Item 1. BUSINESS
General
The Company is a self-administered, self-managed real estate investment trust (a "REIT") which develops, acquires, owns and operates properties which are primarily leased to major national and regional retail companies under net leases. As of December 31, 1996, the Company owned, either directly or through interests in joint ventures, a portfolio of 32 properties located in 12 states and containing an aggregate of approximately 3.1 million square feet of gross leasable area ("GLA"). The Properties consist of 13 neighborhood and community shopping centers and 19 free standing properties. As of December 31, 1996, 98% of GLA in the Portfolio was leased, and approximately 92% of the Company's base rental income was attributable to national and regional retailers. Such retailers include Kmart Corporation ("Kmart"), Borders, Inc., Roundy's Inc. ("Roundy's") and Fashion Bug (Charming Shoppes, Inc.) which, as of December 31, 1996, collectively represented approximately 70% of current base rental income. The Company was the developer of all 13 of the shopping centers and 14 of the 19 free-standing properties. As of December 31, 1996, the average age of the Properties was 5.5 years.
The Company was formed in December 1993, to continue and expand the retail property business founded in 1971 by its current Chairman of the Board of Directors and President, Richard Agree. Since 1971, the Company and its predecessors have specialized in building properties to suit for national and regional retailers who have signed long-term net leases prior to commencement of construction. The Company believes that this strategy provides it with a predictable source of income from primarily national and regional retail tenants in its existing properties and also provides opportunities for development of additional properties at attractive returns on investment, without the lease-up risks inherent in speculative development.
Upon completion of its initial public offering (the "IPO") in April 1994, the Company succeeded to the ownership of 17 properties which contained an aggregate of 2,376,000 square feet of space. Since the IPO, the Company has:
o Completed the development or acquisition of 14 properties leased to Borders, Inc. and other subsidiaries (collectively, "Borders") of Borders Group, Inc. ("BGI") which contain over 650,000 square feet. These properties include Borders' corporate headquarters and central administrative building in Ann Arbor, Michigan. BGI has guaranteed the leases on all 14 of these properties. Seven of these properties are owned directly by the Company and seven of these properties (the "Joint Venture Properties") are owned by entities formed with affiliates of Borders wherein the Company's economic interest ranges from 8% to 20% (the "Joint Ventures").
o Developed a Circuit City store in Boynton Beach, Florida, consisting of approximately 32,500 square feet, pursuant to a twenty-year net lease.
o Continued to operate both its initial portfolio and its new properties at leased rates of over 95% and without any tenant
defaults. Kmart, the Company's largest tenant, reported to the Company that the aggregate same-store sales at the stores leased from the Company increased over 6% from 1995 to 1996. Since the IPO, the only anchor tenant to vacate any of the Company's Properties was J. Byrons, which vacated its 51,868 square foot location in Lakeland, Florida. The Company has leased such location to Best Buy Company, at an increased rental rate for a term which expires in January 2013.
o Announced results for the fourth quarter and year ended December 31, 1996, which included Funds from Operations (as hereafter defined) of $1,951,000 and $7,076,000 for the quarter and the year, respectively, or an increase of 18% and 10% respectively, from the same periods in 1995; and net income for the quarter and the year of $1,382,000 and $3,734,000 respectively, or an increase of 65% and 15%, respectively, over the same periods in 1995.
The Company is operated under the direction of Richard Agree, Chairman of the Board and President, and Kenneth R. Howe, Vice President, Finance. Messrs. Agree and Howe have an combined 35 years experience in the construction, management, leasing and disposition of shopping center properties.
Objectives and Strategies
Objectives
The Company's primary objectives are (i) to realize steady and predictable cash flows through the ownership of high quality properties leased primarily to national and regional retailers, and (ii) to increase Funds from Operations per share through the development or acquisition of additional properties. The Company presently intends to achieve these objectives by implementing the growth, operating and financial strategies outlined below.
Growth and Operating Strategies
In seeking to attain these objectives, the Company has applied and intends to continue to apply the same strategies that have guided its principals during the past twenty-six years. These strategies include the following:
o Developing or acquiring each property with the objective of holding it for long-term investment value.
o Developing or acquiring properties in what the Company considers to be attractive long term locations. Such locations typically have (i) convenient access to transportation arteries with traffic count that is higher than average for the local market; (ii) concentrations of other retail proprieties and (iii) demographic characteristics which are attractive to the retail tenant which will lease the property upon completion.
o Generally, purchasing land and beginning development of a property only upon the execution of a lease with a national or regional retailer on terms which provide a return on estimated cost which is attractive relative to the Company's cost of capital.
o Directing all aspects of development, including construction, design, leasing and management. Property management and the majority of its leasing activities are handled directly by Company personnel. The Company believes that this approach to development and management enhances the ability of the Company to develop and maintain assets of high construction quality which are designed, leased and maintained to maximize long-term value and enables it to operate efficiently.
The Company believes that the relationships established by its principals with national and regional retailers as well as the financing relationships its principals have developed with lenders provide it with an advantage in achieving its objectives.
Financing Strategy
As of December 31, 1996, the Company's ratio of indebtedness to market capitalization was 54%. The Company intends to maintain a ratio of total debt (including construction and acquisition financing) to market capitalization of 65% or less. The Company plans to begin construction of additional pre-leased developments and may acquire additional properties which will initially be financed by its 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.
The Company may from time to time re-evaluate its borrowing policies in light of then current economic conditions, relative costs of debt and equity capital, market value of properties, growth and acquisition opportunities and other factors. However, there is no contractual limit on the Company's ratio of debt to total market capitalization and, accordingly, the Company may modify its borrowing policy and may increase or decrease its ratio of debt to market capitalization.
Tax Status
The Company has operated and intends to operate in a manner to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. In order to maintain qualification as a REIT, the Company must distribute at least 95% of its real estate investment trust income and meet certain other asset and income tests. Additionally, ownership of the Company, directly or constructively, by any single person is limited to 9.8% of the total number of outstanding shares, subject to certain exceptions. As a REIT, the Company is not subject to federal income tax with respect to that portion of its income which meets certain criteria and is distributed annually to the stockholders.
Competition
The Company faces competition in seeking properties for acquisition and tenants who will lease space in these properties from insurance companies, credit companies, pension funds, private individuals, investment companies and other REITs, many of which have greater financial and other resources than the Company. There can be no
assurance that the Company will be able to successfully compete with such entities in its development, acquisition and leasing activities in the future.
Potential Environmental Risks
Investments in real property create a potential for environmental liability on the part of the owner or operator of such real property. If hazardous substances are discovered on or emanating from any of the Properties, the owner or operator of the property (including the Company) may be held strictly liable for all costs and liabilities relating to such hazardous substances. The Company has had a Phase I environmental study (which involves inspection without soil sampling or ground water analysis) conducted on each Property by independent environmental consultants. Furthermore, the Company has adopted a policy of conducting a Phase I environmental study on each property it acquires.
The Phase I environmental studies conducted by the Company have not revealed the existence of any hazardous substance or environmental liability on the Properties. In addition, the management of the Company has no reason to believe that any hazardous substances exist on such Properties in violation of any applicable laws; however, no assurance can be given that such substances are not located on any of the Properties. The Company presently carries no insurance coverage for the types of environmental risks described above.
The Company believes that it is in compliance in all material respects with all Federal, state and local ordinances and regulations regarding hazardous or toxic substances. The Company has not been notified by any governmental authority of any noncompliance, liability or other claim in connection with any of the Properties.
Employees
As of March 15, 1997, the Company employed eight persons. Employee responsibilities include accounting, construction, leasing, property coordination and administrative functions for the Properties. The Company's employees are not covered by a collective bargaining agreement and the Company considers its employee relations to be satisfactory. The Company's headquarters are located at 31850 Northwestern Highway, Farmington Hills, MI 48334 and its telephone number is (810) 737-4190.
Recent Developments
On January 24, 1997 the Company repaid $4,221,283 of construction loans. Such funds were paid from the Company's Credit Facility (defined below).
On February 26, 1997 the Company repaid $8,518,615 of construction loans. Such funds were paid from the Company's Credit Facility (defined below).
Item 2.
Item 2. PROPERTIES
The Properties consist of 13 neighborhood and community shopping centers and 19 free standing properties. As of December 31, 1996, 98% of GLA in the Portfolio was leased, and approximately 92% of the Company's base rental income was attributable to, national and regional retailers. Such retailers include Kmart, Borders, Roundy's and Fashion Bug which, at December 31, 1996, collectively represented approximately 70% of current base rental income.
A substantial portion of the Company's income consists of rent received under net leases. Most of the leases provide for the payment of fixed base rentals monthly in advance and for the payment by tenants of a pro rata share of the real estate taxes, insurance, utilities and common area maintenance of the shopping center as well as payment to the Company of a percentage of such tenant's sales. However the payments of percentage rents to the Company historically have not been material and the Company does not anticipate that they will become material in the future. Although a majority of the leases require the Company to make roof and structural repairs as needed, a number of leases place that responsibility on the tenant. The Company's management places a strong emphasis on sound construction and maintenance on its properties.
Annualized Base Rent of the Company's Properties
The following is a breakdown of Base Rents in place at December 31, 1996 for each property type of retail tenant:
As of December 31, 1996, 98% of the Portfolio was leased and approximately 92% of the Company's base rental income was attributable to national and regional retailers under long-term leases. On December 31, 1996 the average annualized base rent per square foot of the Portfolio was $6.39.
Four of the Company's largest tenants of are Kmart, Borders, Inc., Roundys, Inc. and Fashion Bug (Charming Shoppes). The annualized base rental income for these tenants, (including the Company's proportionate share of the annual base rent for the Joint Venture properties) as of December 31, 1996, is as follows:
Community Shopping Centers
Thirteen of the Company's properties are Community Shopping Centers ranging in size from 20,000 to 228,476 square feet of GLA. The centers are located in 5 states as follows: Florida (2), Illinois (1), Kentucky (1), Michigan (6) and Wisconsin (3). The location, general character and primary occupancy information with respect to the community shopping centers at December 31, 1996 are set forth below:
Free-Standing Properties
Nineteen of the Properties are free-standing properties net leased to either A&P (1), Borders (14), Circuit City Stores (1), or Kmart (3), which in the aggregate comprise approximately 1,000,000 square feet. The free-standing properties range in size from 15,844 to 226,000 square feet of GLA and are located in the following states: California (1), Florida (3), Indiana (1), Kansas (1), Michigan (5), Nebraska, (2), Ohio (2), Oklahoma (3) and Pennsylvania (1). Included in the Company's 19 retail properties are seven Joint Venture Properties in which the Company owns interests ranging from 8% to 20% and 12 wholly owned properties. The Company's twelve (12) wholly owned free-standing properties provide $5,720,378 of annualized base rent at an average base rent per square foot of $10.00. The location, general character and primary occupancy information with respect to the wholly-owned free-standing properties are set forth in the following table:
Joint Venture Properties
During 1996, the Company developed or acquired seven free-standing Properties which are leased to Borders, including Borders' corporate headquarters, its central administrative building and Properties operated as Borders Books and Music. Each of these Properties is owned by a separate limited liability company or a limited partnership which is owned jointly by the Company and an affiliate of Borders. The Company's economic interest in the Joint Ventures ranges from 8% to 20%. The financing for the development of the Joint Venture Properties was provided through a financing facility established by Borders and its affiliates (the "Borders Financing Facility").
The lease between Borders and each of the Joint Ventures has a term expiring November 21, 2000, unless the Borders Financing Facility is extended or earlier terminated. At any time during the term of the lease, Borders has the right to refinance the Property or to purchase the Property for various percentages of total project costs, provided that, prior to such refinancing or purchase, the Company may elect to provide alternative financing for the Property or purchase the Property and purchase the interest of the Borders' affiliate in the Joint Venture. In the event the Company elects to provide financing or to purchase the Property, and is subsequently unable to obtain the requisite financing or in the event that the Company defaults in its development obligations to the Joint Venture, Borders may purchase the Property. If the Company provides refinancing or purchases the Property, the Company will be required to acquire the interest of the Borders' affiliate in the Joint Venture, and Borders and the Joint Venture will enter into a new lease providing for a term of 20 years, with four five-year extension options.
Under certain circumstances, the Company may elect to allow Borders to place long-term financing on such Properties, in which case, the Company will maintain its current interest in the Joint Venture and become the sole equity member of the entity which owns such Property. In such a circumstance, the Company will own the Property subject to a first mortgage loan which could exceed 90% of the property's estimated value, and lease payments received by the Company would be adjusted to reflect Borders' financing.
Prior to one of the financing transactions discussed above, the Company's investment in the seven Joint Venture properties is expected to provide in excess of $600,000 annualized base rent. Of this amount, the Company estimates that approximately $116,000 is variable based on short-term financing. Under certain circumstances relating to refinancing of such assets, the rents paid pursuant to such leases are subject to adjustment. The following table provides additional information on the Joint Venture Properties.
Major Tenants
The following table sets forth certain information with respect to the Company's major tenants:
Fifteen of the Properties are anchored by Kmart, a publicly traded international retailer with over 2,100 stores. Kmart's principal business is general merchandise retailing through a chain of department stores and it is one of the world's largest retailers based on sales volume. The Company derived approximately 31% of its annual base rental income for the year ended December 31, 1997 from, and approximately 39% of the Company's future minimum rentals are attributable to, Kmart.
BGI, a publicly-traded company, is the country's second largest retailers of books, music and other informational, educational and entertainment products. Two of BGI's subsidiaries, Borders, Inc. and Walden Books, Co., Inc. together operate in over 1,000 locations, serving all 50 states. The Company derived approximately 26% of its total average annual base rental income for the year ended December 31, 1996 from, and approximately 31% of the Company's future minimum rentals are attributable to, Borders.
Roundy's and its subsidiaries are engaged principally in the wholesale distribution of food and non-food products to supermarkets and warehouse food stores. The Company derived approximately 10% of its
annual base rental income from, and approximately 11% of the Company's future minimum rentals are attributable to, Roundy's.
Charming Shoppes, Inc. operates, through its subsidiaries, a chain of women's specialty clothing stores in over 40 states. Its retail properties operate under the names Fashion Bug and Fashion Bug Plus. The Company derived approximately 3% of its annual base rental income for the year ended December 31, 1996 from, and approximately 1% of the Company's future minimum rental are attributable to, Charming Shoppes, Inc.
Lease Expirations
The following table shows lease expirations for the next 10 years for the Company's community shopping centers and wholly owned free-standing properties, assuming that none of the tenants exercise renewal options.
Leases on the seven Joint Venture Properties are typically for an initial term through November 2000. In the event a refinancing is consummated, Borders is required to enter into a twenty year net lease with a fixed lease rate.
Item 3.
Item 3. LEGAL PROCEEDINGS
The Company is not presently involved in any litigation nor, to management's knowledge, is any litigation threatened against the Company, except for routine litigation arising in the ordinary course of business which is expected to be covered by the Company's liability insurance.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter of 1996.
Item 5.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange under the symbol ADC. The following table sets forth the high and low sales prices of the Common Stock, as reported on the New York Stock Exchange Composite Tape, and the dividends declared per share of Common Stock by the Company for each calendar quarter in the last two fiscal years. Dividends were paid in the periods immediately subsequent to the periods in which such dividends were declared.
At December 31, 1996, there were 2,649,475 shares of Common Stock issued and outstanding which were held by approximately 216 stockholders of record. The stockholders of record do not reflect persons or entities who held their shares in nominee or "street" name.
The Company intends to continue to declare quarterly dividends to its stockholders. However, distributions by the Company are determined by the Board of Directors and will depend on a number of factors, including the amount of Funds from Operations, the financial and other condition of its properties, its capital requirements, the annual distribution requirements under the provisions of the code applicable to REIT"s and such other factors as the Board of Directors deems relevant.
During the year ended December 31, 1996, there were no sales of unregistered securities by the Company, except the grant under the Company's 1994 Stock Incentive Plan of 11,290 shares of restricted stock to certain employees of the Company. Such shares vest in equal annual installments over a five-year period from the date of the grant, but entitle the holder thereof to receive dividends from the date of the grant.
Item 6.
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information for the Company and the Agree Predecessors on a historical basis and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and all of the financial statements and notes thereto included elsewhere in the Report. The balance sheet data for December 31, 1992 through December 31, 1996 and operating data for each of the periods presented were derived from audited financial statements of the Company and the Agree Predecessors.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANYALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company was established to continue to operate and expand the retail property business of its predecessors. The Company commenced its operations on April 22, 1994 with the sale of 2,500,000 shares of common stock. The net cash proceeds to the Company from the completion of this IPO were approximately $45.4 million which were used primarily to reduce outstanding indebtedness, pay stock issuance costs and establish a working capital reserve.
The assets of the Company are held by, and all operations conducted through Agree Limited Partnership, (the "Operating Partnership") of which the Company is the sole general partner which held an 80.59% interest as of December 31, 1996. The Company is operating so as to qualify as a real estate investment trust ("REIT") for federal income tax purposes.
The following should be read in conjunction with the Consolidated Financial Statements of Agree Realty Corporation and the Combined Financial Statements of the Agree Predecessors, including the respective notes thereto, which are included elsewhere in this Form 10-K.
Comparison of Year Ended December 31, 1996 to Year Ended December 31, 1995
Rental income increased $2,514,000, or 21%, to $14,450,000 in 1996, compared to $11,936,000 in 1995. The increase was the result of the development and acquisition of five properties in 1996 and the development of three properties in the fourth quarter of 1995.
Operating cost reimbursements, which represent additional rent required by substantially all of the Company's leases to cover the tenants' proportionate share of property operating expenses, increased $90,000, or 5%, to $1,761,000 in 1996, compared to $1,671,000 in 1995. Operating cost reimbursements increased due to the increase in real estate taxes and property operating expenses from 1995 to 1996 as explained below.
Management fees and other income remained relatively constant at $81,000 in 1996 versus $92,000 in 1995.
Real estate taxes increased $49,000, or 4%, to $1,169,000 in 1996 versus $1,120,000 in 1995. The increase is the result of general assessment increases relating to the shopping center properties and the addition of new properties.
Property operating expenses (shopping center maintenance, insurance and utilities) increased $109,000, or 12%, to $980,000 in 1996 versus $871,000 in 1995. The increase was the result of increased snow removal costs of $26,000; an increase in shopping center maintenance costs of $95,000; an increase in utility costs of $8,000 and a decrease in insurance costs of $20,000 in 1996 versus 1995.
Land lease payments increased $280,000 to $336,000 in 1996 versus $56,000 in 1995 as a result of the acquisition of a ground lease of a free standing property in Aventura, Florida.
General and administrative expenses increased by $139,000, or 14%, to $1,105,000 in 1996 versus $966,000 in 1995. The increase was primarily the result of an increase in compensation related expenses of $24,000; increases in state franchise and income taxes of $40,000; additional administrative expenses in connection with its secured line of credit of $25,000 and increased expenses in connection with the management of the Company's properties of $50,000. General and administrative expenses as a percentage of rental income decreased from 8.1% for 1995 to 7.6% for 1996.
Depreciation and amortization increased $303,000, or 13%, to $2,620,000 in 1996 versus $2,317,000 in 1995. The increase was the result of the completion of eight new properties in late 1995 and 1996.
Interest expense increased $1,766,000, or 41%, to $6,101,000 in 1996, from $4,335,000 in 1995. The increase in interest expense was the result of the Company financing the development and acquisition of eight new properties in late 1995 and 1996.
The Company received $510,000 of development fee income in 1996 in connection with the development of four Joint Venture Properties. There was no development fee income in 1995. The above amount was not included in the Company's calculation of Funds from Operations, due to the non-recurring nature of this type of income.
The Company recognized income of $85,000 on the sale of a parcel of land in 1996. There was no land sale gains in 1995.
Equity in net income of unconsolidated entities represents the Company's share of the net income of $59,000, from the seven Joint Ventures formed for the purpose of acquiring and developing the single tenant properties for Borders. These entities were not in existence during the year ended December 31, 1995.
The Company's income before minority interest increased $601,000 as a result of the foregoing factors.
Comparison of Year ended December 31, 1995 to Year ended December 31, 1994
Rental income increased $221,000, or 2%, to $11,936,000 in 1995, compared to $11,715,000 in 1994. The increase was the result of $237,000 from the addition of three new properties in 1995, $49,000 from periodic rental increases that came into effect during 1995 and a decrease of $65,000 due primarily to the releasing of tenant space in one of the Company's Florida shopping centers.
Operating cost reimbursements increased $83,000, or 5%, to $1,671,000 in 1995, compared to $1,588,000 in 1994. The increase in operating cost reimbursements resulted from the increase in real estate taxes and property operating expenses from 1994 to 1995 as explained below.
Management fees and other income increased $35,000 to $91,000 in 1995 versus $56,000 in 1994.
Real estate taxes increased $15,000, or 1%, to $1,121,000 in 1995 versus $1,106,000 in 1995. The increase is the result of general assessment increases.
Property operating expense increased $107,000, or 14%, to $871,000 in 1995 versus $764,000 in 1994. The increase was the result of an increase in snow removal costs of $96,000 as a result of heavy snowfalls in Michigan and Wisconsin during the fourth quarter of 1995; an increase in property repairs of $13,000; an increase in utility costs of $3,000 and a decrease in insurance expense of $5,000.
Land lease payments remained the same at $56,000 for 1995 and 1994.
General and administrative expenses increased $139,000, or 16%, to $1,022,000 in 1995 versus $883,000 in 1994. This increase is primarily the result of costs associated with being a public company for a full year. General and administrative expenses as a percentage of rental income increased from 7.1% in 1994 to 8.1% in 1995.
Depreciation and amortization increased $10,000, to $2,317,000 in 1995 from $2,307,000 in 1994. The increase reflects depreciation and amortization on properties developed in 1995.
Interest expense decreased $1,221,000, or 22%, to $4,335,000 in 1995, from $5,556,000 in 1994. The decrease in interest expense results primarily from the prepayment and refinancing of the Company's debt in connection with the IPO.
Other income (excluding reorganization costs) decreased $205,000 as a result of a decrease in development fee income of $85,000 and a decrease in gain on land sale of $120,000.
Reorganization costs of $494,000 were incurred during 1994 in connection with certain property and related mortgage transfers. These costs were associated with the transfer of the properties from the Agree Predecessors to the Company in connection with the IPO. There were no reorganization costs in 1995.
There was an extraordinary item in 1994 of $2,139,000 attributable to prepayment penalties and the write-off of deferred finance charges on the indebtedness which was repaid with the proceeds of the IPO. There were no extraordinary items in 1995.
The Company's income before minority interest increased $3,717,000 as a result of the foregoing factors.
Funds From Operations
Management considers Funds from Operations ("FFO") to be a supplemental measure of the Company's operating performance. FFO is defined by the National Association of Real Estate Investment Trusts, Inc. ("NAREIT") to mean net income computed in accordance with Generally Accepted Accounting Principals ("GAAP"), excluding gains (or loses) from debt restructuring and sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. FFO does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs. FFO should not be considered as an alternative to net income as the primary indicator of the Company's operating performance or as an alternative to cash flow as a measure of liquidity.
The following table illustrates the calculation of FFO for the years ended December 31, 1996 and 1995:
FFO increased $688,000, or 11%, for the year ended December 31, 1996, to $7,076,000. The increase in FFO is primarily the result of the development and acquisition of five properties in 1996 and the development of three properties in the fourth quarter of 1995.
Liquidity and Capital Resources
The Company's principal demands for liquidity are distributions to its stockholders, debt repayment, development of new properties and future property acquisitions.
During the quarter ended December 31, 1996, the Company declared a quarterly dividend of $.45 per share. The dividend was paid on January 6, 1997 to holders of record on December 23, 1996.
As of December 31, 1996, the Company had total mortgage indebtedness of $53,663,999 with a weighted average interest rate of 7.61%. Future scheduled annual maturates of mortgages payable for the years ending December 31 are as follows: 1997 - $357,946; 1998 - $421,123; 1999 - $10,679,397; 2000 - $969,964; 2001 - $1,046,875. This mortgage debt is all fixed rate debt with the exception of $2,375,000 which bears interest at one half percent over the prime rate.
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 November, 1998 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 200 basis points to 263 basis points or the Bank's prime rate plus 37 basis points to 75 basis points, at the option of the Company, based on certain factors such as debt to property value and debt service coverage. The Credit Facility is used to fund property acquisitions and development activities and is secured by all of the Company's existing properties which are not otherwise encumbered and properties to be acquired or developed. As of December 31, 1996, $20,746,937 was outstanding under the Credit Facility.
The Company also has in place a $5 million line of credit (the "Line of Credit," which matures in September 1997, and which the Company expects to renew for an additional 12 month period). The line bears interest at the bank's prime rate or 225 basis points in excess of the one month LIBOR rate at the option of the Company. The purpose of the line is to provide working capital to the Company and fund land options and start-up costs associated with new projects. As of December 31, 1996, $2,869,445 was outstanding under this Line of Credit.
The Company has received funding from an unaffiliated third party for the construction of certain of its Properties. Advances under this arrangement bear no interest and are required to be repaid within sixty (60) days after the date construction has been completed. The advances are secured by the specific land and buildings being developed. As of December 31, 1996 $10,616,936 was outstanding under this arrangement.
In November 1996, the Company completed development of two properties which added 61,061 square feet to the Company's portfolio. The properties are located in Monroeville, Pennsylvania and Boynton Beach, Florida. The development of these retail projects is expected to have a positive effect on cash generated by operating activities and Funds from Operations.
The Company intends to meet its short-term liquidity requirements, including capital expenditures related to the leasing and improvement of the Properties, through its cash flow provided by operations and the Line of Credit. Management believes that adequate cash flow will be available to fund the Company's operations and pay dividends in accordance with REIT requirements. The Company may obtain additional funds for future development or acquisitions through other borrowings or the issuance of additional shares of Capital Stock. The Company intends to incur additional debt in a manner consistent with its policy of maintaining a ratio of total debt (including construction and acquisition financing) to total market capitalization of 65% or less.
The Company plans to begin construction of additional pre-leased developments and may acquire additional properties, which will initially be financed by its 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.
Item 8
Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are listed in the Index to Financial Statements and Financial Statement Schedules appearing on Page of this Form 10-K.
Item 9
Item 9 CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL DISCLOSURE
During the Company's last two fiscal years, there have been no changes in the independent accountants nor disagreements with such accountants as to accounting and financial disclosures of the type required to be disclosed in this Item 9.
PART III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference to the Company's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the year covered by this Form 10-K with respect to its Annual Meeting of Stockholders to be held on May 12, 1997.
Item 11.
Item 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to the Company's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the year covered by this Form 10-K with respect to its Annual Meeting of Stockholders to be held on May 12, 1997.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to the Company's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the year covered by this Form 10-K with respect to its Annual Meeting of Stockholders to be held on May 12, 1997.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to the Company's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the year covered by this Form 10-K with respect to its Annual Meeting of Stockholders to be held on May 12, 1997.
PART IV
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report
(1)(2) The financial statements indicated by Part II, Item 8, Financial Statements and Supplementary Schedule.
(3) Exhibits
3.1 Articles of Incorporation and Articles of Amendment of the Company (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-11 (Registration Statement No. 33-73858, as amended ("Agree S-11")) 3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.3 to Agree S-11) 10.1 * Loan Modification Agreement, dated April 22, 1994, by and among Shawano Plaza, Plymouth Commons, Chippewa Commons and Nationwide Life Insurance Company 10.2 * Loan Modification Agreement, dated April 22, 1994, by and among Rapids Associates, Marshall Plaza Phase Two, Petoskey Town Center, Charlevoix Commons and Nationwide Life Insurance Company 10.3 Modification Agreement, dated as of March 28, 1994, by and between North Lakeland Plaza and the Travelers Indemnity Company (incorporated by reference to Exhibit 4.2 to Agree S-11) 10.4 Loan Agreement, dated August 19, 1992, by and among Richard Agree, Edward Rosenberg and Michigan National Bank (incorporated by reference to Exhibit 4.3 to Agree S-11) 10.5 Loan Agreement dated March 7, 1990, and Modification of Mortgage and Security Agreement, dated July 10, 1990, by and between Winter Garden Plaza and American United Life Insurance Company (incorporated by reference to Exhibit 4.4 to Agree S-11) 10.6 * First Amended and Restated Agreement of Limited Partnership of Agree Limited Partnership, dated as of April 22, 1994, by and among the Company, Richard Agree, Edward Rosenberg and Joel Weiner 10.7 Amended and Restated Registration Rights Agreement, dated July 8, 1994 by and among the Company, Richard Agree, Edward Rosenberg and Joel Weiner (incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994 (the "1994 Form 10-K")) 10.8 * 1994 Stock Incentive Plan of the Company 10.9 * Management Agreement, dated April 22, 1994, by and among Mt Pleasant Shopping Center, Angola Plaza, Shiloh Plaza and the Company 10.10 * Contribution Agreement, dated as of April 21, 1994, by and among the Company, Richard Agree, Edward Rosenberg and the co-partnerships named therein 10.11 * Employment Agreement, dated April 22, 1994, by and between the Company and Richard Agree
10.12 * Employment Agreement, dated April 22, 1994, by and between the Company and Edward Rosenberg 10.13 * Agree Realty Corporation Profit Sharing Plan
10.14 Business Loan Agreement by and between Agree Limited Partnership and Michigan National Bank (incorporated by reference to Exhibit 10.8 to the 1994 10-K) 10.15 Business Loan Agreement, dated as of September 21, 1995, by and between Agree Limited Partnership and Michigan National Bank (incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995 (the "1995 10-K")) 10.16 Line of Credit Agreement by and among Agree Limited Partnership, the Company, the lenders parties thereto, and Michigan National Bank as Agent (incorporated by reference to Exhibit 10.10 to the 1995 10-K) 27.1 * Financial Data Schedule
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(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Company during the quarter ending December 31, 1996.
SIGNATURES
PURSUANT to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, duly authorized.
AGREE REALTY CORPORATION
By: /s/ Richard Agree ----------------------------- Name: Richard Agree President and Chairman of the Board of Directors Date: March 28, 1997
PURSUANT to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 28th day of March, 1997.
By: /s/Richard Agree By: /s/ Farris G. Kalil ----------------------------- --------------------------- Richard Agree Farris G. Kalil President and Chairman of the Director Board of Directors (Principal Executive Officer)
By: /s/ Michael Rotchford --------------------------- Michael Rotchford Director
By: /s/Kenneth R. Howe ----------------------------- Kenneth R. Howe Vice President, Finance By: /s/ Ellis G. Wachs and Secretary --------------------------- (Principal Financial and Ellis G. Wachs Accounting Officer) Director
By: /s/ Gene Silverman --------------------------- Gene Silverman By: /s/Edward Rosenberg Director ----------------------------- Edward Rosenberg Director and Senior Vice President
Agree Realty Corporation and the Agree Predecessors
Index
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Report of Independent Certified Public Accountants
Financial Statements Consolidated Balance Sheets of the Company Consolidated Statements of Operations of the Company and Combined Statements of Operations of the Agree Predecessors Consolidated Statements of Stockholders' Equity of the Company and Combined Statements of Partners' Deficit of the Agree Predecessors Consolidated Statements of Cash Flows of the Company and Combined Statements of Cash Flows of the Agree Predecessors
Notes to Financial Statements
Schedule III - Real Estate and Accumulated Depreciation
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Report of Independent Certified Public Accountants
To the Board of Directors and Owners of Agree Realty Corporation Farmington Hills, Michigan
We have audited the accompanying consolidated balance sheets of Agree Realty Corporation (the "Company") as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended December 31, 1996 and 1995 and for the period from April 22, 1994 to December 31, 1994. We have also audited the accompanying combined statements of operations, partners' deficit and cash flows for the period from January 1, 1994 to April 21, 1994 of Agree Realty Group (the "Agree Predecessors"). We have also audited the schedule listed in the accompanying index. These financial statements and the schedule are the responsibility of the Company's and Agree Predecessors' management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and the schedule. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and the schedule. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Agree Realty Corporation at December 31, 1996 and 1995 and the results of its operations and its cash flows for the years ended December 31, 1996 and 1995 and for the period from April 22, 1994 to December 31, 1994, and the results of the Agree Predecessors operations and its cash flows for the period from January 1, 1994 to April 21, 1994 in conformity with generally accepted accounting principles.
Also, in our opinion, the schedule presents fairly, in all material respects, the information set forth therein.
BDO SEIDMAN, LLP
Troy, Michigan February 14, 1997
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Agree Realty Corporation
Consolidated Balance Sheets
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Agree Realty Corporation
Consolidated Balance Sheets
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Agree Realty Corporation and the Agree Predecessors
Consolidated Statements of Operations of the Company and Combined Statements of Operations of the Agree Predecessors
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Agree Realty Corporation and the Agree Predecessors
Consolidated Statements of Stockholders' Equity of the Company and Combined Statements of Partners' Deficit of the Agree Predecessors
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Agree Realty Corporation and the Agree Predecessors
Consolidated Statements of Cash Flows of the Company and Combined Statements of Cash Flows of the Agree Predecessors
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Agree Realty Corporation and the Agree Predecessors
Consolidated Statements of Cash Flows of the Company and Combined Statements of Cash Flows of the Agree Predecessors
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Agree Realty Corporation and the Agree Predecessors
Notes to Financial Statements
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1. Summary of Significant Accounting Policies
Organization and Business
Agree Realty Corporation (the "Company") was formed as a Maryland real estate investment trust in December 1993, and commenced operations effective with the completion of its initial public offering on April 22, 1994. The Company is the successor to the operations of Agree Realty Group (the "Agree Predecessors"), which was comprised of seventeen real estate property partnerships and a management and development company. All of the Company's assets are held by, and all of its operations are conducted through, Agree Limited Partnership (the "Operating Partnership"). The Company will, at all times, be the sole general partner of the Operating Partnership. Minority interest in the Operating Partnership represents partnership units of the Operating Partnership (OP Units).
The Company operates, manages, acquires and develops retail properties. At December 31, 1996, the Company's properties are comprised of thirteen shopping centers and twelve single tenant retail facilities located in eleven states. During the year ended December 31, 1996, approximately 90% of the Company's base rental revenues were received from national or regional tenants under long-term leases, including approximately 32% from Kmart Corporation and 23% from Borders, Inc.
Principles of Consolidation
The consolidated financial statements of Agree Realty Corporation include the accounts of the Company and its majority owned partnership, the Operating Partnership. The Agree Predecessors' financial statements were prepared on a combined basis because of common ownership and management. All significant intercompany accounts and transactions have been eliminated in the accompanying consolidated and combined financial statements.
Use of Estimates
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect (1) the reported amounts of assets and liabilities and
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the disclosure of contingent assets and liabilities as of the date of the financial statements, and (2) revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Values of Financial Instruments
The carrying amounts of the Company's financial instruments, which consist of cash, cash equivalents, receivables, notes payable, accounts payable and long-term debt, approximate their fair values.
Real Estate Investments
Real estate assets are stated at cost less accumulated depreciation. All costs related to planning, development and construction of buildings prior to the date they become operational, including interest and real estate taxes during the construction period, are capitalized for financial reporting purposes.
Subsequent to completion of construction, expenditures for property maintenance are charged to operations as incurred, while significant renovations are capitalized. Depreciation of the buildings is recorded on the straight-line method using an estimated useful life of forty years.
Cash and Cash Equivalents
Cash and cash equivalents include cash and highly liquid tax anticipation notes with original maturities of three months or less.
Accounts Receivable - Tenants
Accounts receivable from tenants reflect primarily reimbursement of specified common area maintenance costs. No allowance for uncollectible accounts has been provided based on past collection results.
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Restricted Assets
These amounts represent funds on deposit restricted by certain lenders pursuant to agreements entered into by the Company. The funds held in escrow are used to pay capital-related costs and are released to the Company upon inspection and leasing of related property to tenants and are used to pay real estate taxes for one shopping center in Florida.
Investments in Unconsolidated Entities
The Company uses the equity method of accounting for investments in non- majority owned entities where the Company has the ability to exercise significant influence over operating and financial policies.
The Company's initial investment is recorded at cost, and the carrying amount of the investment is (a) increased by the Company's share of the investees' earnings (as defined in the limited liability company agreements), and (b) reduced by distributions paid from the investees to the Company.
Unamortized Deferred Expenses
Deferred expenses are stated net of total accumulated amortization. The nature and treatment of these capitalized costs are as follows: (1) financing costs, consisting of expenditures incurred to obtain long-term financing, are being amortized using the interest method over the term of the related loan, and (2) leasing costs, which are amortized on a straight-line basis over the term of the related lease.
Accounts Payable - Capital Expenditures
Included in accounts payable are amounts related to the construction of buildings. Due to the nature of these expenditures, they are reflected in the statements of cash flows as a financing activity.
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Minority Interest
This amount represents the limited partners' interest of 19.41% and 19.47% in the Operating Partnership as of December 31, 1996 and 1995, respectively, which is convertible into 637,959 shares of the Company's common stock.
Revenue Recognition
Base rental income attributable to leases is recorded when due from tenants. Certain leases provide for additional rents based on tenants' sales volume. These percentage rents are reflected based on the tenants' fiscal year; however, such amounts earned by the Company have historically not been material. In addition, leases for certain tenants contain rent escalations and/or free rent during the first several months of the lease term; however, such amounts are not material.
The Company acts as the construction developer on certain properties. Related development fee income is recognized upon completion of construction.
Operating Cost Reimbursement
Substantially all of the Company's leases contain provisions requiring tenants to pay as additional rent a proportionate share of operating expenses such as real estate taxes, repairs and maintenance, insurance, etc. The related revenue from tenant billings is recognized in the same period the expense is recorded.
Income Taxes
The Company has elected to be taxed as a real estate investment trust ("REIT") under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. A REIT will generally not be subject to federal income taxation on that portion of its income that qualifies as REIT taxable income to the extent that it distributes at least 95 percent of its taxable income to its stockholders and complies with certain other requirements. Accordingly, no
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provision has been made for federal income taxes for the Company in the accompanying consolidated financial statements.
The aggregate federal income tax basis of Real Estate Investments is approximately $10.5 million less than the financial statement basis.
Per Share Data
Earnings per share has been computed by dividing the income by the weighted average number of common shares and dilutive common equivalent shares outstanding.
Reclassifications
Certain insignificant amounts in the prior year financial statements have been reclassified to conform with the 1996 presentation.
2. Formation of the Company, Initial Public Offering and Basis of Presentation
The Company was established to continue the business of the Agree Predecessors. The Company commenced its operations on April 22, 1994 with the sale of 2,500,000 shares of common stock. The cash proceeds (net of underwriting fees) to the Company from the completion of this initial public offering were approximately $45.4 million, which were used primarily to reduce outstanding indebtedness, pay stock issuance costs and establish a working capital reserve. Also in connection with the formation of the Company, 125,685 shares of common stock were purchased by two principals of the Agree Predecessors in a private transaction at the initial public offering price of $19.50 per share.
The assets of the Company are held by and all operations conducted through the Operating Partnership. The Company controls, as the sole general partner, 80.59% and 80.53% of the Operating Partnership as of December 31, 1996 and 1995, respectively.
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3. Mortgages, Construction Loans and Note Payable
Mortgages payable consisted of the following:
Future scheduled annual maturities of mortgages payable for years ending December 31, are as follows: 1997 - $357,946; 1998 - $421,123; 1999 - $10,679,397; 2000 - $969,964; 2001 - $1,046,875 and $40,188,694 thereafter. (These maturities assume that the $33,600,000 mortgage will be extended beyond May 1999.)
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In November 1995, the Operating Partnership entered into a $50 million line-of-credit agreement which is guaranteed by the Company. The agreement has an initial term of three years and can be extended, at the option of the Company, for an additional three years. Advances under this credit facility bear interest within a range of LIBOR plus 200 basis points to 263 basis points, or the bank's prime rate plus 37 basis points to 75 basis points, at the option of the Company, based on certain factors such as debt to property value and debt service coverage. The credit facility will be used to fund property acquisitions and development activities, and is secured by specific properties. As of December 31, 1996, $20,746,937 was outstanding under this facility and there were no amounts outstanding under this credit facility as of December 31, 1995.
In addition, the Company maintains a $5,000,000 line-of-credit agreement with a bank which expires on September 21, 1997. Payments of interest only, at the bank's prime rate, or 225 basis points in excess of the one month LIBOR rate, at the option of the Company, are required monthly. At December 31, 1996 and 1995, $2,869,445 and $1,977,808 were outstanding under this agreement, respectively.
The Company has received funding from an unaffiliated third party for certain of its single tenant retail properties. Borrowings under this arrangement bear no interest and are required to be repaid within sixty (60) days after the date the construction has been completed. The advances are secured by the specific land and buildings being developed. As of December 31, 1996 and 1995, $10,616,936 and $17,603,785 was outstanding under this agreement, respectively.
4. Dividends and Distributions Payable
On December 9, 1996, the Company declared a dividend of $.45 per share for the quarter ended December 31, 1996; approximately 30 percent of the dividend represented a return of capital. The holders of OP Units were entitled to an equal distribution per OP Unit held as of December 31, 1996. The dividends and distributions payable are recorded as liabilities in the Company's balance sheet at December 31, 1996. The dividend has been reflected as a reduction of stockholders' equity and the distribution has been
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reflected as a reduction of the limited partners' minority interest. These amounts were paid on January 6, 1997.
5. Minority Interest
The following summarizes the changes in the limited partners' minority interest since January 1, 1995:
6. Reorganization Costs
Costs incurred by the Company related to title insurance costs, revenue stamps and transfer fees associated with the transfer of properties and certain related mortgages from the Agree Predecessors to the Company were charged to operations and reflected as "Reorganization Costs" in the 1994 consolidated statement of operations.
7. Related Party Transactions
The Company currently manages certain additional properties which are owned by certain officers and directors of the Company, but are not included in these consolidated or combined financial statements. Income related to these activities are reflected as "Management fees and other" in the accompanying consolidated statements of operations.
8. Extraordinary Item
As a result of the early extinguishment of indebtedness with a portion of the net proceeds from the issuance of its common stock, the Company recognized an extraordinary loss in 1994 related to loan prepayment penalties and the write-off of deferred financing costs on debt that was retired.
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9. Stock Incentive Plan
The Company has established a stock incentive plan (the "Plan") under which 29,400 options were granted in April 1994. The options, which have an exercise price equal to the initial public offering price ($19.50/share), can be exercised in increments of 25% on each anniversary of the date of the grant. A total of 14,700 and 7,350 of the options were exercisable at December 31, 1996 and 1995, respectively. No options were exercised during either 1996 or 1995.
The Company has adopted the disclosure-only provisions of SFAS No. 123 "Accounting for Stock-Based Compensation." However, since no compensation cost would have been recognized pursuant to SFAS No. 123 under the Plan in either 1996 or 1995, there is no effect on the Company's net income or earnings per share for these years.
10. Restricted Stock
As part of the Company's stock incentive plan, 12,500 restricted common shares were granted to certain employees in April 1994; an additional 11,290 shares were granted during the first quarter of 1996. The restricted shares vest in increments of 20% per year for five years. The Company recorded related compensation expense of $82,873, $48,750 and $34,530 in 1996, 1995 and 1994, respectively. Plan participants are entitled to receive the quarterly dividends on their respective restricted shares.
11. Profit-Sharing Plan
The Company has a discretionary profit-sharing plan whereby it contributes to the plan such amounts as the Board of Directors of the Company determines. The participants in the plan cannot make any contributions to the plan. Contributions to the plan are allocated to the employees based on their percentage of compensation to the total compensation of all employees for the plan year. Participants in the plan become fully vested after six years of service. No contributions were made to the plan in 1996, 1995 or 1994.
12. Rental Income
The Company leases premises in its properties to tenants pursuant to lease agreements which provide for terms ranging generally from 5 to 25 years. The majority of leases provide for additional rents based on tenants' sales volume; however, such amounts earned by Agree have historically not been material.
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As of December 31, 1996, the future minimum revenues for the next five years from rental property under the terms of all noncancellable tenant leases, assuming no new or renegotiated leases are executed for such premises, are as follows (in thousands):
Of the future minimum rentals, approximately 39% of the above total is attributable to Kmart Corporation and approximately 31% is attributable to Borders, Inc. Kmart's principal business is general merchandise retailing through a chain of discount department stores, and Borders is a major operator of book superstores in the United States.
13. Lease Commitments
The Company has entered into certain land lease agreements for three of its properties. As of December 31, 1996, approximate future annual lease commitments under these agreements are as follows:
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14. Interim Results (Unaudited)
The following summary represents the unaudited results of operations of the Company, expressed in thousands except per share amounts, for the periods from January 1, 1995 through December 31, 1996:
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AGREE REALTY CORPORATION
NOTES TO SCHEDULE III DECEMBER 31, 1996
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1) Reconciliation of Real Estate Properties
The following table reconciles the Real Estate Properties from January 1, 1994 to December 31, 1996:
2) Reconciliation of Accumulated Depreciation
The following table reconciles the accumulated depreciation from January 1, 1994 to December 31, 1996:
3) Tax Basis of Buildings and Improvements
The aggregate cost of Building and Improvements for federal income tax purposes is equal to the cost basis used for financial statement purposes.
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