,000 for 2003 and 2002.
General and administrative expenses increased $78,000, or 16%, to $566,000
in 2003 compared to $488,000 in 2002. The increase was primarily the result
of an increase in compensation-related expenses and property management
expenses. General and administrative expenses as a percentage of rental
income increased from at 8.8% in 2002 to 9.0% in 2003.
Depreciation and amortization increased $80,000, or 8%, to $1,060,000 in
2003 compared to $980,000 in 2002. The increase was the result of the
development of one property in 2002 and one property in 2003 and the
acquisition of the joint venture partner's interest in three Joint Venture
Properties in 2002 and one Joint Venture Property in 2003.
Interest expense increased $130,000, or 8%, to $1,675,000 in 2003, from
$1,545,000 in 2002. The increase in interest expense was the result of
increased borrowings to fund acquisitions and developments.
13
AGREE REALTY CORPORATION
PART I
- -------------------------------------------------------------------------------
Equity in net income of unconsolidated entities decreased $61,000, or 35%, to
$113,000 in 2003 compared to $174,000 in 2002 as a result of the acquisition of
the joint venture partner's interest in three Joint Venture Properties in 2002
and one Joint Venture Property in 2003.
The Company's income before minority interest increased $344,000,$289,000, or 15%12%, to
$2,581,000$2,731,000 in 2003, from $2,237,000$2,442,000 in 2002 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 property, plus real estate
related depreciation and amortization. The Company calculates FFO using NAREIT's
definition. 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. In addition, our method of calculating FFO
may not be comparable to the methods used by other REITREITs and, accordingly may be
different from similarly titled measures reported by other companies.
The following tables illustrate the calculation of FFO and shows reconciling
items to income before minority interest for the six months and three months
ended March 31,June 30, 2003 and 2002:
ThreeSix Months Ended March 31,June 30, 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------- ---------- ----------
Net incomeIncome before minority interest $ 2,581,375 $ 2,236,758$5,312,272 $4,678,809
Depreciation of real estate assets 1,041,677 955,0722,080,347 1,911,045
Amortization of leasing costs 14,245 17,084
- ------------------------------------------------------------------------------------------------------28,490 34,168
---------- ----------
FUNDS FROM OPERATIONS $ 3,637,297 $ 3,208,914
======================================================================================================$7,421,109 $6,624,022
========== ==========
WEIGHTED AVERAGE SHARES AND OP UNITS OUTSTANDING 5,152,892- DILUTIVE 5,154,201 5,119,578
================================================================================================================ ==========
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.
12
Three Months Ended June 30, 2003 2002
- --------------------------- ---------- ----------
Income before minority interest $2,730,897 $2,442,051
Depreciation of real estate assets 1,038,670 955,973
Amortization of leasing costs 14,245 17,084
---------- ----------
FUNDS FROM OPERATIONS $3,783,812 $3,415,108
========== ==========
WEIGHTED AVERAGE SHARES AND OP UNITS OUTSTANDING - DILUTIVE 5,155,509 5,119,578
========== ==========
14
AGREE REALTY CORPORATION
PART I
- -------------------------------------------------------------------------------
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,June 30, 2003, the Company declared a quarterly
dividend of $.48$.485 per share. The dividend was paid on AprilJuly 15, 2003, to holders
of record on March 28,June 30, 2003.
As of March 31,June 30, 2003, the Company had total mortgage indebtedness of $78,700,752$78,071,649
with a weighted average interest rate of 6.90%. Future scheduled annual
maturities of mortgages payable for the years ending March 31June 30 are as follows:
2004 - $2,506,701;$2,550,052; 2005 - $2,760,417;$2,808,168; 2006 - $30,834,292;$30,622,398; 2007 - $2,086,140;$2,121,905; and
2008 - $2,228,198.$2,261,672. 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 loancredit
facility has a draw termination date in November 2003 and matures in August
20032006. During the period between termination and can be extended bymaturity, the Company for an additional
three years.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 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 Propertiesproperties which
are not otherwise encumbered and properties to be acquired or developed. As of
March 31,June 30, 2003, $36,758,232 was outstanding under the Credit Facility bearing a
weighted average interest rate of 2.92%2.78%.
The Company is currently in discussions with its lender regarding the further
extension of the termination date, the extension of the maturity date and other
terms of the credit facility. There can be no assurance that the Company will
receive the requested extensions or that the terms of the extensions will be
acceptable to the Company.
The Company also has in place a $5 million line of credit (the "Line of
Credit"), which matures on April 30, 2003,2004, 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,June 30, 2003, $900,000$700,000 was
outstanding under the Line of Credit at a rate of 3.75%3.50%.
15
AGREE REALTY CORPORATION
PART I
- -------------------------------------------------------------------------------
One of the Company's wholly ownedwholly-owned subsidiaries has obtained construction
financing of approximately $4,350,000 to fund the development of a retail
property. The note requires quarterly interest payments, at a weighted average
interest rate based on LIBOR, computed by the lender. The note matures on June
20, 2004 and is secured by the underlying land and buildings. As of March 31,June 30,
2003, $4,002,873 was outstanding under this note, bearing an interest rate of
3.70%2.75%.
The Company has received funding from an unaffiliated third party for the
construction of certain of its Properties.properties. Advances under this agreement bear no
interest and are secured by the specific land and buildings being developed. As
of March 31,June 30, 2003, $1,595,990$1,582,540 was outstanding under this arrangement.
13
AGREE REALTY CORPORATION
PART I
The Company intends to meet its short-term liquidity requirements, including
capital expenditures related to the leasing and improvement of the Properties,properties,
through its cash flow provided by operations and the Credit Facility. Management
believes that adequate cash flow will be available to fund the Company's
operations and pay dividends in accordance with REIT requirements. The Company
may obtain additional funds for future development or acquisitions through other
borrowings or the issuance of additional shares of capital stock. The Company
intends to incur additional debt in a manner consistent with its policy of
maintaining a ratio of total debt (including construction and acquisition
financing) to total market capitalization of 65% or less. The Company believes
that these financing sources will enable the Company to generate funds
sufficient to meet both its short-term and long-term capital needs.
The Company plans to begin construction of additional pre-leased developments
and may acquire additional properties, which will initially be financed by the
Credit Facility. Management has refinanced in the past and intends to
periodically refinance short-term construction and acquisition financing with
long-term debt and/or equity. Upon completion of any 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.
16
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 roll over risk for borrowings as they mature and
are renewed at current market rates. The extent of this risk is not quantifiable
or predictable because of the variability of future interest rates and the
Company's'Company's future financing requirements.
14
AGREE REALTY CORPORATION
PART I
The Company's 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.
Year ended March 31,
----------------------------------------June 30,
--------------------------------------------------
2004 2005 2006 2007 2008 THEREAFTER TOTAL
---- ---- ---- ---- ---- ---------- -----
FIXED RATE DEBT 2,507 2,761 30,834 2,086 2,228 38,285 78,7012,550 2,808 30,622 2,122 2,262 37,708 78,072
AVERAGE INTEREST RATE 6.90 6.90 6.83 6.83 6.83 6.83 ---
CONSTRUCTION LOANS --- 4,003 - - - 1,596 5,599-- -- -- 1,582 5,585
AVERAGE INTEREST RATE - 3.70 - - - - --- 2.75 -- -- -- -- --
VARIABLE RATE DEBT 1,1461,685 985 985 34,542 - - 37,65833,803 -- -- 37,458
AVERAGE INTEREST RATE 2.94 2.92 2.92 2.92 - - -2.78 2.78 2.78 2.78 -- -- --
The fair value (in thousands) is estimated at $78,500, $5,599$5,585 and $37,658$37,458 for
fixed rate debt, construction loans and variable rate debt, respectively.
The table above incorporates those exposures that exist as of March 31,June 30, 2003; it
does not consider those exposures or positions,position, which could arise after that
date. As a result, the Company's 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 instruments transactions for trading
or other speculative purposes or to manage interest rate exposure.
A 10% adverse change in interest rates on the portion of the Company's debt
bearing interest at variable rates would result in an increase in interest
expense of approximately $109,000.$101,000.
17
AGREE REALTY CORPORATION
PART I
- -------------------------------------------------------------------------------
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our Chief Executive Officer and Vice-President-Finance have reviewed and
evaluated the effectiveness of our disclosure controls and procedures (as
defined in Exchange Act Rules 240.13a-14(c)13a-15(e) and 15d-14(c))15d-15(e) as of a date within
90 days before the filing dateend of the
period covered by this quarterly report. Based on that evaluation, the Chief
Executive Officer and Vice-President-Finance have concluded that our current
disclosure controls and procedures are effective and timely, providing them with
material information relating to us required to be disclosed in the reports we
file or submit under the Exchange Act.
CHANGES IN INTERNAL CONTROLS
There have not been any significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation. We are not aware of any significant deficiencies or material
weaknesses, therefore no corrective actions were taken.
1518
AGREE REALTY CORPORATION
PART II
- -------------------------------------------------------------------------------
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
NoneOn May 5, 2003, the Company held its Annual Meeting of
Stockholders. The following were the results of the meeting:
The stockholders elected Farris Kalil and Gene Silverman as
Directors until the annual meeting of stockholders in 2006 or
until a successor is elected and qualified.
The vote was as follows: Farris Kalil Gene Silverman
------------- --------------
Votes cast for 4,279,830 4,278,560
Votes withheld 26,420 27,690
Not voting 173,095 173,095
Item 5. Other Information
None
19
AGREE REALTY CORPORATION
PART II
- -------------------------------------------------------------------------------
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)
10.1 Project Loan AgreementSixth amendment to amended and restated $5 million business
loan agreement dated as of JanuaryApril 30, 2003, between Modern WoodmanAgree Limited
Partnership and Standard Federal Bank.
10.2 Fourth amendment to $50 million Line of AmericaCredit agreement
dated July 11, 2003 among Agree Realty Corporation and
Phoenix Drive L.L.C.
99.1Standard Federal Bank, N.A.
31.1 Certification of Chief Executive Officer, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
Richard Agree, Chief Executive Officer
99.232.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
Kenneth R. Howe, Chief Financial Officer
(b) Reports on Form 8-K
o On July 24, 2003, the Company filed a Form 8-K under Item 7
and Item 12 furnishing its second quarter 2003 results of
operations and financial condition.
o On April 22, 2003, the Company filed ana Form 8-K disclosingunder Item 7
and Item 12 furnishing its first quarter 2003 results of
operations and financial condition.
1620
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 12,August 14, 2003
- -------------------------------------------------------
17--------------------------------------
21
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Richard Agree, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Agree Realty
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officer and I, are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation of the Evaluation Date;
5) The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6) The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 12, 2003 /s/ Richard Agree
- ------------------ -----------------
Name: Richard Agree
Title: President and Chief Executive
Officer
18
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kenneth R. Howe, certify that:
5. I have reviewed this quarterly report on Form 10-Q of Agree Realty
Corporation;
6. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period
covered by this quarterly report;
7. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
8. The registrant's other certifying officer and I, are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation of the Evaluation Date;
5) The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6) The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 12, 2003 /s/ Kenneth R. Howe
- ------------------ -------------------
Name: Kenneth R. Howe
Title: Vice President, Finance
19
10-Q
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
EX-10.1 Project Loan Agreement dated as of January 30, 2003
between Modern Woodman of America and Phoenix Drive
L.L.C.
EX-99.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
EX-99.2
Exhibit No. Description
----------- -----------
10.1 Sixth amendment to amended and restated $5 million business
loan agreement dated April 30, 2003, between Agree Limited
Partnership and Standard Federal Bank.
10.2 Fourth amendment to $50 million Line of Credit agreement
dated July 11, 2003 among Agree Realty Corporation and
Standard Federal Bank, N.A.
31.1 Certification of Chief Executive Officer, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
Richard Agree, Chief Executive Officer
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
Kenneth R. Howe, Chief Financial Officer