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Retail Properties of America, Inc.ANNUAL REPORT for the year ended DECEMBER 31, 2016 Agree Realty Corporation (NYSE: ADC) is a fully-integrated, self-administered, and self-managed real estate investment trust self-managed real estate investment trust (REIT) focused on the acquisition and development of properties net leased to industry-leading retailers throughout the United States. Building upon the foundation of excellence established throughout the excellence established throughout the past four decades, Agree Realty continues to be a market leader in the net lease space. At December 31, 2016, our growing portfolio consisted of 366 assets in 43 states, containing approximately 7.0 million square feet of gross leasable space. Dear Fellow Shareholders, Our culture at Agree is built upon five Core Values that guide our decisions and drive our actions: constantly challenging ourselves to improve and learn, an ownership mentality, consistent and persistent, disciplined, and strategic thinkers and actors. These principles push us to identify the best risk-adjusted opportunities in an ever- changing retail landscape, and to ensure that we effectively execute our operating strategy. In 2016, we continued the transformation of our Company with another year of record performance. We added 92 high-quality net lease properties to our best-in-class retail portfolio, which has been carefully crafted since the launch of our acquisition platform in 2010. We efficiently accessed capital, bolstered our sector-leading balance sheet, retained top talent, and improved our processes and systems. I am extremely pleased and proud of our performance in 2016. Please allow me to review our Company’s numerous successes during this past year through the lens of our five Core Values. Constantly Challenging Ourselves To Improve And Learn We are constantly challenging ourselves to improve every facet of our business. Accepting the status quo isn’t an option at our rapidly growing Company. This year marked the seventh consecutive record year of growth for our Company, as we deployed or committed approximately $334 million of capital into 96 high-quality retail properties. Of those 96 properties, 82 were sourced through our acquisition platform, representing a record acquisition volume of $296 million. The acquired properties are leased to 49 different tenants operating in 22 diverse e-commerce and recession resistant retail sectors. These properties are well-diversified geographically, spanning 27 states. Since the inception of our acquisition platform in 2010, we have invested nearly $900 million in 294 net lease properties. While our acquisition platform has been a reliable vehicle of growth for our Company, we have challenged ourselves to expand our development and Partner Capital Solutions (“PCS”) platforms as well. These platforms enable us to provide unique and comprehensive solutions for retailers by delivering a distinct value proposition that differentiates our Company in the retail net lease universe. We have forged strong relationships with our retail partners as a result of these distinctive capabilities, and we will continue to do so. In 2016, our efforts to scale these platforms began to materialize. During the year, we commenced or completed 14 projects for leading retailers, representing total committed capital of approximately $38 million. The 92 properties brought online this past year had a weighted-average remaining lease term of 11.1 years, and were purchased or developed at a weighted-average cap rate of 7.9%. Our newly acquired and delivered properties are leased to industry-leading retailers including Starbucks, Hobby Lobby, Tractor Supply Company, O’Reilly Auto Parts, AutoZone, TJ Maxx and Ross Dress for Less, among others. Ownership Mentality Our mission is to provide our fellow shareholders with growing earnings and a reliable income stream, supported by a diversified portfolio with consistently strong occupancy levels. We are very pleased with our year-end occupancy rate of 99.6%. Our asset management team exemplifies an ownership mentality. Our dividend of $0.495 per share declared in the fourth quarter of 2016 was the second dividend increase authorized by our Board of Directors during the year. This dividend marks the Company’s 91st consecutive cash dividend, and represents an increase of 6.5% over the dividend at year-end 2015, as well as a five-year increase of 23%. Our annualized dividend of $1.98 per share is supported by 2016 funds from operations (“FFO”) and adjusted funds from operations (“AFFO”) that increased 34.3% and 33.2%, respectively. Our dividend represented an annualized FFO payout ratio of approximately 77%. Our strong dividend, improved float and robust earnings growth resulted in total shareholder returns of more than 41% in 2016, making us one of the top performing real estate investment trusts for the second consecutive year. Furthermore, our two-year, three-year, four-year and five-year total shareholder returns are the best in the net lease sector. Consistent & Persistent We have continued to produce earnings growth and strong returns for our shareholders while strengthening our historically conservative balance sheet. This past year we executed on a number of strategic capital markets transactions to further bolster our balance sheet and put us in a position to execute in 2017 and beyond. Throughout the year, we raised approximately $228 million in equity from the issuance of 5.5 million common shares through two follow-on public offerings and the use of our at-the-market (“ATM”) equity program. We also originated $100 million of long-term, unsecured, fixed rate debt. The debt financings had a weighted-average maturity of 10 years and a blended interest rate of 3.87%. Lastly, we finalized an agreement to amend and restate our senior unsecured credit facility in December. The amended and restated facility increased capacity to $350 million and is comprised of a $250 million unsecured revolving credit facility and extensions of the Company’s existing $65 million and $35 million unsecured term loans. These capital markets transactions totaled a record $328 million in new equity and long-term unsecured debt capital raised during the year. At year-end, total debt to enterprise value was approximately 24.9% and net debt to recurring EBITDA was 4.5 times. Our fixed charge coverage ratio, inclusive of principal amortization, was a robust 3.9 times. Our investment grade mindset to our balance sheet has been the foundation of our Company and will continue to be in the years to come. While we are focused on our near-term results, we are dedicated to building an organization that will consistently thrive in the future. Disciplined While we have increased the number of assets in our portfolio fivefold since 2010, we have held firm to our stringent investment criteria. Our approach emphasizes a bottoms-up analysis of retail real estate fundamentals, including retail synergy, visibility, demographics, traffic patterns and access. This analysis is paired with a disciplined focus to acquire leading retailers that have a well-defined omni-channel strategy and operate in sectors that have been resilient to the pressures of e-commerce. While our cost of capital has improved significantly in the past year, we remain focused on leveraging our capabilities, access to information and our long-standing retailer relationships to identify opportunities that will continue to deliver the outsized value that we have historically achieved. As of December 31, 2016, our real estate portfolio spanned 366 assets, over 7.0 million square feet and generated approximately 46% of annualized base rents from investment grade tenants. We are now the proud owners of properties in 43 states leased to leading retailers in over 25 retail sectors. Strategic Thinkers & Actors To strategically expand and diversify our portfolio, we increased our exposure to a few outstanding retailers during the year. Lowe’s, Mister Car Wash, Hobby Lobby and Tractor Supply Company all became top ten tenants of our Company in 2016 through several opportunistic transactions. We made investments in e-commerce and recession resistant sectors such as auto service, auto parts, grocery, specialty retail, home improvement, discount apparel and crafts and novelties. We also made a concerted effort to expand our portfolio geographically, investing in populous and growing states such as California, Texas and Colorado. To further diversify our best-in-class portfolio, we opportunistically sold four Walgreens assets for approximately $29.7 million. These dispositions were completed at a weighted-average cap rate of 5.6%. The dispositions, paired with our robust investment activity, led to a 33% reduction in our portfolio’s Walgreens exposure, which stood at 11.6% of annualized rental income as of December 31, 2016. During the year, we also reduced our Michigan exposure from 20% to 15.4%, and decreased our pharmacy exposure from 23.2% to 16.2% of annualized base rents. We will continue to evaluate our portfolio for strategic dispositions to recycle capital into high-quality assets that further enhance our portfolio’s diversification and quality. In Conclusion As we move forward into 2017, I am equally excited about the future for our Company. The Core Values that got us here will lead us in the future, as we strive to build the premier organization in the net lease sector. I would like to thank our Board of Directors, our fantastic team, and our fellow shareholders for their continued support of Agree Realty Corporation. Sincerely, Joey Agree President & Chief Executive Officer UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2016 Commission File Number 1-12928 AGREE REALTY CORPORATION (Exact name of Registrant as specified in its charter) Maryland (State or other jurisdiction of incorporation or organization) 38-3148187 (I.R.S. Employer Identification No.) 70 E. Long Lake Road, Bloomfield Hills, Michigan 48304 (Address of Principal Executive Offices) Registrant’s telephone number, including area code: (248) 737-4190 Securities Registered Pursuant to Section 12(b) of the Act: Title of Each Class Common Stock, $.0001 par value Name of Each Exchange On Which Registered New York Stock Exchange Securities Registered Pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No 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 Yes (2) has been subject file such No the past 90 days. reports), and requirements to such filing for Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No The aggregate market value of the Registrant’s shares of common stock held by non-affiliates was approximately $1,140,289,546 as of June 30, 2016, based on the closing price of $48.24 on the New York Stock Exchange on that date. At February 20, 2017, there were 26,146,543 shares of common stock, $.0001 par value per share, outstanding. Portions of the registrant’s definitive proxy statement for the annual stockholder meeting to be held in 2017 are incorporated by reference into Part III of this Annual Report on Form 10-K as noted herein. DOCUMENTS INCORPORATED BY REFERENCE AGREE REALTY CORPORATION Index to Form 10-K PART I Item 1: Business Item 1A: Risk Factors Item 1B: Unresolved Staff Comments Item 2: Properties Item 3: Item 4: Legal Proceedings Mine Safety Disclosures PART II Item 5: Item 6: Item 7: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7A: Quantitative and Qualitative Disclosure about Market Risk Item 8: Item 9: Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A: Controls and Procedures Item 9B: Other Information PART III Item 10: Directors, Executive Officers and Corporate Governance Item 11: Executive Compensation Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13: Certain Relationships and Related Transactions, and Director Independence Item 14: Principal Accountant Fees and Services PART IV Item 15: Exhibits and Financial Statement Schedules Consolidated Financial Statements and Notes SIGNATURES Page 1 5 16 16 21 21 21 22 23 30 32 32 32 33 33 33 33 33 33 34 F-1 37 PART I Cautionary Note Regarding Forward-Looking Statements This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” “may,” “will,” “seek,” “could,” “project,” or similar expressions. Forward-looking statements in this report include information about possible or assumed future events, including, among other things, discussion and analysis of our future financial condition, results of operations, our strategic plans and objectives, occupancy and leasing rates and trends, liquidity and ability to refinance our indebtedness as it matures, anticipated expenditures of capital, and other matters. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect actual results, performances or achievements. Factors which may cause actual results to differ materially from current expectations, include, but are not limited to: the global and national economic conditions and changes in general economic, financial and real estate market conditions; changes in our business strategy; risks that our acquisition and development projects will fail to perform as expected; the potential need to fund improvements or other capital expenditures out of operating cash flow; financing risks, such as the inability to obtain debt or equity financing on favorable terms or at all; the level and volatility of interest rates; our ability to re-lease space at acceptable rates as leases expire; loss or bankruptcy of one or more of our major tenants; a failure of our properties to generate additional income to offset increases in operating expenses; our ability to maintain our qualification as a real estate investment trust (“REIT”) for federal income tax purposes and the limitations imposed on our business by our status as a REIT; legislative or regulatory changes, including changes to laws governing REITs; and other factors discussed in “Item 1A. - Risk Factors” and elsewhere in this report and in subsequent filings with the Securities and Exchange Commission (“SEC”). We caution you that any such statements are based on currently available operational, financial and competitive information, and that you should not place undue reliance on these forward-looking statements, which reflect our management’s opinion only as of the date on which they were made. Except as required by law, we disclaim any obligation to review or update these forward–looking statements to reflect events or circumstances as they occur. Unless the context otherwise requires, references in this Annual Report on Form 10-K to the terms "registrant,” the "Company," “Agree Realty,” "we,” “our” or "us" refer to Agree Realty Corporation and all of its consolidated subsidiaries, including its majority owned operating partnership, Agree Limited Partnership (the “Operating Partnership”). Agree Realty has elected to treat certain subsidiaries as taxable real estate investment trust subsidiaries which are collectively referred to herein as the “TRS.” Item 1: Business General Agree Realty Corporation, a Maryland corporation, is a fully integrated REIT primarily focused on the ownership, acquisition, development and management of retail properties net leased to industry leading tenants. We were founded in 1971 by our current Executive Chairman, Richard Agree, and our common stock was listed on the New York Stock Exchange (“NYSE”) in 1994. As of December 31, 2016, our portfolio consisted of 366 properties located in 43 states and totaling approximately 7.0 million square feet of gross leasable area (“GLA”). See “Item 2 – Properties – Geographic Diversification” for more information on market concentrations. Our portfolio included 363 net lease properties, which contributed approximately 98.1% of annualized base rent, and three community shopping centers, which generated the remaining 1.9% of annualized base rent. As of December 31, 2016, our portfolio was approximately 99.6% leased and had a weighted average remaining lease term of approximately 10.6 years. A significant majority of our properties are leased to national tenants and approximately 45.6% of our annualized base rent was derived from tenants, or parents thereof, with an investment grade credit rating. Substantially all of our tenants are subject to net lease agreements. A net lease typically requires the tenant to be responsible for minimum monthly rent and property operating expenses including property taxes, insurance and maintenance. 1 Our assets are held by, and all of our operations are conducted through, directly or indirectly, the Operating Partnership, of which we are the sole general partner and in which we held a 98.7% interest as of December 31, 2016. Under the partnership agreement of the Operating Partnership, we, as the sole general partner, have exclusive responsibility and discretion in the management and control of the Operating Partnership. As of December 31, 2016, we had 24 full-time employees, including executive, investment, due diligence, construction, accounting, asset management and administrative personnel. Our principal executive offices are located at 70 E. Long Lake Road, Bloomfield Hills, MI 48304 and our telephone number is (248) 737-4190. We maintain a website at www.agreerealty.com. Our reports are electronically filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act and can be accessed through this site, free of charge, as soon as reasonably practicable after we electronically file or furnish such reports. These filings are also available on the SEC’s website at www.sec.gov. Our website also contains copies of our corporate governance guidelines and code of business conduct and ethics, as well as the charters of our audit, compensation and nominating and governance committees. The information on our website is not part of this report. Recent Developments Investments During 2016, we completed approximately $311.9 million of investments in net leased retail real estate, including acquisition and closing costs. Total investment volume includes the acquisition of 82 properties for an aggregate purchase price of approximately $295.6 million and the completed development of ten properties for an aggregate cost of approximately $16.3 million. These 92 properties are net leased to 56 different tenants operating in 24 sectors and are located in 30 states. These assets are 100% leased for a weighted average lease term of approximately 11.1 years, and the weighted average capitalization rate on our investments was approximately 7.9%. We calculate the weighted average capitalization rate on our investments by dividing annual expected net operating income derived from the properties by the total investment in the properties. Annual expected net operating income is defined as the straight-line rent for the base term of the lease, less property level expenses (if any) that are not recoverable from the tenant. Dividends We increased our quarterly dividend per share from $0.465 in March 2016 to $0.480 in June 2016 and further increased our quarterly dividend per share to $0.495 in December 2016. The quarterly dividend per share of $0.495 represents an annualized dividend of $1.98 per share and an annualized dividend yield of approximately 4.3% based on the last reported sales price of our common stock listed on the NYSE of $46.05 on December 30, 2016. We have paid a quarterly cash dividend for 91 consecutive quarters and, although we expect to continue our policy of paying quarterly dividends, we cannot guarantee that we will maintain our current level of dividends, that we will continue our recent pattern of increasing dividends per share, or what our actual dividend yield will be in any future period. Financing In May 2016, we issued 2,875,000 shares of common stock at a price of $39.75 per share, including 375,000 shares purchased by the underwriters upon the exercise of their option to purchase additional shares. After underwriting discounts and other offering costs of $4.6 million, net proceeds of approximately $109.6 million were used to repay borrowings under our revolving credit facility, to fund property acquisitions and for general corporate purposes. In October 2016, we issued 2,087,250 shares of common stock at a price of $47.50 per share, including 272,250 shares purchased by the underwriters upon the exercise of their option to purchase additional shares. After underwriting discounts and other offering costs of $5.8 million, net proceeds of approximately $95.0 million were primarily used to repay borrowings under our revolving credit facility, to fund property acquisitions and for general corporate purposes. 2 In July 2016, we entered into a private placement of $60.0 million principal amount of senior unsecured notes. The senior unsecured notes bear a fixed interest rate of 4.42% per annum and mature in July 2028. Proceeds from the issuance were used to repay borrowings under our revolving credit facility and for general corporate purposes. In July 2016, we completed a $40.0 million unsecured term loan facility that matures in July 2023. Borrowings under the term loan are priced at LIBOR plus 165 to 225 basis points, depending on our leverage. We entered into an interest rate swap to fix LIBOR at 1.40% until maturity. As of December 31, 2016, $40.0 million was outstanding under the term loan, which is subject to an all-in interest rate of 3.05%. In August 2016, we prepaid a $20.3 million amortizing mortgage note due May 2017, secured by seven properties, that had an interest rate of LIBOR plus 170 basis points. Concurrently therewith, we entered into a $20.3 million unsecured amortizing term loan. See “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Unsecured Term Loan Facilities” for further detail. In August 2016, we entered into a $20.3 million unsecured amortizing term loan facility that matures in May 2019. Borrowings under the unsecured amortizing term loan facility are priced at LIBOR plus 170 basis points. In order to fix LIBOR on the term loan facility at 1.92% until maturity, we had an interest rate swap agreement in place, which was assigned by the lender under the prior secured facility to the lender under the unsecured amortizing term loan facility. As of December 31, 2016, $20.0 million was outstanding under the unsecured amortizing term loan facility bearing an all-in interest rate of 3.62% In December 2016, we amended and restated the credit agreement that governs our senior unsecured revolving credit facility and our unsecured term loan facility to increase the aggregate borrowing capacity to $350.0 million. The agreement provides for a $250.0 million unsecured revolving credit facility, a $65.0 million unsecured term loan facility and a $35.0 million unsecured term loan facility. The unsecured revolving credit facility matures in January 2021 with options to extend the maturity date to January 2022. The unsecured term loan facilities mature in January 2024. We have the ability to increase the aggregate borrowing capacity under the credit agreement up to $500.0 million, subject to lender approval. Borrowings under the revolving credit facility bear interest at LIBOR plus 1.30% to 1.95%, depending on our leverage ratio. Additionally, we are required to pay an unused commitment fee at an annual rate of 0.15% or 0.25% of the unused portion of the revolving credit facility, depending on the amount of borrowings outstanding. The credit agreement contains certain financial covenants, including a maximum leverage ratio, a minimum fixed charge coverage ratio and a maximum percentage of secured debt to total asset value. Additionally, conforming changes were made to the $40.0 million unsecured term loan facility and $20.0 million unsecured amortizing term loan facility. During the year ended December 31, 2016, we issued 499,209 shares of common stock under our at-the-market (“ATM”) equity offering at an average price of $47.74, realizing gross proceeds of $23.8 million. We had approximately $36.2 million remaining capacity under the ATM program as of December 31, 2016. Dispositions During 2016, the Company sold four properties for aggregate gross proceeds of $29.7 million, which resulted in a gain of $10.0 million. The four properties sold were single tenant buildings, all leased to Walgreens (Port St. John, Florida; Rancho Cordova, California; Macomb, Michigan, and Silver Springs Shores, Florida). Leasing During 2016, excluding properties that were sold, we executed new leases, extensions or options on more than 56,000 square feet of gross leasable area throughout our portfolio. The annual rent associated with these new leases, extensions or options is approximately $0.7 million. Material new leases, extensions or options included a 24,153 square foot Staples at Davenport Retail Center in Davenport, Iowa. Business Strategies Our primary business objective is to generate consistent shareholder returns by primarily investing in and actively managing a diversified portfolio of retail properties net leased to industry leading tenants. The following is a discussion of our investment, financing and asset management strategies: Investment Strategy We are primarily focused on the long-term, fee simple ownership of properties net leased to national or large, regional retailers operating in sectors we believe to be more e-commerce and recession resistant. Our leases are 3 typically long term net leases that require the tenant to pay all property operating expenses, including real estate taxes, insurance and maintenance. We believe that a diversified portfolio of such properties provides for stable and predictable cash flow. We seek to expand and enhance our portfolio by identifying the best risk-adjusted investment opportunities across our development, Partner Capital Solutions (“PCS”) and acquisitions platforms. Development: We have been developing retail properties since the formation of our predecessor in 1971 and our development platform seeks to employ our capabilities to direct all aspects of the development process, including site selection, land acquisition, lease negotiation, due diligence, design and construction. Our developments are typically build-to-suit projects that result in fee simple ownership of the property upon completion. Partner Capital Solutions: We launched our PCS program, formerly known as Joint Venture Capital Solutions program, in April 2012. Our PCS program allows us to acquire properties or development opportunities by partnering with private developers or retailers on their in-process developments. We offer construction expertise, relationships, access to capital and forward commitments to purchase to facilitate the successful completion of their projects. We typically take fee simple ownership of PCS projects upon their completion. Acquisitions: Our acquisitions platform was launched in April 2010 in order to expand our investment capabilities by pursuing opportunities that do not fall within our development platform, but that do meet both our real estate and return on investment criteria. We believe that development and PCS projects have the potential to generate superior risk-adjusted returns on investment in properties that are substantially similar to those which we acquire. Each platform leverages the Company’s collective real estate acumen to pursue investments in net lease retail real estate. Factors that we consider when evaluating an investment include but are not limited to: overall market-specific characteristics, such as demographics, market rents, competition and retail synergy asset-specific characteristics, such as the age, size, location, zoning, use and environmental history, accessibility, physical condition, signage and visibility of the property tenant-specific characteristics, including but not limited to the financial profile, operating history, business plan, size, market positioning, geographic footprint, management team, industry and/or sector-specific trends and other characteristics specific to tenant and parent thereof unit-level operating characteristics, including store sales performance and profitability, if available; lease-specific terms, including term of the lease, rent to be paid by the tenant and other tenancy considerations transaction considerations, such as purchase price, seller profile and other non-financial terms Financing Strategy We seek to maintain a capital structure that provides us with the flexibility to manage our business and pursue our growth strategies, while allowing us to service our debt requirements and generate appropriate risk adjusted returns for our shareholders. We believe these objectives are best achieved by a capital structure that consists primarily of common equity and prudent amounts of debt financing. However, we may raise capital in any form and under terms that we deem acceptable and in the best interest of our shareholders. We have previously utilized common stock equity offerings, secured mortgage borrowings, unsecured bank borrowings, the private placement of senior unsecured notes and the sale of properties to meet our capital requirements. We continually evaluate our financing policies on an on-going basis in light of current economic conditions, access to various capital markets, relative costs of equity and debt securities, market value of our properties and other factors. As of December 31, 2016, our ratio of total debt to total market capitalization, assuming the conversion of limited partnership interests in the Operating Partnership (“OP Units”) into shares of common stock, was approximately 24.9%, and our ratio of total debt to total gross assets (before accumulated depreciation) was approximately 34.2%. As of December 31, 2016, our total debt outstanding before deferred financing costs was $404.0 million, including $70.0 million of secured mortgage debt that had a weighted average fixed interest rate of 4.0% (including the effects of interest rate swap agreements) and a weighted average maturity of 4.4 years, $320 million of unsecured 4 borrowings that had a weighted average fixed interest rate of 3.9% (including the effects of interest rate swap agreements) and a weighted average maturity of 9.1 years, and $14.0 million of floating rate borrowings under our revolving credit facility at a weighted average interest rate of approximately 1.9%. Certain financial agreements to which we are a party contain covenants that limit our ability to incur debt under certain circumstances; however, our organizational documents do not limit the absolute amount or percentage of indebtedness that we may incur. As such, we may modify our borrowing policies at any time without shareholder approval. Asset Management We maintain a proactive leasing and capital improvement program that, combined with the quality and locations of our properties, has made our properties attractive to tenants. We intend to continue to hold our properties for long- term investment and, accordingly, place a strong emphasis on the quality of construction and an on-going program of regular and preventative maintenance. Our properties are designed and built to require minimal capital improvements other than renovations or alterations, typically paid for by tenants. At our three community shopping center properties, we subcontract on-site functions such as maintenance, landscaping, snow removal and sweeping. The cost of these functions is generally reimbursed by our tenants. Personnel from our corporate headquarters conduct regular inspections of each property and maintain regular contact with major tenants. We have a management information system designed to provide our management with the operating data necessary to make informed business decisions on a timely basis. This system provides us rapid access to lease data, tenants’ sales history, cash flow budgets and forecasts. Such a system helps us to maximize cash flow from operations and closely monitor corporate expenses. Financial and Asset Information about Industry Segments We are in the business of acquiring, developing and managing retail real estate which we consider one reporting segment. See “Item 2 – Properties" and “Item 6 – Selected Financial Data" and “Note 2 – Summary of Significant Accounting Policies” to our consolidated financial statements for additional financial and asset information. Competition The U.S. commercial real estate investment market is a highly competitive industry. We actively compete with many entities engaged in the acquisition, development and operation of commercial properties. As such, we compete with other investors for a limited supply of properties and financing for these properties. Investors include traded and non-traded public REITs, private equity firms, institutional investment funds, insurance companies and private individuals, many of which have greater financial resources than we do and the ability to accept more risk than we believe we can prudently manage. There can be no assurance that we will be able to compete successfully with such entities in our acquisition, development and leasing activities in the future. Significant Tenants As of December 31, 2016, we leased 29 properties to Walgreens. Total annualized base rents from Walgreens were approximately 11.6%, 17.2% and 21.9% for the years ended 2016, 2015 and 2014 respectively. As of December 31, 2016, the weighted average remaining lease term of our Walgreens leases was 11.3 years. No other tenant accounted for more than 5.0% of our annualized base rent as of December 31, 2016. See “Item 2 – Properties” for additional information on our top tenants and the composition of our tenant base. Regulation Environmental Investments in real property create the potential for environmental liability on the part of the owner or operator of such real property. If hazardous substances are discovered on or emanating from a property, the owner or operator of the property may be held strictly liable for all costs and liabilities relating to such hazardous substances. We have obtained a Phase I environmental study (which involves inspection without soil sampling or ground water analysis) conducted by independent environmental consultants on each of our properties and, in certain instances, have conducted additional investigation, including a Phase II environmental assessment. Furthermore, we have adopted a policy of conducting a Phase I environmental study on each property we acquire and conducting additional investigation as warranted. 5 We have no knowledge of any hazardous substances existing on our properties in violation of any applicable laws; however, no assurance can be given that such substances are not located on any of our properties. We carry no insurance coverage for the types of environmental risks described above. We believe that we are in compliance, in all material respects, with all federal, state and local ordinances and regulations regarding hazardous or toxic substances. Furthermore, we have not been notified by any governmental authority of any noncompliance, liability or other claim in connection with any of our properties. Americans with Disabilities Act of 1990 Our properties, as commercial facilities, are required to comply with Title III of the Americans with Disabilities Act of 1990 and similar state and local laws and regulations (collectively, the “ADA”). Investigation of a property may reveal non-compliance with the ADA. Our tenants will typically have primary responsibility for complying with the ADA, but we may incur costs if the tenant does not comply. As of December 31, 2016, we have not been notified by any governmental authority, nor are we otherwise aware, of any non-compliance with the ADA that we believe would have a material adverse effect on our business, financial position or results of operations. Available Information We make available free of charge through our website at www.agreerealty.com all reports we electronically file with, or furnish to, the SEC, including our Annual Report on Form 10-K, Quarterly Reports on From 10-Q, and current reports on Form 8-K, as well as any amendments to those reports, as soon as reasonably practicable after those documents are filed with, or furnished to, the SEC. These filings are also accessible on the SEC’s website at www.sec.gov. Item 1A: Risk Factors You should carefully consider each of the risks, assumptions, uncertainties and other factors described below and elsewhere in this report, as well as any amendments or updates reflected in subsequent filings or furnishings with the SEC. We believe these risks, assumptions, uncertainties and other factors, individually or in the aggregate, could cause our actual results to differ materially from expected and historical results and could materially and adversely affect our business operations, results of operations, financial condition and liquidity. Risks Related to Our Business and Operations Global economic and financial conditions may have a negative effect on our business and operations. Any worsening of economic conditions in our markets, including any disruption in the capital markets, could adversely affect our business and operations. Potential consequences of changes in economic and financial conditions include: changes in the performance of our tenants, which may result in lower rent and lower recoverable expenses that the tenant can afford to pay and tenant defaults under the leases due to bankruptcy, lack of liquidity, operational failures or for other reasons; current or potential tenants may delay or postpone entering into long-term net leases with us which could lead to reduced demand for commercial real estate; the ability to borrow on terms and conditions that we find acceptable may be limited or unavailable, which could reduce our ability to pursue acquisition and development opportunities and refinance existing debt, reduce our returns from acquisition and development activities, reduce our ability to make cash distributions to our shareholders and increase our future interest expense; our ability to access the capital markets may be restricted at a time when we would like, or need, to access those markets, which could have an impact on our flexibility to react to changing economic and business conditions; the recognition of impairment charges on or reduced values of our properties, which may adversely affect our results of operations or limit our ability to dispose of assets at attractive prices and may reduce the availability of buyer financing; and one or more lenders under our revolving credit facility could fail and we may not be able to replace the financing commitment of any such lenders on favorable terms, or at all. We are also limited in our ability to reduce costs to offset the results of a prolonged or severe economic downturn given certain fixed costs and commitments associated with our operations. Such conditions could make it very difficult to forecast operating results, make business decisions and identify and address material business risks. 6 Single-tenant leases involve significant risks of tenant default. We focus our development and investment activities on ownership of real properties that are primarily net leased to a single tenant. Therefore, the financial failure of, or other default in payment by, a single tenant under its lease is likely to cause a significant reduction in our operating cash flows from that property and a significant reduction in the value of the property, and could cause a significant reduction in our revenues and a significant impairment loss. Because our properties have generally been built to suit a particular tenant’s specific needs and desires, we may also incur significant losses to make the leased premises ready for another tenant and experience difficulty or a significant delay in re-leasing such property. Failure by any major tenant with leases in multiple locations to make rental payments to us, because of a deterioration of its financial condition or otherwise, would have a material adverse effect on us. We derive substantially all of our revenue from tenants who lease space from us at our properties. Therefore, our ability to generate cash from operations is dependent on the rents that we are able to charge and collect from our tenants. At any time, our tenants may experience a downturn in their respective businesses that may significantly weaken their financial condition, particularly during periods of economic uncertainty. In addition, our tenants compete with alternative forms or retailing, including online shopping, home shopping networks and mail order catalogs. As a result, our tenants may delay lease commencements, decline to extend or renew leases upon expiration, fail to make rental payments when due, close a number of stores or declare bankruptcy. Any of these actions could result in the termination of the tenant’s leases and the loss of rental income attributable to the terminated leases. In addition, lease terminations by a major tenant or a failure by that major tenant to occupy the premises could result in lease terminations or reductions in rent by other tenants in close proximity under the terms of some leases. In that event, we may be unable to re-lease the vacated space at attractive rents or at all. The occurrence of any of the situations described above would have a material adverse effect on our results of operations and our financial condition. See “We may be subject to tenant credit concentrations that make us more susceptible to adverse events with respect to those tenants” below. We may be subject to tenant credit concentrations that make us more susceptible to adverse events with respect to those tenants. As of December 31, 2016, we derived approximately 11.6% of our annualized base rent from Walgreens. In the event of a default under the leases, we may experience delays in enforcing our rights as lessor and may incur substantial costs in seeking to protect our investment. Any bankruptcy, insolvency or failure to make rental payments by Walgreens, or any adverse changes in their financial condition or in the financial condition of any other tenant to whom we may have a significant credit concentration now or in the future, would likely result in a material reduction of our cash flows and material losses to us. Bankruptcy laws will limit our remedies if a tenant becomes bankrupt and rejects its leases. If a tenant becomes bankrupt or insolvent, that could diminish the income we receive from that tenant’s leases. We may not be able to evict a tenant solely because of its bankruptcy. On the other hand, a bankruptcy court might authorize the tenant to terminate its leasehold with us. If that happens, our claim against the bankrupt tenant for unpaid future rent would be an unsecured pre-petition claim subject to statutory limitations, and therefore any amounts received in bankruptcy are likely to be substantially less valuable than the remaining rent we otherwise were owed under the leases. In addition, any claim we have for unpaid past rent could be substantially less than the amount owed. Our portfolio has limited geographic diversification, which makes us more susceptible to adverse events in these areas. Our properties are located throughout the United States and in particular, the State of Michigan (where 49 properties out of 366 properties are located or 15.4% of our annualized base rent was derived as of December 31, 2016). An economic downturn or other adverse events or conditions such as natural disasters in these areas, or any other area where we may have significant concentration in the future, could result in a material reduction of our cash flows or material losses to our company. There are risks associated with our development and acquisition activities. We intend to continue the development of new properties and to consider possible acquisitions of existing properties. We anticipate that our new developments will be financed under the revolving credit facility or other forms of financing that will result in a risk that permanent fixed rate financing on newly developed projects might not be available or would be available only on disadvantageous terms. In addition, new project development is subject to a number of risks, including risks of construction delays or cost overruns that may increase anticipated project costs, and new project commencement risks such as receipt of zoning, occupancy and other required governmental 7 permits and authorizations and the incurrence of development costs in connection with projects that are not pursued to completion. If permanent debt or equity financing is not available on acceptable terms to finance new development or acquisitions undertaken without permanent financing, further development activities or acquisitions might be curtailed or cash available for distribution might be adversely affected. Acquisitions entail risks that investments will fail to perform in accordance with expectations, as well as general investment risks associated with any new real estate investment. Properties that we acquire or develop may be located in new markets where we may face risks associated with investing in an unfamiliar market. We may acquire or develop properties in markets that are new to us. When we acquire or develop properties located in these markets, we may face risks associated with a lack of market knowledge or understanding of the local economy, forging new business relationships in the area and unfamiliarity with local government and permitting procedures. We own certain of our properties subject to ground leases that expose us to the loss of such properties upon breach or termination of the ground leases and may limit our ability to sell these properties. We own certain of our properties through leasehold interests in the land underlying the buildings and we may acquire additional buildings in the future that are subject to similar ground leases. As lessee under a ground lease, we are exposed to the possibility of losing the property upon termination, or an earlier breach by us, of the ground lease, which may have a material adverse effect on our business, financial condition and results of operations, our ability to make distributions to our shareholders and the trading price of our common stock. Our ground leases contain certain provisions that may limit our ability to sell certain of our properties. In order to assign or transfer our rights and obligations under certain of our ground leases, we generally must obtain the consent of the landlord which, in turn, could adversely impact the price realized from any such sale. Loss of revenues from tenants would reduce the Company’s cash flow. Our tenants encounter significant macroeconomic, governmental and competitive forces. Adverse changes in consumer spending or consumer preferences for particular goods, services or store based retailing could severely impact their ability to pay rent. Shifts from in-store to online shopping could increase due to changing consumer shopping patterns as well as the increase in consumer adoption and use of mobile electronic devices. This expansion of e-commerce could have an adverse impact on our tenant’s ongoing viability. The default, financial distress, bankruptcy or liquidation of one or more of our tenants could cause substantial vacancies in our property portfolio. Vacancies reduce our revenues, increase property expenses and could decrease the value of each vacant property. Upon the expiration of a lease, the tenant may choose not to renew the lease and/or we may not be able to release the vacant property at a comparable lease rate or without incurring additional expenditures in connection with such renewal or re-leasing. Joint venture investments may expose us to certain risks. We may from time to time enter into joint venture transactions for portions of our existing or future real estate assets. Investing in this manner subjects us to certain risks, among them include the following: We may not exercise sole decision-making authority regarding the joint venture’s business and assets and, thus, we may not be able to take actions that we believe are in our best interests; We may be required to accept liability for obligations of the joint venture (such as recourse carve-outs on mortgage loans) beyond our economic interest; and Our returns on joint venture assets may be adversely affected if the assets are not held for the long-term. The availability and timing of cash distributions is uncertain. We expect to continue to pay quarterly distributions to our shareholders. However, we bear all expenses incurred by our operations, and our funds generated by operations, after deducting these expenses, may not be sufficient to cover desired levels of distributions to our shareholders. In addition, our board of directors, in its discretion, may retain any portion of such cash for working capital. We cannot assure our shareholders that sufficient funds will be available to pay distributions. We face significant competition. We face competition in seeking properties for acquisition and tenants who will lease space in these properties from insurance companies, credit companies, pension or private equity funds, private individuals, investment companies, other REITs and other industry participants, many of which have greater financial and other resources than we 8 do. There can be no assurance that we will be able to successfully compete with such entities in our development, acquisition and leasing activities in the future. We face risks relating to cybersecurity attacks, loss of confidential information and other business disruptions. Our business is subject to risks from and may be impacted by cybersecurity attacks, including attempts to gain unauthorized access to our confidential data and other electronic security breaches. Such cyber-attacks can range from individual attempts to gain unauthorized access to our information technology systems to more sophisticated security threats. While we employ a number of measures to prevent, detect and mitigate these threats, there is no guarantee such efforts will be successful in preventing a cyber-attack. Cybersecurity incidents could cause operational interruption, damage to our relationships with our tenants, private data exposure (including personally identifiable information, or proprietary and confidential information, of ours and our employees, as well as third parties) and affect the efficiency of our business operations. Any such incidents could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information and reduce the benefits of our technologies. General Real Estate Risk Our performance and value are subject to general economic conditions and risks associated with our real estate assets. There are risks associated with owning and leasing real estate. Although many of our leases contain terms that obligate the tenants to bear substantially all of the costs of operating our properties, investing in real estate involves a number of risks. Income from and the value of our properties may be adversely affected by: Changes in general or local economic conditions; The attractiveness of our properties to potential tenants; Changes in supply of or demand for similar or competing properties in an area; Bankruptcies, financial difficulties or lease defaults by our tenants; Changes in operating costs and expense and our ability to control rents; Our ability to lease properties at favorable rental rates; Our ability to sell a property when we desire to do so at a favorable price; Unanticipated changes in costs associated with known adverse environmental conditions or retained liabilities for such conditions; Changes in or increased costs of compliance with governmental rules, regulations and fiscal policies, including changes in tax, real estate, environmental and zoning laws, and our potential liability thereunder; and Unanticipated expenditures to comply with the Americans with Disabilities Act and other similar regulations. Economic and financial market conditions have and may continue to exacerbate many of the foregoing risks. If a tenant fails to perform on its lease covenants, that would not excuse us from meeting any mortgage debt obligation secured by the property and could require us to fund reserves in favor of our mortgage lenders, thereby reducing funds available for payment of cash dividends on our shares of common stock. The fact that real estate investments are relatively illiquid may reduce economic returns to investors. We may desire to sell a property in the future because of changes in market conditions or poor tenant performance or to avail ourselves of other opportunities. We may also be required to sell a property in the future to meet secured debt obligations or to avoid a secured debt loan default. Real estate properties cannot generally be sold quickly, and we cannot assure you that we could always obtain a favorable price. We may be required to invest in the restoration or modification of a property before we can sell it. This lack of liquidity may limit our ability to vary our portfolio promptly in response to changes in economic or other conditions and, as a result, could adversely affect our financial condition, results of operations, cash flows and our ability to pay distributions on our common stock. Our ability to renew leases or re-lease space on favorable terms as leases expire significantly affects our business. We are subject to the risks that, upon expiration of leases for space located in our properties, the premises may not be re-let or the terms of re-letting (including the cost of concessions to tenants) may be less favorable than current lease terms. If a tenant does not renew its lease or if a tenant defaults on its lease obligations, there is no assurance we could obtain a substitute tenant on acceptable terms. If we cannot obtain another tenant with comparable 9 structural needs, we may be required to modify the property for a different use, which may involve a significant capital expenditure and a delay in re-leasing the property. Further, if we are unable to re-let promptly all or a substantial portion of our retail space or if the rental rates upon such re-letting were significantly lower than expected rates, our net income and ability to make expected distributions to shareholders would be adversely affected. There can be no assurance that we will be able to retain tenants in any of our properties upon the expiration of their leases. Potential liability for environmental contamination could result in substantial costs. Under federal, state and local environmental laws, we may be required to investigate and clean up any release of hazardous or toxic substances or petroleum products at our properties, regardless of our knowledge or actual responsibility, simply because of our current or past ownership or operation of the real estate. If unidentified environmental problems arise, we may have to make substantial payments, which could adversely affect our cash flow and our ability to make distributions to our shareholders. This potential liability results from the following: As owner, we may have to pay for property damage and for investigation and clean-up costs incurred in connection with the contamination; The law may impose clean-up responsibility and liability regardless of whether the owner or operator knew of or caused the contamination; Even if more than one person is responsible for the contamination, each person who shares legal liability under environmental laws may be held responsible for all of the clean-up costs; and Governmental entities and third parties may sue the owner or operator of a contaminated site for damages and costs. These costs could be substantial and in extreme cases could exceed the value of the contaminated property. The presence of hazardous substances or petroleum products or the failure to properly remediate contamination may adversely affect our ability to borrow against, sell or lease an affected property. In addition, some environmental laws create liens on contaminated sites in favor of the government for damages and costs it incurs in connection with a contamination. We own and may in the future acquire properties that will be operated as convenience stores with gas station facilities. The operation of convenience stores with gas station facilities at our properties will create additional environmental concerns. We require that the tenants who operate these facilities do so in material compliance with current laws and regulations. A majority of our leases require our tenants to comply with environmental laws and to indemnify us against environmental liability arising from the operation of the properties. However, we could be subject to strict liability under environmental laws because we own the properties. There are certain losses, including losses from environmental liabilities, that are not generally insured against or that are not generally fully insured against because it is not deemed economically feasible or prudent to do so. There is also a risk that tenants may not satisfy their environmental compliance and indemnification obligations under the leases. Any of these events could substantially increase our cost of operations, require us to fund environmental indemnities in favor of our secured lenders and reduce our ability to service our secured debt and pay dividends to shareholders and any debt security interest payments. Environmental problems at any properties could also put us in default under loans secured by those properties, as well as loans secured by unaffected properties. Uninsured losses relating to real property may adversely affect our returns. Our leases generally require tenants to carry comprehensive liability and extended coverage insurance on our properties. However, there are certain losses, including losses from environmental liabilities, terrorist acts or catastrophic acts of nature, that are not generally insured against or that are not generally fully insured against because it is not deemed economically feasible or prudent to do so. If there is an uninsured loss or a loss in excess of insurance limits, we could lose both the revenues generated by the affected property and the capital we have invested in the property. In the event of a substantial unreimbursed loss, we would remain obligated to repay any mortgage indebtedness or other obligations related to the property. Risks Related to Our Debt Financings Leveraging our portfolio subjects us to increased risk of loss, including loss of properties in the event of a foreclosure. At December 31, 2016, our ratio of total debt to total market capitalization (assuming conversion of OP Units into shares of common stock) was approximately 24.9%. The use of leverage presents an additional element of risk in 10 the event that (1) the cash flow from lease payments on our properties is insufficient to meet debt obligations, (2) we are unable to refinance our debt obligations as necessary or on as favorable terms or (3) there is an increase in interest rates. If a property is mortgaged to secure payment of indebtedness and we are unable to meet mortgage payments, the property could be foreclosed upon with a consequent loss of income and asset value to us. Under the “cross-default” provisions contained in mortgages encumbering some of our properties, our default under a mortgage with a lender would result in our default under mortgages held on other properties resulting in multiple foreclosures. We generally intend to maintain a ratio of total indebtedness (including construction or acquisition financing) to total market capitalization of 65% or less. Nevertheless, we may operate with debt levels which are in excess of 65% of total market capitalization for extended periods of time. Our organizational documents contain no limitation on the amount or percentage of indebtedness which we may incur. Therefore, our board of directors, without a vote of the shareholders, could alter the general policy on borrowings at any time. If our debt capitalization policy were changed, we could become more highly leveraged, resulting in an increase in debt service that could adversely affect our operating cash flow and our ability to make expected distributions to shareholders, and could result in an increased risk of default on our obligations. Covenants in our credit agreements could limit our flexibility and adversely affect our financial condition. The terms of the financing agreements and other indebtedness require us to comply with a number of customary financial and other covenants. These covenants may limit our flexibility in our operations, and breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness even if we have satisfied our payment obligations. In certain instances our financing agreements contain certain cross-default provisions which could be triggered in the event that we default on our other indebtedness. These cross-default provisions may require us to repay or restructure the revolving credit facility in addition to any mortgage or other debt that is in default. If our properties were foreclosed upon, or if we are unable to refinance our indebtedness at maturity or meet our payment obligations, the amount of our distributable cash flows and our financial condition would be adversely affected. Our unsecured revolving credit facility and certain term loan agreements contain various restrictive corporate covenants, including a maximum total leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a maximum recourse secured debt ratio, a minimum net worth requirement and a maximum payout ratio. In addition, our unsecured revolving credit facility and certain term loan agreements have unencumbered pool covenants, which include a minimum number of eligible unencumbered assets, a maximum unencumbered leverage ratio and a minimum unencumbered interest coverage ratio. These covenants may restrict our ability to pursue certain business initiatives or certain transactions that might otherwise be advantageous. Furthermore, failure to meet certain of these financial covenants could cause an event of default under and/or accelerate some or all of such indebtedness which could have a material effect on us. Credit market developments may reduce availability under our credit agreements. There is risk that lenders, even those with strong balance sheets and sound lending practices, could fail or refuse to honor their legal commitments and obligations under existing credit commitments, including but not limited to: extending credit up to the maximum amount permitted by a credit facility, allowing access to additional credit features and/or honoring loan commitments. If our lender(s) fail to honor their legal commitments under our credit facilities, it could be difficult to replace our credit facilities on similar terms. Any such failure by any of the lenders under the revolving credit facility may impact our ability to finance our operating or investing activities. Our hedging strategies may not be successful in mitigating our risks associated with interest rates and could reduce the overall returns on your investment. We use various derivative financial instruments to provide a level of protection against interest rate risks, but no hedging strategy can protect us completely. These instruments involve risks, such as the risk that the counterparties may fail to honor their obligations under these arrangements, that these arrangements may not be effective in reducing our exposure to interest rate changes and that a court could rule that such agreements are not legally enforceable. These instruments may also generate income that may not be treated as qualifying REIT income for purposes of the REIT income tests. In addition, the nature and timing of hedging transactions may influence the effectiveness of our hedging strategies. Poorly designed strategies or improperly executed transactions could actually increase our risk and losses. Moreover, hedging strategies involve transaction and other costs. We cannot assure you that our hedging strategy and the derivatives that we use will adequately offset the risk of interest rate 11 volatility or that our hedging transactions will not result in losses that may reduce the overall return on your investment. Risks Related to Our Corporate Structure Our charter, bylaws and Maryland law contain provisions that may delay, defer or prevent a change of control transaction. Our charter contains 9.8% ownership limits. Our charter, subject to certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT and contains provisions that limit any person to actual or constructive ownership of no more than 9.8% (in value or in number of shares, whichever is more restrictive) of the outstanding shares of our common stock and no more than of the aggregate of the value of our outstanding shares of all classes and series of our stock. Our board of directors, in its sole discretion, may exempt, subject to the satisfaction of certain conditions, any person from the ownership limits. These restrictions on transferability and ownership will not apply if our board of directors determines that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT. The ownership limits may delay or impede, and we may use the ownership limits deliberately to delay or impede, a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the best interest of our shareholders. We have a staggered board. Our directors are divided into three classes serving three-year staggered terms. The staggering of our board of directors may discourage offers for the Company or make an acquisition more difficult, even when an acquisition may be viewed to be in the best interest of our shareholders. We have a shareholder rights plan. Under the terms of this plan, we can in effect prevent a person or group from acquiring more than 15% of the outstanding shares of our common stock because, unless we approve the acquisition, after the person acquires more than 15% of our outstanding common stock, all other shareholders will have the right to purchase securities from us at a price that is less than their then fair market value. This would substantially reduce the value and influence of the stock owned by the acquiring person. Our board of directors can prevent the plan from operating by approving the transaction in advance, which gives us significant power to approve or disapprove of the efforts of a person or group to acquire a large interest in our company. We could issue stock without stockholder approval. Our board of directors could, without stockholder approval, issue authorized but unissued shares of our common stock or preferred stock. In addition, our board of directors could, without stockholder approval, classify or reclassify any unissued shares of our common stock or preferred stock and set the preferences, rights and other terms of such classified or reclassified shares. Our board of directors could establish a series of stock that could, depending on the terms of such series, delay, defer or prevent a transaction or change of control that might involve a premium price for our common stock or otherwise be viewed to be in the best interest of our shareholders. Provisions of Maryland law may limit the ability of a third party to acquire control of our company. Certain provisions of Maryland law may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of control under certain circumstances that otherwise could provide the holders of shares of our common stock with the opportunity to realize a premium over the then prevailing market price of such shares, including: “Business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof) for five years after the most recent date on which the stockholder becomes an interested stockholder and thereafter would require the recommendation of our board of directors and impose special appraisal rights and special stockholder voting requirements on these combinations; and “Control share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by our shareholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares. 12 The business combination statute permits various exemptions from its provisions, including business combinations that are approved or exempted by the board of directors before the time that the interested stockholder becomes an interested stockholder. Our board of directors has exempted from the business combination provisions of the Maryland General Corporation Law, or MGCL, any business combination with Mr. Richard Agree or any other person acting in concert or as a group with Mr. Richard Agree. In addition, our bylaws contain a provision exempting from the control share acquisition statute Richard Agree, Edward Rosenberg, any spouses or the foregoing, any brothers or sisters of the foregoing, any ancestors of the foregoing, any other lineal descendants of any of the foregoing, any estates of any of the foregoing, any trusts established for the benefit of any of the foregoing and any other entity controlled by any of the foregoing, our other officers, our employees, any of the associates or affiliates of the foregoing and any other person acting in concert of as a group with any of the foregoing. Additionally, Title 3, Subtitle 8 of the MGCL, permits our board of directors, without stockholder approval and regardless of what is currently provided in our charter or our bylaws, to implement certain takeover defenses. These provisions may have the effect of inhibiting a third party from making an acquisition proposal for our company or of delaying, deferring or preventing a change in control of our company under circumstances that otherwise could provide the holders of our common stock with the opportunity to realize a premium over the then-current market price. Our charter, our bylaws, the limited partnership agreement of the Operating Partnership and Maryland law also contain other provisions that may delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or otherwise be viewed to be in the best interest of our shareholders. Our board of directors can take many actions without stockholder approval. Our board of directors has overall authority to oversee our operations and determine our major corporate policies. This authority includes significant flexibility. For example, our board of directors can do the following: Change our investment and financing policies and our policies with respect to certain other activities, including our growth, debt capitalization, distributions, REIT status and investment and operating policies; Within the limits provided in our charter, prevent the ownership, transfer and/or accumulation of shares in order to protect our status as a REIT or for any other reason deemed to be in the best interests of us and our shareholders; Issue additional shares without obtaining stockholder approval, which could dilute the ownership of our then-current shareholders; Classify or reclassify any unissued shares of our common stock or preferred stock and set the preferences, rights and other terms of such classified or reclassified shares, without obtaining stockholder approval; Employ and compensate affiliates; Direct our resources toward investments that do not ultimately appreciate over time; Change creditworthiness standards with respect to third-party tenants; and Determine that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT. Any of these actions could increase our operating expenses, impact our ability to make distributions or reduce the value of our assets without giving our shareholders the right to vote. Future offerings of debt and equity may not be available to us or may adversely affect the market price of our common stock. We expect to continue to increase our capital resources by making additional offerings of equity and debt securities in the future, which could include classes or series of preferred stock, common stock and senior or subordinated notes. Our ability to raise additional capital may be adversely impacted by market conditions. Future market dislocations could cause us to seek sources of potentially less attractive capital. All debt securities and other borrowings, as well as all classes or series of preferred stock, will be senior to our common stock in a liquidation of our company. Additional equity offerings could dilute our shareholders’ equity, and reduce the market price of shares of our common stock. In addition, we may issue preferred stock with a distribution preference or a liquidation preference that may limit our ability to make distributions on our common stock. Our ability to estimate the amount, timing or nature of additional offerings is limited as these factors will depend upon market conditions and other factors. 13 The market price of our stock may vary substantially. The market price of our common stock could be volatile, and investors in our common stock may experience a decrease in the value of their shares, including decreases unrelated to our operating performance or prospects. Among the market conditions that may affect the market price of our common stock are the following: Changes in interest rates; Our financial condition and operating performance and the performance of other similar companies; Actual or anticipated variations in our quarterly results of operations; The extent of investor interest in our company, real estate generally or commercial real estate specifically; The reputation of REITs generally and the attractiveness of their equity securities in comparison to other equity securities, including securities issued by other real estate companies, and fixed income securities; Changes in expectations of future financial performance or changes in estimates of securities analysts; Fluctuations in stock market prices and volumes; and Announcements by us or our competitors of acquisitions, investments or strategic alliances. An officer and director may have interests that conflict with the interests of shareholders. An officer and member of our board of directors owns OP units in the Operating Partnership. This individual may have personal interests that conflict with the interests of our shareholders with respect to business decisions affecting us and the Operating Partnership, such as interests in the timing and pricing of property sales or refinancings in order to obtain favorable tax treatment. Federal Income Tax Risks Complying with REIT requirements may cause us to forego otherwise attractive opportunities. To qualify as a REIT for federal income tax purposes we must continually satisfy numerous income, asset and other tests, thus having to forego investments we might otherwise make and hindering our investment performance. Failure to qualify as a REIT could adversely affect our operations and our ability to make distributions. We will be subject to increased taxation if we fail to qualify as a REIT for federal income tax purposes. Although we believe that we are organized and operate in such a manner so as to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), no assurance can be given that we will remain so qualified. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial or administrative interpretations. The complexity of these provisions and applicable treasury regulations is also increased in the context of a REIT that holds its assets in partnership form. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify as a REIT. A REIT generally is not taxed at the corporate level on income it distributes to its shareholders, as long as it distributes annually at least 90% of its taxable income to its shareholders. We have not requested and do not plan to request a ruling from the Internal Revenue Service that we qualify as a REIT. If we fail to qualify as a REIT, we will face tax consequences that will substantially reduce the funds available for payment of cash dividends: We would not be allowed a deduction for dividends paid to shareholders in computing our taxable income and would be subject to federal income tax at regular corporate rates. We could be subject to the federal alternative minimum tax and possibly increased state and local taxes. Unless we are entitled to relief under statutory provisions, we could not elect to be treated as a REIT for four taxable years following the year in which we failed to qualify. In addition, if we fail to qualify as a REIT, we will no longer be required to pay dividends (other than any mandatory dividends on any preferred shares we may offer). As a result of these factors, our failure to qualify as a REIT could adversely affect the market price for our common stock. Changes in tax laws may prevent us from maintaining our qualification as a REIT. As we have previously described, we intend to maintain our qualification as a REIT for federal income tax purposes. However, this intended qualification is based on the tax laws that are currently in effect. We are unable to predict any future changes in the tax laws that would adversely affect our status as a REIT. If there is a change in the tax law that prevents us from qualifying as a REIT or that requires REITs generally to pay corporate level income taxes, we may not be able to make the same level of distributions to our shareholders. 14 Complying with REIT requirements may force us to liquidate or restructure otherwise attractive investments. In order to qualify as a REIT, at least 75% of the value of our assets must consist of cash, cash items, government securities and qualified real estate assets. The remainder of our investments in securities (other than government securities, securities of TRSs and qualified real estate assets) cannot include more than 10% of the voting securities or 10% of the value of all securities, of any one issuer. In addition, in general, no more than 5% of the total value of our assets (other than government securities, securities of TRSs and qualified real estate assets) can consist of securities of any one issuer, and no more than 25% (20% for taxable years beginning after December 31, 2017) of the total value of our assets can be represented by one or more TRSs. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate otherwise attractive investments. We may have to borrow funds or sell assets to meet our distribution requirements. Subject to some adjustments that are unique to REITs, a REIT generally must distribute 90% of its taxable income. For the purpose of determining taxable income, we may be required to accrue interest, rent and other items treated as earned for tax purposes but that we have not yet received. In addition, we may be required not to accrue as expenses for tax purposes some that which actually have been paid, including, for example, payments of principal on our debt, or some of our deductions might be disallowed by the Internal Revenue Service. As a result, we could have taxable income in excess of cash available for distribution. If this occurs, we may have to borrow funds or liquidate some of our assets in order to meet the distribution requirement applicable to a REIT. Our ownership of and relationship with our TRSs will be limited, and a failure to comply with the limits would jeopardize our REIT status and may result in the application of a 100% excise tax. A REIT may own up to 100% of the stock of one or more TRSs. A TRS may earn income that would not be qualifying income if earned directly by the parent REIT. Overall, no more than 20% of the value of a REIT’s assets may consist of stock or securities of one or more TRSs. A TRS will typically pay federal, state and local income tax at regular corporate rates on any income that it earns. In addition, the TRS rules impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis. Our TRSs will pay federal, state and local income tax on their taxable income, and their after-tax net income will be available for distribution to us but will not be required to be distributed to us. There can be no assurance that we will be able to comply with the 20% limitation discussed above or to avoid application of the 100% excise tax discussed above. Liquidation of our assets may jeopardize our REIT qualification. To qualify as a REIT, we must comply with requirements regarding our assets and our sources of income. If we are compelled to liquidate our investments to repay obligations to our lenders, we may be unable to comply with these requirements, ultimately jeopardizing our qualification as a REIT, or we may be subject to a 100% tax on any gain if we sell assets in transactions that are considered to be “prohibited transactions,” which are explained in the risk factor below. We may be subject to other tax liabilities even if we qualify as a REIT. Even if we remain qualified as a REIT for federal income tax purposes, we will be required to pay certain federal, state and local taxes on our income and property. For example, we will be subject to income tax to the extent we distribute less than 100% of our REIT taxable income (including capital gains). Additionally, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which dividends paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years. Moreover, if we have net income from “prohibited transactions,” that income will be subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of property held primarily for sale to customers in the ordinary course of business. The determination as to whether a particular sale is a prohibited transaction depends on the facts and circumstances related to that sale. While we will undertake sales of assets if those assets become inconsistent with our long-term strategic or return objectives, we do not believe that those sales should be considered prohibited transactions, but there can be no assurance that the Internal Revenue Service would not contend otherwise. The need to avoid prohibited transactions could cause us to forego or defer sales of properties that might otherwise be in our best interest to sell. In addition, any net taxable income earned directly by our TRSs, or through entities that are disregarded for federal income tax purposes as entities separate from our TRSs, will be subject to federal and possibly state corporate 15 income tax. To the extent that we and our affiliates are required to pay federal, state and local taxes, we will have less cash available for distributions to our shareholders. Dividends payable by REITs do not qualify for the reduced tax rates on dividend income from regular corporations. The maximum income tax rate applicable to “qualified dividend income” payable to domestic shareholders that are individuals, trusts and estates is 20%. Dividends payable by REITs, however, are generally not eligible for the reduced rates on qualified dividend income. The more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the stock of REITs, including our stock. Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities. The REIT provisions of the Code substantially limit our ability to hedge our liabilities. Any income from a hedging transaction we enter into to manage risk of interest rate changes, price changes or currency fluctuations with respect to borrowings made or to be made to acquire or carry real estate assets does not constitute qualifying income for purposes of income tests that apply to us as a REIT. To the extent that we enter into other types of hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of the income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRS would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in our TRSs will generally not provide any tax benefit, except for being carried forward against future taxable income in the TRSs. Item 1B: Unresolved Staff Comments There are no unresolved staff comments. Item 2: Properties As of December 31, 2016, our portfolio consisted of 366 properties located in 43 states and totaling approximately 7.0 million square feet of gross leasable area. Our portfolio included 363 net lease properties, which contributed approximately 98.1% of annualized base rent, and three community shopping centers, which generated the remaining 1.9% of annualized base rent. As of December 31, 2016, our portfolio was approximately 99.6% leased and had a weighted average remaining lease term of approximately 10.6 years. A significant majority of our properties are leased to national tenants and approximately 45.6% of our annualized base rent was derived from tenants, or parents thereof, with an investment grade credit rating. Substantially all of our tenants are subject to net lease agreements. A net lease typically requires the tenant to be responsible for minimum monthly rent and property operating expenses including property taxes, insurance and maintenance. In addition, our tenants are typically subject to future rent increases based on fixed amounts or increases in the consumer price index and many leases provide for additional rent calculated as a percentage of the tenants’ gross sales above a specified level. Property Type Summary The following table presents certain information about our properties as of December 31, 2016: 16 Number of Annualized % of Ann. Property Type Retail Net Lease Retail Net Lease (ground leases) Total Retail Net Lease Community Shopping Centers Total Portfolio Properties Base Rent (1) Base Rent 90.6% 7.5% 98.1% 1.9% 100.0% $85,422 7,077 $92,499 1,751 $94,250 331 32 363 3 366 % Investment Grade Rated (2) 42.6% 86.5% 45.9% 28.2% 45.6% Remaining Wtd. Avg. Lease Term 10.3 yrs 13.1 yrs 10.7 yrs 5.5 yrs 10.6 yrs Annualized base rent is in thousands; any differences are a result of rounding. (1) Represents annualized straight-line rent as of December 31, 2016. (2) Reflects tenants, or parent entities thereof, with investment grade credit ratings from Standard & Poors, Moody's, Fitch and/or NAIC. Tenant Diversification The following table presents annualized base rents for all tenants that generated 1.5% or greater of our total annualized base rent as of December 31, 2016: ($ in thousands) Tenant / Concept Walgreens Walmart Lowe's Wawa Mister Car Wash Smart & Final CVS Dollar General Hobby Lobby Tractor Supply Academy Sports Rite Aid Dollar Tree Burger King(2) BJ's Wholesale LA Fitness 24 Hour Fitness AMC Taco Bell(3) Other (4) Total Annualized Base Rent (1) $ 10,903 4,224 3,099 2,664 2,580 2,518 2,463 2,415 2,177 2,172 1,982 1,886 1,832 1,763 1,759 1,709 1,694 1,585 1,537 43,288 94,250 $ % of Ann. Base Rent 11.6% 4.5% 3.3% 2.8% 2.7% 2.7% 2.6% 2.6% 2.3% 2.3% 2.1% 2.0% 1.9% 1.9% 1.9% 1.8% 1.8% 1.7% 1.6% 45.9% 100.0% Annualized base rent is in thousands; any differences are a result of rounding. (1) Represents annualized straight-line rent as of December 31, 2016. (2) Franchise restaurants operated by Meridian Restaurants Unlimited, L.C. (3) Franchise restaurants operated by Charter Foods North, LLC. (4) Includes tenants generating less than 1.5% of annualized base rent. Significant Tenants Walgreens operates the largest drugstore chain in the United States and trades, through its holding company Walgreens Boot Alliance, Inc., on the Nasdaq stock exchange under the symbol “WBA”. For its fiscal year ended August 31, 2016, Walgreens had total assets of approximately $72.7 billion, annual net sales of $117.4 billion, 17 annual net income of $4.2 billion and shareholders’ equity of $30.3 billion. As of August 31, 2016, Walgreens operated 8,175 locations in 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. On October 27, 2015, Walgreens Boot Alliance, Inc. entered into an Agreement and Plan of Merger with Rite Aid Corporation ("Rite Aid'') and Victoria Merger Sub, Inc., a wholly-owned subsidiary of the Walgreens Boot Alliance, Inc., pursuant to which the Walgreens Boot Alliance, Inc. agreed, subject to the terms and conditions thereof, to acquire Rite Aid, a drugstore chain in the United States with 4,550 stores in 31 states and the District of Columbia as of August 27, 2016. The transaction is expected to close in early calendar 2017, subject to regulatory approvals and other customary closing conditions. The information set forth above was derived from the annual report on Form 10-K filed by Walgreens with respect to their 2016 fiscal year. Additional information regarding Walgreens and Walgreens Boots Alliance, Inc. can be found in their public filings. These filings can be accessed at www.sec.gov. We are unable to confirm, and make no representations with respect to the accuracy of these reports and therefore you should not place undue reliance on such information as it pertains to our operations. Tenant Sector Diversification The following table presents annualized base rents for all sectors that generated 2.5% or greater of our total annualized base rents as of December 31, 2016: Tenant Sector Pharmacy Grocery Stores Restaurants - Quick Service Auto Service Specialty Retail Discount Apparel General Merchandise Health & Fitness Home Improvement Warehouse Clubs Crafts and Novelties Sporting Goods Dollar Stores Farm and Rural Supply Convenience Stores Auto Parts Restaurants - Casual Dining Other(2) Total Annualized Base Rent (1) $15,252 6,632 6,492 5,452 4,672 4,533 3,956 3,822 3,790 3,749 3,528 3,149 3,038 2,906 2,830 2,822 2,481 15,146 $94,250 % of Ann. Base Rent 16.2% 7.0% 6.9% 5.8% 5.0% 4.8% 4.2% 4.1% 4.0% 4.0% 3.7% 3.3% 3.2% 3.1% 3.0% 3.0% 2.6% 16.1% 100.0% Annualized base rent is in thousands; any differences are a result of rounding. (1) Represents annualized straight-line rent as of December 31, 2016. (2) Includes sectors generating less than 2.5% of annualized base rent. Geographic Diversification 18 The following table presents annualized base rents, by state, for our portfolio as of December 31, 2016: Tenant Sector Michigan Texas Florida Ohio Illinois Pennsylvania California Mississippi Wisconsin Kentucky Colorado Kansas North Carolina Missouri Georgia North Dakota South Carolina Indiana Utah Louisiana Oregon New York Alabama Virginia Tennessee Arizona Iowa Minnesota Maine New Mexico New Jersey West Virginia Oklahoma Washington Connecticut Nevada Delaware South Dakota Montana Maryland Arkansas New Hampshire Nebraska Total Annualized Base Rent (1) $14,555 8,107 7,491 5,779 5,677 4,095 3,700 2,855 2,841 2,723 2,571 2,540 2,396 2,186 2,050 1,910 1,812 1,800 1,682 1,638 1,605 1,552 1,258 1,211 1,201 1,146 1,045 1,024 792 651 590 527 483 413 400 332 326 326 309 277 187 107 80 $94,250 % of Ann. Base Rent 15.4% 8.6% 7.9% 6.1% 6.0% 4.3% 3.9% 3.0% 3.0% 2.9% 2.7% 2.7% 2.5% 2.3% 2.2% 2.0% 1.9% 1.9% 1.8% 1.8% 1.7% 1.7% 1.3% 1.3% 1.3% 1.2% 1.1% 1.1% 0.9% 0.7% 0.6% 0.6% 0.5% 0.5% 0.4% 0.4% 0.4% 0.4% 0.3% 0.3% 0.2% 0.1% 0.1% 100.0% Annualized base rent is in thousands; any differences are a result of rounding. (1) Represents annualized straight-line rent as of Decemb er 31, 2016. 19 Lease Expirations The following table presents contractual lease expirations within the Company’s portfolio as of December 31, 2016, assuming that no tenants exercise renewal options: Gross Leasable Area % of Total Annualized Base Rent (1) Year 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Thereafter Total Number of Leases 8 15 13 18 29 22 27 36 34 34 179 415 $ Dollars 817 2,258 4,403 2,639 6,042 4,690 4,865 9,081 6,883 4,352 48,220 $94,250 % of Total 0.9% 2.4% 4.7% 2.8% 6.4% 5.0% 5.2% 9.6% 7.3% 4.6% 51.1% 100.0% Square Feet 89 356 377 244 386 406 443 880 538 390 2,924 7,033 1.3% 5.1% 5.4% 3.5% 5.5% 5.8% 6.3% 12.5% 7.7% 5.6% 41.3% 100.0% Annualized b ase rent and gross leasab le area are in thousands; any differences are a result of rounding. (1) Represents annualized straight-line rent as of December 31, 2016. Community Shopping Centers Our three community shopping centers range in size from 20,000 to 241,458 square feet of GLA. The location and primary occupancy information with respect to the community shopping centers as of December 31, 2016 are set forth below: Property Capital Plaza Location Frankfort, KY Year Completed / Renovated 1978 / 2006 Central Michigan Commons Mt. Pleasant, MI 1973 / 1997 West Frankfort Plaza West Frankfort, IL 1982 / N/A Totals Gross Leasable Area (Sq. Ft.) 116 241 20 377 Annualized Base Rent (1) $634 Annualized Base Rent per Sq. Ft (2) $5.46 Percent Leased at December 31, 2016 100% $1,026 $4.68 91% Anchor Tenants (Lease Expiration / Option Expiration) (3) Kmart (2018 / 2053) Walgreens (2032 / 2052) Kmart (2018 / 2048) JC Penney (2020 / 2035) Staples (2020 / 2030) $91 $6.53 $1,751 $4.64 70% 93% Annualized base rent and gross leasable area are in thousands; any differences are a result of rounding. (1) Represents annualized straight-line rent as of Decemb er 31, 2016. (2) Calculated as total annualized b ase rent divided b y leased GLA. (3) Only the tenant has the option to extend a lease b eyond the initial term. 20 Item 3: Legal Proceedings From time to time, we are involved in legal proceedings in the ordinary course of business. We are not presently involved in any litigation nor, to our knowledge, is any other litigation threatened against us, other than routine litigation arising in the ordinary course of business, which is expected to be covered by our liability insurance and all of which collectively is not expected to have a material adverse effect on our liquidity, results of operations or business or financial condition. Item 4: Mine Safety Disclosures Not applicable. PART II Item 5: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is traded on the NYSE under the symbol “ADC.” The following table sets forth the high and low closing prices of our common stock, as reported on the NYSE, and the dividends declared per share of common stock by us for each calendar quarter in the last two fiscal years. Dividends were paid in the periods immediately subsequent to the periods in which such dividends were declared. Quarter Ended March 31, 2016 June 30, 2016 September 30, 2016 December 31, 2016 March 31, 2015 June 30, 2015 September 30, 2015 December 31, 2015 High $39.01 $48.24 $50.80 $49.25 $35.45 $33.36 $31.12 $34.47 Low $32.49 $38.26 $46.02 $42.44 $31.46 $29.17 $27.80 $29.80 Dividends per share declared $0.465 $0.480 $0.480 $0.495 $0.450 $0.465 $0.465 $0.465 As of February 20, 2017, the reported closing sale price per share of common stock on the NYSE was $48.68. At February 20, 2017, there were 26,146,543 shares of our common stock issued and outstanding which were held by approximately 133 shareholders of record. The number of shareholders of record does not reflect persons or entities that held their shares in nominee or “street” name. In addition, at February 20, 2017 there were 347,619 outstanding OP Units held by a limited partner other than our Company. The OP Units are exchangeable into shares of common stock on a one-for-one basis. For 2016, we paid $1.92 per share of common stock in dividends. Of the $1.92, 81.0% represented ordinary income, and 19.0% represented return of capital, for tax purposes. For 2015, we paid $1.845 per share of common stock in dividends. Of the $1.845, 82.3% represented ordinary income, and 17.7% represented return of capital, for tax purposes. We intend to continue to declare quarterly dividends to our shareholders. However, our distributions are determined by our board of directors and will depend upon cash generated by operating activities, our financial condition, capital requirements, annual distribution requirements under the REIT provisions of the Code and such other factors as the board of directors deems relevant. We have historically paid cash dividends, although we may choose to pay a portion in stock dividends in the future. To qualify as a REIT, we must distribute at least 90% of our REIT taxable income prior to net capital gains to our shareholders, as well as meet certain other requirements. We must pay these distributions in the taxable year the income is recognized; or in the following taxable year if they are declared during the last three months of the taxable year, payable to shareholders of record on a specified date during such period and paid during January of the following year. Such distributions are treated for REIT tax purposes as paid by us and received by our shareholders on December 31 of the year in which they are declared. In addition, at our 21 election, a distribution for a taxable year may be declared in the following taxable year if it is declared before we timely file our tax return for such year and if paid on or before the first regular dividend payment after such declaration. These distributions qualify as dividends paid for the 90% REIT distribution test for the previous year and are taxable to holders of our capital stock in the year in which paid. During the year ended December 31, 2016, the Company sold $60.0 million of senior unsecured notes. On July 28, 2016 the Company entered into a Note Purchase Agreement with institutional purchasers. Pursuant to the Note Purchase Agreement, the Operating Partnership completed a private placement of $60.0 million aggregate principal amount of our 4.42% senior unsecured notes due July 28, 2028. The senior unsecured notes were only sold to institutional investors and did not involve a public offering in reliance on the exemption from registration in Section 4(a)(2) of the Securities Act. During the year ended December 31, 2016, we repurchased 20,569 of our equity securities. For information about our equity compensation plan, please see “Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Annual Report on Form 10-K. Item 6: Selected Financial Data The following table sets forth our selected financial information on a historical basis and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and Notes thereto included elsewhere in this Annual Report on Form 10-K. Certain amounts have been reclassified to conform to the current presentation of discontinued operations. The balance sheet for the periods ending December 31, 2012 through 2016 and operating data for each of the periods presented were derived from our audited financial statements. (in thousands, except per share information and number of properties) 2016 For the Year Ended December 31, 2014 2013 2015 2012 Operating Data Total revenues Expenses Property costs (1) General and administrative Interest Depreciation and amortization Impairments Total Expenses Income From Operations Loss on extinguishment of debt Gain/(loss) on sale of assets Income From Continuing Operations Gain on sale of asset from discontinued operations Income from discontinued operations Net income Less net income attributable to non-controlling interest Net income attributable to Agree Realty Corporation Share Data Weighted average common shares - diluted Net income per share - diluted Cash dividends per share Balance Sheet Data Real Estate (before accumulated depreciation) Total Assets Total Debt, including accrued interest Other Data Number of Properties Gross Leasable Area (Sq. Ft.) Percentage Leased $ 91,527 $ 69,966 $ 53,559 $ 43,518 $ 34,624 8,596 8,015 15,343 23,407 - 55,361 36,166 (333) 9,964 45,797 - - 45,797 679 $ 45,118 6,379 6,988 12,305 16,486 - 42,158 27,808 (181) 12,135 39,762 - - 39,762 744 $ 39,018 4,916 6,629 8,587 11,103 3,020 34,255 19,304 - (528) 18,776 123 14 18,913 425 $ 18,488 3,656 5,952 6,475 8,489 - 24,572 18,946 - - 18,946 946 298 20,190 515 $ 19,675 3,328 5,682 5,134 6,241 - 20,385 14,239 - - 14,239 2,097 2,267 18,603 554 $ 18,049 22,960 $ 1.97 $ 1.92 18,065 $ 2.16 $ 1.85 14,967 $ 1.24 $ 1.74 13,158 $ 1.50 $ 1.64 11,137 $ 1.62 $ 1.60 $ 1,019,957 $ 1,111,925 $ 406,261 $ 755,849 $ 789,907 $ 320,547 $ 589,147 $ 593,580 $ 222,483 $ 471,366 $ 462,742 $ 158,869 $ 398,812 $ 370,093 $ 161,242 366 7,033 100% 278 5,207 99% 209 4,315 99% 130 3,662 98% 109 3,259 98% (1) Property costs include real estate taxes, insurance, maintenance and land lease expense. 22 Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the consolidated financial statements, and related notes thereto, included elsewhere in this Annual Report on Form 10-K and the “-Special Note Regarding Forward-Looking Statements” in “Item 1A – Risk Factors” above. Overview We are a fully integrated REIT primarily focused on the ownership, acquisition, development and management of retail properties net leased to industry leading tenants. We were founded in 1971 by our current Executive Chairman, Richard Agree, and listed on the NYSE in 1994. Our assets are held by, and all of our operations are conducted through, directly or indirectly, the Operating Partnership, of which we are the sole general partner and in which we held a 98.7% interest as of December 31, 2016. As of December 31, 2016, our portfolio consisted of 366 properties located in 43 states and totaling approximately 7.0 million square feet of gross leasable area. As of December 31, 2016, our portfolio was approximately 99.6% leased and had a weighted average remaining lease term of approximately 10.6 years. Substantially all of our tenants are subject to net lease agreements. A net lease typically requires the tenant to be responsible for minimum monthly rent and property operating expenses including property taxes, insurance and maintenance. We elected to be taxed as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 1994. We believe that we have been organized and have operated in a manner that has allowed us to qualify as a REIT for federal income tax purposes and we intend to continue operating in such a manner. Recent Accounting Pronouncements In January 2017, the Financial Accounting Standards Board (”FASB”) issued ASU No. 2017-01, “Business Combinations: Clarifying the Definition of a Business” (“ASU 2017-01”). The objective of ASU 2017-01 is to clarify the definition of a business by adding guidance on how entities should evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 will be effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods in the year of adoption. Early adoption is permitted for any interim or annual period. The Company is in the process of determining the impact that the implementation of ASU 2017-01 will have on the Company’s financial statements. In August 2016 and October 2016, the FASB issued ASU No. 2016-15 “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” and ASU No. 2016-18 “Statement of Cash Flows (Topic 230): Restricted Cash.” The objective of these standards are to provide specific guidance on cash flow classification issues and how to reduce diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The Company is in the process of determining the impact that the implementation of these standards will have on the Company’s financial statements. In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments – Credit Losses (Topic 326): Measurements of Credit Losses on Financial Instruments (“ASU 2016-13”).” The objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the current incurred impairment methodology in current GAAP is to be replaced by a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company evaluated the impact that the implementation of ASU 2016-13 and concluded the standard will not have a material impact on the Company’s financial statements upon adoption. In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which amends ASC Topic 718, Stock Compensation. ASU 2016-09 includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. ASU 2016-09 will allow entities to make an accounting policy election for the impact of most types of forfeitures on the recognition of expense for share-based payment awards by allowing the forfeitures to be either estimated, as is currently required, or recognized when they actually occur. If elected, the change to recognize 23 forfeitures when they occur will be adopted using a modified retrospective approach, with a cumulative effect adjustment recorded to retained earnings. ASU 2016-09 will be effective for the Company for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted in any interim or annual period. The Company has adopted ASU 2016-09 in the context of how the Company accounts for stock forfeitures, which is reflected in the Company’s financial statements. The adoption had no impact since we were already using a 0% forfeiture rate. In March 2016, the FASB issued ASU No. 2016-05 “Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships” (“ASU 2016-05”). ASU 2016-05 addresses the impact on hedge accounting due to a change in a counterparty to a derivative instrument that has been designated as a hedging instrument under Topic 815. The amendments in this update apply to all reporting entities for which there is a change in the counterparty to a derivative instrument that has been designated as a hedging instrument under Topic 815. The amendments in this update clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria (including those in paragraphs 815-20- 35-14 through 35-18) continue to be met. For public business entities, the amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company evaluated ASU 2016-05 in the context of our hedge accounting and concluded that it will not have a material impact on the Company’s financial statements upon adoption. In February 2016, the FASB issued ASU No. 2016-02 “Leases” (“ASU 2016-02”). The new standard creates Topic 842, Leases, in FASB Accounting Standards Codification (FASB ASC) and supersedes FASB ASC 840, Leases. ASU 2016-02 requires a lessee to recognize the assets and liabilities that arise from leases (operating and finance). However, for leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities. The main difference between the existing guidance on accounting for leases and the new standard is that operating leases will now be recorded in the statement of financial position as assets and liabilities. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases and operating leases. ASU 2016-02 is expected to impact the Company’s consolidated financial statements as the Company has certain operating land lease arrangements for which it is the lessee. Current GAAP requires only capital (finance) leases to be recognized in the statement of financial position and amounts related to operating leases largely are reflected in the financial statements as rent expense on the income statement and in disclosures to the financial statements. ASU 2016-02 is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2018. Early adoption is permitted. The Company is in the process of determining the impact that the implementation of ASU 2016-02 will have on the Company’s financial statements. We anticipate there will be an immaterial impact for the leases in which the Company is the lessor and/or the lessee. In April 2015, the FASB issued ASU No. 2015-03 “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). The objective of ASU 2015-03 is to identify, evaluate, and improve areas of GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. To simplify presentation of debt issuance costs, the amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments. ASU 2015-03 is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2015. Early adoption is permitted. The Company has adopted ASU 2015-03 and determined the resulting impact on the statements is a reclassification of certain deferred financing costs from other assets to each respective balance sheet debt account. In May 2014, with subsequent updates issued in August 2015 and March, April and May 2016, the FASB issued ASU No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 was developed to enable financial statement users to better understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The update’s core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Companies are to use a five-step contract review model to ensure revenue is recognized, measured and disclosed in accordance with this principle. ASU 2014-09, as updated, is effective for fiscal years and interim periods beginning after December 15, 2017. The Company is in the process of engaging a professional services firm to assist in the implementation of ASU 2014-09 and has not currently selected a transition method. In addition we are in the process of determining 24 the impact that the implementation of ASU 2014-09, as updated, will have on the Company’s financial statements and it is considered likely the implementation will change the Company’s disclosures. Critical Accounting Policies Our accounting policies are determined in accordance with GAAP. The preparation of our financial statements requires us to make estimates and assumptions that are subjective in nature and, as a result, our actual results could differ materially from our estimates. Set forth below are the more critical accounting policies that require management judgment and estimates in the preparation of our consolidated financial statements. This summary should be read in conjunction with the more complete discussion of our accounting policies and procedures included in Note 2 to our consolidated financial statements. Revenue Recognition We lease real estate to our tenants under long-term net leases which we account for as operating leases. Under this method, leases that have fixed and determinable rent increases are recognized on a straight-line basis over the lease term. Rental increases based upon changes in the consumer price indexes, or other variable factors, are recognized only after changes in such factors have occurred and are then applied according to the lease agreements. Certain leases also provide for additional rent based on tenants’ sales volumes. These rents are recognized when determinable by us after the tenant exceeds a sales breakpoint. Contractually obligated reimbursements from tenants for recoverable real estate taxes and operating expenses are generally included in operating costs reimbursement in the period when such expenses are recorded. Real Estate Investments We record the acquisition of real estate at cost, including acquisition and closing costs. For properties developed by us, all direct and indirect costs related to planning, development and construction, including interest, real estate taxes and other miscellaneous costs incurred during the construction period, are capitalized for financial reporting purposes and recorded as property under development until construction has been completed. Accounting for Acquisitions of Real Estate The acquisition of property for investment purposes is typically accounted for as an asset acquisition. We allocate the purchase price to land, building and identified intangible assets and liabilities, based in each case on their relative estimated fair values and without giving rise to goodwill. Intangible assets and liabilities represent the value of in-place leases and above- or below-market leases. In making estimates of fair values, we may use a number of sources, including data provided by independent third parties, as well as information obtained by the Company as a result our due diligence, including expected future cash flows of the property and various characteristics of the markets where the property is located. Depreciation Our real estate portfolio is depreciated using the straight-line method over the estimated remaining useful life of the properties, which generally ranges from 30 to 40 years for buildings and 10 to 20 years for improvements. Impairments We review our real estate investments periodically for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Events or circumstances that may occur include, but are not limited to, significant changes in real estate market conditions or our ability to re-lease or sell properties that are vacant or become vacant. Management determines whether an impairment in value has occurred by comparing the estimated future cash flows (undiscounted and without interest charges), including the residual value of the real estate, with the carrying cost of the individual asset. An asset is considered impaired if its carrying value exceeds its estimated undiscounted cash flows and an impairment charge is recorded in the amount by which the carrying value of the asset exceeds its estimated fair value. Results of Operations Comparison of Year Ended December 31, 2016 to Year Ended December 31, 2015 Minimum rental income increased $19.7 million, or 31%, to $84.0 million in 2016, compared to $64.3 million in 2015. Approximately $20.2 million of the increase is due to the acquisition of 82 properties in 2016 and the full year impact of 73 properties acquired in 2015. Approximately $1.2 million of the increase is attributable to nine development projects completed in 2016 and the full year impact of one development project completed in 2015, and approximately a $0.4 million increase due to other minimum rental income adjustments.. These increases were 25 partially offset by approximately a $2.1 reduction in minimum rental income from properties sold during 2016 that were owned for all or part of 2015. Percentage rents remained generally consistent with prior periods. The years ended December 31, 2016 and 2015 totaled approximately $0.2 million. Operating cost reimbursements increased $2.0 million, or 38%, to $7.3 million in 2016, compared to $5.3 million in 2015. Operating cost reimbursements increased due to higher levels of recoverable property operating expenses, including real estate taxes, acquisition, disposition, and development activity. The portfolio recovery rate remained consistent at 91% for both 2016 and 2015, respectively. Other income decreased $0.2 million in 2016 compared to $0.2 million in 2015. The primary driver of the decrease is non-recurring fee income earned in 2015. Real estate taxes increased $1.5 million, or 36%, to $5.5 million in 2016, compared to $4.0 million in 2015. The increase is due to the ownership of additional properties in 2016 compared to 2015 for which we remit real estate taxes and are subsequently reimbursed by tenants. Property operating expenses increased $0.7 million, or 40%, to $2.5 million in 2016, compared to $1.8 million in 2015. The increase is primarily due to the ownership of additional properties in 2016 compared to 2015 which contributed to higher property maintenance, utilities and insurance expenses. Our tenants subsequently reimbursed us for the majority of these expenses. Land lease payments increased $0.1 million, or 8%, to $0.7 million in 2016, compared to $0.6 million in 2015. The increase is the result of the full year impact of additional properties acquired in 2015 that are subject to land leases. General and administrative expenses increased $1.0 million, or 15%, to $8.0 million in 2016, compared to $7.0 million in 2015. The increase is primarily the result of increased employee count and associated professional costs. General and administrative expenses as a percentage of total revenue decreased to 8.8% for 2016 from 10.0% in 2015. Depreciation and amortization increased $6.9 million, or 42%, to $23.4 million in 2016, compared to $16.5 million in 2015. The increase was primarily the result of the acquisition of 82 properties in 2016 and 73 properties in 2015. We recorded no impairment charges during 2016 or 2015, respectively. Interest expense increased $3.0 million, or 25%, to $15.3 million in 2016, from $12.3 million in 2015. The increase in interest expense is primarily a result of additional debt issuance in 2016, including the $40.0 million unsecured term loan facility we entered into in July 2016 and $60.0 million senior unsecured notes issued in July 2016, which were offset by the repayment of the $8.6 million portfolio mortgage loan in March 2016. We recognized a net gain on sale of properties of $10.0 million in 2016, including (i) a gain of $2.7 million on the sale of a Walgreens in Port St. John, Florida; (ii) a gain of $3.5 million on the sale of a Walgreens in Rancho Cordova, California; (iii) a gain of $1.0 million on the sale of a Walgreens in Macomb, Michigan; and (iv) a gain of $2.8 million on the sale of a Walgreens in Silver Springs Shores, Florida. During 2015, the Company recognized a net gain of $12.1 million on the sale of eight properties, including (i) a gain of $3.3 million on the sale of Marshall Plaza, a Kmart-anchored shopping center in Marshall, Michigan; (ii) a gain of $0.4 million on the sale of a former Border’s store in Lawrence, Kansas; (iii) a loss of $0.3 million on the sale of two outlots to the Company’s Meijer – occupied store in Plainfield, Indiana; (iv) a gain of $0.1 million on the sale of a Sonic restaurant in Waynesboro, Virginia; (v) a gain of $8.0 million on the sale of Lakeland Plaza, a shopping center in Lakeland, Florida; and (vi) a gain of $0.6 million on the sale of Ferris Commons, a shopping center located in Big Rapids, Michigan. We had no income from discontinued operations in 2016 or 2015. Net Income attributable to the Company increased $6.1 million, or 16%, to $45.1 million in 2016, from $39.0 million in 2015 for the reasons set forth above. 26 Comparison of Year Ended December 31, 2015 to Year Ended December 31, 2014 Minimum rental income increased $14.9 million, or 30%, to $64.3 million in 2015, compared to $49.4 million in 2014. Approximately $16.7 million of the increase is due to the acquisition of 73 properties in 2015 and the full year impact of 77 properties acquired in 2014. Approximately $1.1 million of the increase is attributable to one development project completed in 2015 and the full year impact of five development projects completed in 2014. These increases were partially offset by approximately a $3.0 million reduction in minimum rental income from properties sold during 2015 that were owned for all of 2014, and approximately a $0.1 million increase due to other minimum rental income adjustments. Percentage rents remained generally consistent with prior periods. Operating cost reimbursements increased $1.5 million, or 38%, to $5.3 million in 2015, compared to $3.8 million in 2014. Operating cost reimbursements increased due to higher levels of recoverable property operating expenses, including real estate taxes, acquisition, disposition, and development activity. Our portfolio recovery rate increased to 91% in 2015 compared to 86% in 2014. Other income remained generally consistent with prior periods. Real estate taxes increased $1.2 million, or 45%, to $4.0 million in 2015, compared to $2.8 million in 2014. The increase is due to the ownership of additional properties in 2015 compared to 2014 for which we remit real estate taxes and are subsequently reimbursed by tenants. Property operating expenses increased $0.1 million, or 5%, to $1.8 million in 2015, compared to $1.7 million in 2014. The increase is primarily due to the ownership of additional properties in 2015 compared to 2014 which contributed to higher property maintenance, utilities and insurance expenses. Our tenants subsequently reimbursed us for the majority of these expenses. Land lease payments increased $0.1 million, or 29%, to $0.6 million in 2015, compared to $0.5 million for 2014. The increase is the result of additional properties acquired in 2015 compared to 2014 that are subject to a land leases. General and administrative expenses increased $0.4 million, to $7.0 million in 2015, compared to $6.6 million in 2014. The increase is primarily due to an increase in the number of employees resulting in an increased employee cost of $0.2 million and a net increase in other expenses of $0.1 million. General and administrative expenses as a percentage of total revenue decreased to 10.0% for 2015 from 12.4% in 2014. Depreciation and amortization increased $5.4 million, or 48%, to $16.5 million in 2015, compared to $11.1 million in 2014. The increase was primarily the result of the acquisition of 73 properties in 2015 and 77 properties in 2014. We had no impairment charges in 2015. We recognized impairment charges of $3.0 million in 2014, including (i) $0.2 million as a result of writing down the carrying value of Petoskey Town Center, which was under contract for sale, but not classified as held for sale at December 31, 2015 due to contingencies associated with the contract and (ii) $2.8 million as a result of writing down the carrying value of Chippewa Commons due to an anchor tenant declining to exercise an extension option which would contribute to vacancy and diminished cash flows and resulted in a fair value that was less than the net book value of the asset. Interest expense increased $3.7 million or 43%, to $12.3 million in 2015, from $8.6 million in 2014. The increase in interest expense is a result of higher levels of borrowings to finance the acquisition and development of additional properties in 2015 and 2014, including the private placement of $100.0 million of senior unsecured notes entered into in May of 2015. We recognized a net gain of $12.1 million in 2015 on the sale of eight properties, including (i) a gain of $3.3 million on the sale of Marshall Plaza, a Kmart-anchored shopping center in Marshall, Michigan; (ii) a gain of $0.4 million on the sale of a former Border’s store in Lawrence, Kansas; (iii) a loss of $0.3 million on the sale of two outlots to the Company’s Meijer – occupied store in Plainfield, Indiana; (iv) a gain of $0.1 million on the sale of a Sonic restaurant in Waynesboro, Virginia; (v) a gain of $8.0 million on the sale of Lakeland Plaza, a shopping center in Lakeland, Florida; and (vi) a gain of $0.6 million on the sale of Ferris Commons, a shopping center located in Big 27 Rapids, Michigan. In 2014, the Company recognized a net loss on the sale of properties of $0.5 million, including (i) a $0.2 million loss on the sale of Chippewa Commons, a Kmart-anchored shopping center in Chippewa Falls, Michigan, and (ii) a loss of $0.3 million on the sale of a property in East Lansing, Michigan in August 2014 (the property was subject to a purchase option exercised by the lessee). The Company also recognized a gain of $0.1 million on the sale of the Ironwood Commons in January 2014. This gain is reflected in discontinued operations in 2014. We had no income from discontinued operations in 2015, compared to $15,000 in 2014. Income from discontinued operations in 2014 was attributable to Ironwood Commons which was classified as held for sale at December 31, 2013 and subsequently sold in January 2014. Net Income attributable to the Company increased $20.9 million, or 110%, to $39.8 million in 2015, from $18.9 million in 2014 for the reasons set forth above. Liquidity and Capital Resources Our principal demands for funds include payment of operating expenses, payment of principal and interest on our outstanding indebtedness, distributions to our shareholders and future property acquisitions and development. We expect to meet our short term liquidity requirements through cash provided from operations and borrowings under our revolving credit facility. As of December 31, 2016, $14.0 million was outstanding on our revolving credit facility and $236.0 million was available for future borrowings, subject to our compliance with covenants. We anticipate funding our long term capital needs through cash provided from operations, borrowings under our revolving credit facility, the issuance of debt and the issuance of common or preferred equity or other instruments convertible into or exchangeable for common or preferred equity. We continually evaluate alternative financing and believe that we can obtain financing on reasonable terms. However, there can be no assurance that additional financing or capital will be available, or that the terms will be acceptable or advantageous to us. Capitalization As of December 31, 2016, our total market capitalization was approximately $1.6 billion. Market capitalization consisted of $1.2 billion of common equity (based on the December 31, 2016 closing price of our common stock on the NYSE of $46.05 per share and assuming the conversion of OP Units) and $404.0 million of total debt including (i) $70.0 million of mortgage notes payable; (ii) $160.0 million of unsecured term loans; (Iii) $160.0 million of senior unsecured notes; and (iv) $14.0 million of borrowings under our revolving credit facility. Our ratio of total debt to total market capitalization was 24.9% at December 31, 2016. At December 31, 2016, the non-controlling interest in our Operating Partnership consisted of a 1.3% ownership interest in the Operating Partnership held by third parties. The OP Units may, under certain circumstances, be exchanged for our shares of common stock on a one-for-one basis. We, as sole general partner of the Operating Partnership, have the option to settle exchanged OP Units held by others for cash based on the current trading price of our shares. Assuming the exchange of all OP Units, there would have been 26,512,596 shares of common stock outstanding at December 31, 2016. Debt Senior Unsecured Notes During the year ended December 31, 2016, the Company issued $60.0 million of senior unsecured notes. On July 28, 2016, the Company entered into a Note Purchase Agreement with institutional purchasers. Pursuant to the Note Purchase Agreement, the Operating Partnership completed a private placement of $60.0 million aggregate principal amount of our 4.42% senior unsecured notes due July 28, 2028. The senior unsecured notes were only sold to institutional investors and did not involve a public offering in reliance on the exemption from registration in Section 4(a)(2) of the Securities Act. Senior Unsecured Revolving Credit Facility On December 15, 2016, we amended and restated the credit agreement that governs our senior unsecured revolving credit facility and unsecured term loan facility to increase the aggregate borrowing capacity to $350.0 28 million. The agreement provides for a $250.0 million unsecured revolving credit facility, a $65.0 million unsecured term loan facility and a $35.0 million unsecured term loan facility. The unsecured revolving credit facility matures in January 2021 with options to extend the maturity date to January 2022. The unsecured term loan facilities mature in January 2024. We have the ability to increase the aggregate borrowing capacity under the credit agreement up to $500.0 million, subject to lender approval. Borrowings under the revolving credit facility bear interest at LIBOR plus 1.30% to 1.95%, depending on our leverage ratio. Additionally, we are required to pay an unused commitment fee at an annual rate of 0.15% or 0.25% of the unused portion of the revolving credit facility, depending on the amount of borrowings outstanding. The credit agreement contains certain financial covenants, including a maximum leverage ratio, a minimum fixed charge coverage ratio and a maximum percentage of secured debt to total asset value. Unsecured Term Loan Facilities The amended and restated credit agreement described above extended the maturity dates of the $65.0 million unsecured term loan facility and $35.0 million unsecured term loan facility to January 15, 2024. In connection with entering into the amended and restated credit agreement, the prior notes evidencing the existing $65.0 million unsecured term loan facility and $35.0 million unsecured term loan facility were canceled and new notes evidencing the 2024 Term Loan Facilities were executed. Borrowings under the unsecured term loan facility bear interest at a variable LIBOR plus 1.65% to 2.35%, depending on our leverage ratio. We utilized existing interest rate swaps to effectively fix the LIBOR rate (see “Note 8 - Derivative and Hedging Activities”). In July 2016, the Company completed a $40.0 million unsecured term loan facility that matures in July 2023. Borrowings under the unsecured term loan facility are priced at LIBOR plus 165 to 225 basis points, depending on our leverage. We entered into interest rate swap to fix LIBOR at 1.40% until maturity. As of December 31, 2016, $40.0 million was outstanding under the unsecured term loan facility, which is subject to an all-in interest rate of 3.05%. In August 2016, we entered into a $20.3 million unsecured amortizing term loan that matures in May 2019. Borrowings under the unsecured amortizing term loan are priced at LIBOR plus 170 basis points. In order to fix LIBOR on the unsecured amortizing term loan at 1.92% until maturity, we have an interest rate swap agreement in place, which was assigned by the lender under the prior secured facility to the lender under the unsecured amortizing term loan. As of December 31, 2016, $20.0 million was outstanding under the unsecured amortizing term loan bearing an all-in interest rate of 3.62%. Mortgage Notes Payable As of December 31, 2016, we had total mortgage indebtedness of $70.0 million, with a weighted average term to maturity of 4.4 years. Including our mortgages that have been swapped to a fixed interest rate, our weighted average interest rate on mortgage debt was 4.0%. Mortgage Note Payable Portfolio Mortgage Loan due 2016 Secured Term Loan due 2017 Secured Term Loan due 2018 Portfolio Mortgage Loan due 2020 Single Asset Mortgage Loan due 2020 CMBS Portfolio Loan due 2023 Single Asset Mortgage Loan due 2023 Portfolio Commerical Trust Lease ("CTL") due 2026 Total Interest Maturity Rate (1) 6.56% June 2016 (2) 3.62% May 2017 (3) 2.49% 6.90% 6.24% 3.60% 5.01% 6.27% April 2018 January 2020 January 2020 January 2023 September 2023 July 2026 Principal Amount Outstanding December 31, 2016 $ - December 31, 2015 $ 8,580 - 25,000 5,114 3,049 23,640 5,294 7,910 70,007 $ 20,741 25,000 6,553 3,129 23,640 5,448 8,493 101,584 $ (1) Includes the effects of variab le interest rates that have b een swapped to fixed interest rates. (2) Mortgage secured b y three Wawa locations was paid off on March 11, 2016 in the amount of $8.6 million. (3) Secured Term Loan due 2017 secured b y seven locations was paid off August 18, 2016 in the amount of $20.3 million. In August 2016, the Company prepaid a $20.3 million amortizing mortgage note due May 2017, secured by seven properties, that had an interest rate of LIBOR plus 170 basis points. Concurrently therewith, we entered into a $20.3 million unsecured amortizing term loan. Refer to unsecured term loan facility section for further detail. 29 The mortgage loans encumbering our properties are generally non-recourse, subject to certain exceptions for which we would be liable for any resulting losses incurred by the lender. These exceptions vary from loan to loan, but generally include fraud or a material misrepresentation, misstatement or omission by the borrower, intentional or grossly negligent conduct by the borrower that harms the property or results in a loss to the lender, filing of a bankruptcy petition by the borrower, either directly or indirectly, and certain environmental liabilities. At December 31, 2016, the mortgage loan of $20.7 million was partially recourse to us and secured by a limited guaranty of payment and performance for approximately 50% of the loan amount. We have entered into mortgage loans which are secured by multiple properties and contain cross-default and cross- collateralization provisions. Cross-collateralization provisions allow a lender to foreclose on multiple properties in the event that we default under the loan. Cross-default provisions allow a lender to foreclose on the related property in the event a default is declared under another loan. Contractual Obligations The following table summarizes our contractual obligations by due date as of December 31, 2016: Mortgage Notes Payable Revolving Credit Facility Unsecured Term Loans Senior Unsecured Notes Land Lease Obligations Estimated Interest Payments on Mortgage Notes Payable, Unsecured Term Loans and Senior Unsecured Notes Total $ Total 70,007 14,000 160,044 160,000 10,975 Less than 1 year 1-3 years 3-5 years More than 5 years $ $ 2,412 - 736 - 640 $ $ 30,326 - 19,308 - 1,275 4,865 14,000 100,000 - 1,220 32,404 - 40,000 160,000 7,840 109,367 524,393 $ $ 15,612 19,400 $ 29,202 80,111 $ 24,510 144,595 $ 40,043 280,287 Estimated interest payments are based on (i) the stated rates for mortgage notes payable, including the effect of interest rate swaps and (ii) the stated rates for unsecured term loans, including the effect of interest rate swaps and assuming the interest rate in effect for the most recent quarter remains in effect through the respective maturity dates. Dividends During the quarter ended December 31, 2016, we declared a quarterly dividend of $0.495 per share. The cash dividend was paid on January 3, 2017 to holders of record on December 23, 2016. Inflation Our leases typically contain provisions to mitigate the adverse impact of inflation on our results of operations. Tenant leases generally provide for limited increases in rent as a result of fixed increases or increases in the consumer price index. Certain of our leases contain clauses enabling us to receive percentage rents based on tenants’ gross sales, which generally increase as prices rise. During times when inflation is greater than increases in rent, rent increases will not keep up with the rate of inflation. Substantially all of properties are leased to tenants under long-term, net leases which require the tenant to pay certain operating expenses for a property, thereby reducing our exposure to operating cost increases resulting from inflation. Inflation may have an adverse impact on our tenants. Funds from Operations Funds from Operations (“FFO”) is defined by the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”) to mean net income computed in accordance with GAAP, excluding gains (or losses) from sales of property, plus real estate related depreciation and amortization and any impairment charges on a depreciable real estate asset, and after adjustments for unconsolidated partnerships and joint ventures. Management uses FFO as a supplemental measure to conduct and evaluate the Company’s business because there are certain limitations associated with using GAAP net income by itself as the primary measure of the Company’s operating performance. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, management believes that the presentation of operating results for real estate companies that use historical cost accounting is insufficient by itself. 30 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. Further, while the Company adheres to the NAREIT definition of FFO, its presentation of FFO is not necessarily comparable to similarly titled measures of other REITs due to the fact that all REITs may not use the same definition. Adjusted Funds from Operations (“AFFO”) is a non-GAAP financial measure of operating performance used by many companies in the REIT industry. AFFO further adjusts FFO for certain non-cash items that reduce or increase net income in accordance with GAAP. Management considers AFFO a useful supplemental measure of the Company’s performance, however, AFFO should not be considered an alternative to net income as an indication of the Company’s performance, or to cash flow as a measure of liquidity or ability to make distributions. The Company’s computation of AFFO may differ from the methodology for calculating AFFO used by other equity REITs, and therefore may not be comparable to such other REITs. Note that, during the year ended December 31, 2015, the Company adjusted its calculation of AFFO to exclude non-recurring capitalized building improvements and to include non-real estate related depreciation and amortization. Management believes that these changes provide a more useful measure of operating performance in the context of AFFO. The following table provides a reconciliation of FFO and net income for the years ended December 31, 2016, 2015 and 2014: Reconciliation from Net Income to Funds from Operations Net income Depreciation of real estate assets Amortization of leasing costs Amortization of lease intangibles Impairment charge (Gain) loss on sale of assets Funds from Operations December 31, 2016 $ 45,797 Year Ended December 31, 2015 $ 39,762 December 31, 2014 $ 18,913 15,200 125 8,010 - (9,964) 59,168 $ 11,466 98 4,859 - (12,135) 44,050 $ 8,362 125 2,491 3,020 405 33,316 $ Funds from Operations Per Share - Diluted $ 2.54 $ 2.39 $ 2.18 Weighted average shares and OP units outstanding Basic Diluted 23,216,355 23,307,418 18,350,741 18,413,034 15,230,205 15,314,514 The following table provides a reconciliation of AFFO and net income for the years ended December 31, 2016, 2015 and 2014: Reconciliation from Net Income to Adjusted Funds from Operations December 31, 2016 45,797 Net income Cumulative adjustments to calculate FFO Funds from Operations Straight-line accrued rent Deferred revenue recognition Stock based compensation expense Amortization of financing costs Non-Real Estate Depreciation Debt Extinguishment Costs Adjusted Funds from Operations 13,371 59,168 (3,582) (541) 2,441 516 72 333 58,407 $ $ $ Year Ended Year Ended December 31, 2015 $ 39,762 Year Ended December 31, 2014 $ 18,913 $ $ 4,288 44,050 (2,450) (463) 1,992 494 62 180 43,865 14,403 33,316 (1,416) (463) 1,987 398 123 - 33,945 $ $ Adjusted Funds from Operations Per Share - Diluted $ 2.51 $ 2.38 $ 2.22 Additional supplemental disclosure Scheduled principal repayments Capitalized interest Capitalized building improvements $ $ $ 2,954 210 541 $ $ $ 2,772 39 310 $ $ $ 3,599 263 145 31 Item 7A: Quantitative and Qualitative Disclosures about Market Risk We are exposed to interest rate risk primarily through our borrowing activities. There is inherent roll-over risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and our future financing requirements. Our interest rate risk is monitored using a variety of techniques. The table below presents the principal payments (in thousands) and the weighted average interest rates on outstanding debt, by year of expected maturity, to evaluate the expected cash flows and sensitivity to interest rate changes, assuming no mortgage defaults. ($ in thousands) Mortgage Notes Payable Average Interest Rate Unsecured Revolving Credit Facility Average Interest Rate Unsecured Term Loans Average Interest Rate Senior Unsecured Notes Average Interest Rate $ $ $ $ 2017 2018 2019 2020 2021 Thereafter Total 2,412 $ 6.59% 27,576 $ 2.87% 2,751 $ 6.59% 3,867 $ 6.21% 998 $ 6.02% 32,403 $ 4.15% 70,007 - $ - $ - $ - $ 14,000 $ 1.92% - $ 14,000 736 $ 761 $ 3.62% 3.62% 18,547 $ 3.62% 35,000 $ 3.85% 65,000 $ 3.74% 40,000 $ 3.05% 160,044 - $ - $ - $ - $ - $ 160,000 $ 160,000 4.29% The fair value is estimated at $75.8 million and $325.6 million for mortgage notes payable and unsecured term loans and notes, respectively, as of December 31, 2016. The table above incorporates those exposures that exist as of December 31, 2016; it does not consider those exposures or positions which could arise after that date. As a result, our ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period and interest rates. We seek to limit the impact of interest rate changes on earnings and cash flows and to lower the overall borrowing costs by closely monitoring our variable rate debt and converting such debt to fixed rates when we deem such conversion advantageous. From time to time, we may enter into interest rate swap agreements or other interest rate hedging contracts. While these agreements are intended to lessen the impact of rising interest rates, they also expose us to the risks that the other parties to the agreements will not perform, we could incur significant costs associated with the settlement of the agreements, the agreements will be unenforceable and the underlying transactions will fail to qualify as highly-effective cash flow hedges under GAAP guidance. In April 2012, the Company entered into an amortizing forward-starting interest rate swap agreement to hedge against changes in future cash flows resulting from changes in interest rates on $22.3 million in variable-rate borrowings. Under the terms of the interest rate swap agreement, the Company receives from the counterparty interest on the notional amount based on 1 mo. LIBOR and pays to the counterparty a fixed rate of 1.92%. This swap effectively converted $22.3 million of variable-rate borrowings to fixed-rate borrowings from July 1, 2013 to May 1, 2019. As of December 31, 2016, this interest rate swap was valued as a liability of approximately $0.2 million. In December 2012, the Company entered into interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates on $25.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreement, the Company receives from the counterparty interest on the notional amount based on 1 month LIBOR and pays to the counterparty a fixed rate of 0.89%. This swap effectively converted $25.0 million of variable-rate borrowings to fixed-rate borrowings from December 6, 2012 to April 4, 2018. As of December 31, 2016, this interest rate swap was valued as an asset of approximately $0.1 million. In September 2013, the Company entered into an interest rate swap agreement to hedge against changes in future cash flows resulting from changes in interest rates on $35.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreement, the Company receives from the counterparty interest on the notional amount based on 1 month LIBOR and pays to the counterparty a fixed rate of 2.20%. This swap effectively converted $35.0 32 million of variable-rate borrowings to fixed-rate borrowings from October 3, 2013 to September 29, 2020. As of December 31, 2016, this interest rate swap was valued as a liability of approximately $0.7 million. In July 2014, the Company entered into interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates on $65.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreement, the Company receives from the counterparty interest on the notional amount based on 1 month LIBOR and pays to the counterparty a fixed rate of 2.09%. This swap effectively converted $65.0 million of variable-rate borrowings to fixed-rate borrowings from July 21, 2014 to July 21, 2021. As of December 31, 2016, this interest rate swap was valued as a liability of approximately $1.0 million. In June 2016, the Company entered into an interest rate swap agreement to hedge against changes in future cash flows resulting from changes in interest rates on $40.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreement, the Company receives from the counterparty interest on the notional amount based on 1 month LIBOR and pays to the counterparty a fixed rate of 1.40%. This swap effectively converted $40.0 million of variable-rate borrowings to fixed-rate borrowings from August 1, 2016 to July 1, 2023. As of December 31, 2016, this interest rate swap was valued as an asset of approximately $1.4 million. We do not use derivative instruments for trading or other speculative purposes and we did not have any other derivative instruments or hedging activities as of December 31, 2016. As of December 31, 2016, a 100 basis point increase in interest rates on the portion of our debt bearing interest at variable rates would have resulted in an increase in interest expense of approximately $0.1 million. Item 8: Financial Statements and Supplementary Data The financial statements and supplementary data are listed in the Index to Financial Statements and Financial Statement Schedules appearing on Page F-1 of this Annual Report on Form 10-K and are included in this Annual Report on Form 10-K following page F-1. Item 9: Changes In and Disagreements with Accountants on Accounting and Financial Disclosure There are no disagreements with our independent registered public accounting firm on accounting matters or financial disclosure. Item 9A: Controls and Procedures Disclosure Controls and Procedures As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a15-(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that: 1) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our Company; 2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and 3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. 33 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision of our principal executive officer and our principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment and those criteria, our management believes that we maintained effective internal control over financial reporting as of December 31, 2016. Changes in Internal Control over Financial Reporting There was no change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Attestation Report of Independent Registered Public Accounting Firm The attestation report required under this item is contained on page F-2 of this Annual Report on Form 10-K. Item 9B: Other Information None. PART III Item 10: Directors, Executive Officers and Corporate Governance Incorporated herein by reference to our definitive proxy statement with respect to our 2017 Annual Meeting of Shareholders. Item 11: Executive Compensation Incorporated herein by reference to our definitive proxy statement with respect to our 2017 Annual Meeting of Shareholders. Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The following table summarizes the equity compensation plan under which our common stock may be issued as of December 31, 2016. Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) Weighted Average Exercise Price of Outstanding Options, Warrant and Rights (b) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c) - - - - - - 557,543 (1) - 557,543 Plan Category Equity Compensation Plans Approved by Security Holders Equity Compensation Plans Not Approved by Security Holders Total (1) Relates to various stock-based awards available for issuance under our 2014 Omnibus Incentive Plan, including incentive stock options, non-qualified stock options, stock appreciation rights, deferred stock awards, restricted stock awards, unrestricted stock awards and dividend equivalent rights. 34 Additional information, including our Security Ownership of Certain Beneficial Owners and Management table, is incorporated herein by reference to our definitive proxy statement with respect to our 2017 Annual Meeting of Shareholders. Item 13: Certain Relationships, Related Transactions and Director Independence Incorporated herein by reference to our definitive proxy statement with respect to our 2017 Annual Meeting of Shareholders. Item 14: Principal Accounting Fees and Services Incorporated herein by reference to our definitive proxy statement with respect to our 2017 Annual Meeting of Shareholders. 35 PART IV ITEM 15: Exhibits and Financial Statement Schedules 15(a)(1). The following documents are filed as a part of this Annual Report on Form 10-K: Reports of Independent Registered Public Accounting Firms Consolidated Balance Sheets as of December 31, 2016 and 2015 Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2016, 2015 and 2014 Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2016, 2015 and 2014 Consolidated Statements of Cash Flow for the Years Ended December 31, 2016, 2015 and 2014 Notes to the Consolidated Financial Statements 15(a)(2). The following is a list of the financial statement schedules required by Item 8: Schedule III – Real Estate and Accumulated Depreciation 15(a)(3). Exhibits Exhibit No. Description 3.1 3.2 3.3 4.1 Articles of Incorporation of the Company, (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q (No. 001-12928) for the quarter ended June 30, 2013) Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 8-K (No. 001-12928) filed on May 9, 2013) Articles of Amendment of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K (No. 001-12928) filed on May 3, 2016) Rights Agreement, dated as of December 7, 1998, by and between Agree Realty Corporation, a Maryland corporation, and Computershare Trust Company, N.A., f/k/a EquiServe Trust Company, N.A., a national banking association, as successor rights agent to BankBoston, N.A., a national banking association (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-3 (No. 333-161520) filed on November 13, 2009) 4.2 Second Amendment to Rights Agreement, dated as of December 8, 2008, by and between Agree Realty Corporation, a Maryland corporation, and Computershare Trust Company, N.A., f/k/a EquiServe Trust Company, N.A., a national banking association, as successor rights agent to BankBoston, N.A., a national banking association (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (No. 001-12928) filed on December 9, 2008) 4.3 4.4 Amended and Restated Registration Rights Agreement, dated July 8, 1994 by and among the Company, Richard Agree, Edward Rosenberg and Joel Weiner (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K (No. 001-12928) for the year ended December 31, 1994) Form of certificate representing shares of common stock (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-3 (No. 333-161520) filed on August 24, 2009 10.1* First Amended and restated Credit Agreement, dated as of December 15, 2016, among Agree Limited Partnership, as the Borrower, Agree Realty Corporation, as the parent REIT and a guarantor, certain subsidiaries of the Borrower, as guarantors, PNC Bank, National Association and the other lenders party thereto 10.2 The Term Loan Agreement dated July 1, 2016, among Agree Limited Partnership, Capital One and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (No. 001- 12928) for the quarter ended June 30, 2016) 10.3* The First Amendment dated December 15, 2016 to the Term Loan Agreement dated July 1, 2016, among Agree Limited Partnership, Capital One and the other lenders party thereto 36 10.4 10.5 First Amended and Restated Agreement of Limited Partnership of Agree Limited Partnership, dated as of April 22, 1994, as amended by and among the Company, Richard Agree, Edward Rosenberg and Joel Weiner (incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K (No. 001-12928) for the year ended December 31, 2012) Second Amendment to First Amended and Restated Agreement of Limited Partnership of Agree Limited Partnership, dated as of March 20, 2013, as amended by and among the Company, the Limited Partnership and Richard Agree (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (No. 001-12928) for the quarter ended March 31, 2013) 10.6+ Agree Realty Corporation Profit Sharing Plan (incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K (No. 001-12928) for the year ended December 31, 1996) 10.7+ Amended Employment Agreement, dated July 1, 2014, by and between the Company and Richard Agree (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (No. 001-12928) for the quarter ended September 30, 2014) 10.8+ Amended Employment Agreement, dated July 1, 2014, by and between the Company and Joey Agree (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (No. 001-12928) for the quarter ended September 30, 2014) 10.9+ Letter Agreement of Employment dated April 5, 2010 between Agree Limited Partnership and Laith Hermiz (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (No. 001-12928) filed on April 6, 2010) 10.10+Letter Agreement of Employment dated November 4, 2015 between Agree Limited Partnership and Matthew M. Partridge (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (No. 001-12928) filed on November 24, 2015) 10.11*Summary of Director Compensation 10.12+Agree Realty Corporation 2014 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on 10-K (No. 001-12928) for the year ended December 31, 2014) 10.13+Form of Restricted Stock Agreement under the Agree Realty Corporation 2014 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (No. 001-12928) for the quarter ended September 30, 2014) 10.14* Agree Realty Corporation 2017 Executive Incentive Plan, dated February 23, 2017 10.15 Note Purchase Agreement, by Agree Limited Partnership dated May 28, 2015 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (No. 001-12928) filed on June 1, 2015) 10.16 Note Purchase and Guarantee Agreement, dated July 28, 2016, by and among Agree Realty Corporation, Agree Limited Partnership, Teachers Insurance and Annuity Association of America, The Guardian Life Insurance Company of America and Advantus Capital Management, Inc. (incorporated by reference Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (No. 001-12928) for the quarter ended September 30, 2016) 12.1* Statement of computation of ratios of earnings to combined fixed charges and preferred stock dividends 21* Subsidiaries of Agree Realty Corporation 23.1* Consent of Grant Thornton LLP 24 Power of Attorney (included on the signature page of this Annual Report on Form 10-K) 31.1* Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Joel N. Agree, Chief Executive Officer 31.2* Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Matthew M. Partridge, Chief Financial Officer 32.1* Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Joel N. Agree, Chief Executive Officer 32.2* Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Matthew M. Partridge, Chief Financial Officer 99.1 Material Federal Income Tax Considerations (incorporated by reference to Exhibit 99.1 to the Company’s Annual Report on Form 10-K (No. 001-12928) filed on March 11, 2016) 37 101* The following materials from Agree Realty Corporation’s Annual Report on Form 10-K for the year ended December 31, 2016 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Income, (iii) the Consolidated Statement of Shareholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and (v) related notes to these consolidated financial statements, tagged as blocks of text * + Filed herewith. Management contract or compensatory plan or arrangement. Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the registrant has not filed debt instruments relating to long- term debt that is not registered and for which the total amount of securities authorized thereunder does not exceed 10% of total assets of the registrant and its subsidiaries on a consolidated basis as of December 31, 2016. The registrant agrees to furnish a copy of such agreements to the SEC upon request. 15(b) The Exhibits listed in Item 15(a)(3) are hereby filed with this Annual Report on Form 10-K. 15(c) The financial statement schedule listed at Item 15(a)(2) is hereby filed with this Annual Report on Form 10- K. 38 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES AGREE REALTY CORPORATION By: /s/ Joel N. Agree Joel N. Agree President and Chief Executive Officer Date: February 23, 2017 KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and directors of Agree Realty Corporation, hereby severally constitute Richard Agree, Joel N. Agree and Matthew M. Partridge, and each of them singly, our true and lawful attorneys with full power to them, and each of them singly, to sign for us and in our names in the capacities indicated below, the Annual Report on Form 10-K filed herewith and any and all amendments to said Annual Report on Form 10-K, and generally to do all such things in our names and in our capacities as officers and directors to enable Agree Realty Corporation to comply with the provisions of the Securities Exchange Act of 1934, as amended and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to said Annual Report on Form 10-K and any and all amendments thereto. PURSUANT to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 23rd day of February 2017. By: By: By: By: By: By: By: By: By: By: /s/ Richard Agree Richard Agree Executive Chairman of the Board of Directors /s/ Joel N. Agree Joel N. Agree President, Chief Executive Officer and Director (Principal Executive Officer) /s/ Matthew M. Partridge Matthew M. Partridge Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) /s/ Merrie S. Frankel Merrie S. Frankel Director /s/ Farris G. Kalil Farris G. Kalil Director /s/ John Rakolta John Rakolta Jr. Director /s/ Jerome Rossi Jerome Rossi Director /s/ William S. Rubenfaer William S. Rubenfaer Director /s/ Leon M. Schurgin Leon M. Schurgin Director /s/ Gene Silverman Gene Silverman Director 39 Date: February 23, 2017 Date: February 23, 2017 Date: February 23, 2017 Date: February 23, 2017 Date: February 23, 2017 Date: February 23, 2017 Date: February 23, 2017 Date: February 23, 2017 Date: February 23, 2017 Date: February 23, 2017 40 Reports of Independent Registered Public Accounting Firm Financial Statements Consolidated Balance Sheets Consolidated Statements of Operations and Comprehensive Income Consolidated Statements of Stockholders’ Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Schedule III - Real Estate and Accumulated Depreciation Page F-2 F-4 F-5 F-6 F-7 F-9 F-30 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders Agree Realty Corporation We have audited the internal control over financial reporting of Agree Realty Corporation (a Maryland corporation) and subsidiaries (the “Company”) as of December 31, 2016, based on criteria established in the 2013 Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and for the year ended December 31, 2016, and our report dated February 23, 2017 expressed an unqualified opinion on those financial statements. /s/ GRANT THORNTON LLP Southfield, Michigan February 23, 2017 F-2 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders Agree Realty Corporation We have audited the accompanying consolidated balance sheets of Agree Realty Corporation (a Maryland corporation) and subsidiaries (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2016. Our audits of the basic consolidated financial statements included the financial statement schedule listed in the index appearing under Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Agree Realty Corporation and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2016, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 23, 2017 expressed an unqualified opinion. /s/ GRANT THORNTON LLP Southfield, Michigan February 23, 2017 F-3 AGREE REALTY CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except for share data) December 31, 2016 December 31, 2015 $ 309,687 703,506 (69,696) 943,497 6,764 950,261 $ 225,274 526,912 (56,401) 695,785 3,663 699,448 33,395 2,712 11,535 7,418 1,552 1,227 109,824 1,409 2,722 543 665 76,552 98 2,471 $ 1,111,925 $ 789,907 ASSETS Real Estate Investments Land Buildings Less accumulated depreciation Property under development Net Real Estate Investments Cash and Cash Equivalents Accounts Receivable - Tenants, net of allowance of $50 and $35 for possible losses at December 31, 2016 and December 31, 2015, respectively Unamortized Deferred Expenses Credit facility finance costs, net of accumulated amortization of $1,262 and $1,532 at December 31, 2016 and December 31, 2015, respectively Leasing costs, net of accumulated amortization of $677 and $554 at December 31, 2016 and December 31, 2015, respectively Lease intangibles, net of accumulated amortization of $18,588 and $10,578 at December 31, 2016 and December 31, 2015, respectively Interest Rate Swaps Other Assets Total Assets See accompanying notes to consolidated financial statements. F-4 AGREE REALTY CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except for share and per-share data) LIABILITIES Mortgage Notes Payable, net Unsecured Term Loans, net Senior Unsecured Notes, net Unsecured Revolving Credit Facility Dividends and Distributions Payable Deferred Revenue Accrued Interest Payable Accounts Payable and Accrued Expenses Capital expenditures Operating Interest Rate Swaps Deferred Income Taxes Tenant Deposits Total Liabilities STOCKHOLDERS' EQUITY Common stock, $.0001 par value, 45,000,000 shares authorized, 26,164,977 and 20,637,301 shares issued and outstanding, respectively Preferred Stock, $.0001 par value per share, 4,000,000 shares authorized Series A junior participating preferred stock, $.0001 par value, 200,000 authorized, no shares issued and outstanding Additional paid-in-capital Dividends in excess of net income Accumulated other comprehensive loss Total Stockholders' Equity - Agree Realty Corporation Non-controlling interest Total Stockholders' Equity December 31, 2016 December 31, 2015 $ 69,067 $ 100,391 158,679 159,176 14,000 13,124 1,823 2,210 677 4,866 1,994 705 94 99,390 99,161 18,000 9,758 1,708 963 122 2,759 3,301 705 29 426,415 336,287 3 2 - 712,069 (28,558) (536) 682,978 2,532 685,510 - 482,514 (28,262) (3,130) 451,124 2,496 453,620 Total Liabilities and Stockholders' Equity $ 1,111,925 $ 789,907 See accompanying notes to consolidated financial statements. F-5 AGREE REALTY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (In thousands, except for share and per-share data) Revenues Minimum rents Percentage rents Operating cost reimbursement Other income Total Revenues Operating Expenses Real estate taxes Property operating expenses Land lease payments General and administrative Depreciation and amortization Impairment charge Total Operating Expenses Income from Operations Other (Expense) Income Interest expense, net Gain (loss) on sale of assets Loss on debt extinguishment Income From Continuing Operations Discontinued Operations Gain on sale of assets from discontinued operations Income from discontinued operations For the Year Ended December 31, 2015 2014 2016 $ 84,031 197 7,267 32 91,527 $ 64,278 180 5,277 231 69,966 $ 49,403 160 3,825 171 53,559 5,459 2,484 653 8,015 23,407 - 40,018 10.0% 51,509 (15,343) 9,964 (333) 45,797 - - 4,005 1,768 606 6,988 16,486 - 29,853 10.0% 40,113 (12,305) 12,135 (181) 39,762 - - 2,766 1,679 471 6,629 11,103 3,020 25,668 27,891 (8,587) (528) - 18,776 123 14 Net Income 45,797 39,762 18,913 Less Net Income Attributable to Non-Controlling Interest 679 744 425 Net Income Attributable to Agree Realty Corporation $ 45,118 $ 39,018 $ 18,488 Basic Earnings Per Share Continuing operations Discontinued operations Diluted Earnings Per Share Continuing operations Discontinued operations $ $ $ $ $ $ $ $ $ $ $ $ 1.97 - 1.97 1.97 - 1.97 2.17 - 2.17 2.16 - 2.16 1.23 0.01 1.24 1.23 0.01 1.24 Other Comprehensive Income Net income Other Comprehensive Income (Loss) Total Comprehensive Income Comprehensive Income Attributable to Non-Controlling Interest Comprehensive Income Attributable to Agree Realty Corporation Weighted Average Number of Common Shares Outstanding - Basic: Weighted Average Number of Common Shares Outstanding - Diluted: $ 45,797 2,618 48,415 $ 39,762 (1,093) 38,669 $ 18,913 (2,584) 16,329 (703) (724) (373) $ 47,712 $ 37,945 $ 15,956 22,868,736 18,003,122 14,882,586 22,959,799 18,065,415 14,966,895 See accompanying notes to consolidated financial statements. F-6 AGREE REALTY CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands, except for share and per-share data) Balance, December 31, 2013 Issuance of common stock, net of issuance costs Issuance of restricted stock under the Equity Incentive Plan Issuance of restricted stock under the Omnibus Incentive Plan Forfeiture of restricted stock Vesting of restricted stock Dividends and distributions declared for the period Other comprehensive income (loss) - change in fair value of interest rate swap Net income Balance, December 31, 2014 Issuance of common stock, net of issuance costs Issuance of restricted stock under the Omnibus Incentive Plan Forfeiture of restricted stock Vesting of restricted stock Dividends and distributions declared for the period Other comprehensive income (loss) - change in fair value of interest rate swaps Net income Balance, December 31, 2015 Issuance of common stock, net of issuance costs Repurchase of common shares Issuance of restricted stock under the Omnibus Incentive Plan Forfeiture of restricted stock Vesting of restricted stock Dividends and distributions declared for the period Other comprehensive income (loss) - change in fair value of interest rate swaps Net income Balance, December 31, 2016 Common Stock Shares 14,883,314 2,587,500 81,864 2,128 (14,860) - - - - - 17,539,946 3,043,812 85,597 (32,054) - - - - - 20,637,301 5,461,459 (20,569) 93,363 (6,577) - - Amount $ 1 - - - - - - - - - 1 $ 1 - - - - - - - Additional Paid-In Capital $ 312,974 73,302 - - - 1,987 - - - - $ 388,263 92,259 - - 1,992 - - - - $ 2 1 - - - - - $ 482,514 228,010 (712) - - 2,257 - $ $ $ Dividends in excess of net income $ Non-Controlling Interest $ Total Equity $ $ Accumulated Other Comprehensive Income (Loss) $ 472 - - - - - - - (2,532) - (2,060) - - - - - - (1,070) - (3,130) - - - - - - $ (23,879) - - - - - (27,193) - - 18,488 (32,584) - - - - (34,696) - - 39,018 (28,262) - - - - - (45,414) 2,647 - - - - - (605) - (52) 425 2,415 - - - - (640) - (23) 744 2,496 - - - - - (667) 292,215 73,302 - - - 1,987 (27,798) - (2,584) 18,913 356,035 92,260 - - 1,992 (35,336) - (1,093) 39,762 453,620 228,011 (712) - - 2,257 (46,081) $ $ $ - - 26,164,977 - - $ 3 - - 712,069 $ - 45,118 (28,558) $ 2,594 - (536) $ 24 679 2,532 $ 2,618 45,797 685,510 $ See accompanying notes to consolidated financial statements. F-7 AGREE REALTY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Cash Flows from Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Amortization Amortization from financing and credit facility costs Stock-based compensation Impairment charge Write-off of deferred costs (Gain) loss on sale of assets (Increase) decrease in accounts receivable (Increase) decrease in other assets Increase (decrease) in accounts payable Increase (decrease) in deferred revenue Increase (decrease) in accrued interest Increase (decrease) in tenant deposits Net Cash Provided by Operating Activities Cash Flows from Investing Activities Acquisition of real estate investments Development of real estate investments and other (including capitalized interest of $210 in 2016, $39 in 2015, and $263 in 2014 Payment of leasing costs Net proceeds from sale of assets Net Cash Used In Investing Activities Cash Flows from Financing Activities Proceeds from common stock offering, net Repurchase of common shares Unsecured revolving credit facility borrowings Unsecured revolving credit facility repayments Payments of mortgage notes payable Unsecured term loan proceeds Payments of unsecured term loans Senior unsecured notes proceeds Dividends paid Limited partners' distributions paid Debt extinguishment costs Payments for financing costs Net Cash Provided by Financing Activities For the Year Ended December 31, 2016 2015 2014 $ 45,797 $ 39,762 $ 18,913 15,274 8,133 720 2,257 - 333 (9,964) (4,117) (109) 1,984 115 1,247 65 61,735 11,530 4,956 689 1,992 - 181 (12,135) (2,911) (197) 1,043 (463) 241 (8) 44,680 8,486 2,617 951 1,987 3,020 - 405 (1,245) 344 (311) (463) 251 (4) 34,951 (297,868) (223,871) (143,273) (27,919) (686) 28,919 (297,554) 228,011 (712) 252,000 (256,000) (31,578) 60,283 (239) 60,000 (42,058) (657) - (2,548) 266,502 (6,970) (66) 28,132 (202,775) 92,260 - 161,000 (158,000) (5,178) - - 100,000 (32,992) (636) (150) (896) 155,408 (16,527) (354) 12,456 (147,698) 73,302 - 148,623 (143,123) (12,767) 65,000 - - (25,403) (591) - (1,432) 103,609 Net (Decrease) Increase in Cash and Cash Equivalents Cash and Cash Equivalents, beginning of period Cash and Cash Equivalents, end of period 30,683 2,712 33,395 $ (2,687) 5,399 2,712 $ (9,138) 14,537 5,399 $ Supplemental Disclosure of Cash Flow Information Cash paid for interest (net of amounts capitalized) Cash paid for income tax Supplemental Disclosure of Non-Cash Investing and Financing Activities Shares issued under equity incentive plans (in dollars) Real estate acquisitions financed with debt assumption $ 13,822 $ 11,548 $ 7,825 $ 8 $ 1 $ - $ 3,517 $ - $ 2,864 $ - $ $ 2,390 5,631 See accompanying notes to consolidated financial statements. F-8 Agree Realty Corporation Notes to Consolidated Financial Statements December 31, 2016 Note 1 – Organization Agree Realty Corporation, a Maryland corporation, is a fully integrated real estate investment trust (“REIT”) primarily focused on the ownership, acquisition, development and management of retail properties net leased to industry leading tenants. The Company was founded in 1971 by its current Executive Chairman, Richard Agree, and listed on the New York Stock Exchange (“NYSE”) in 1994. Our assets are held by, and all of our operations are conducted through, directly or indirectly, Agree Limited Partnership (the “Operating Partnership”), of which Agree Realty Corporation is the sole general partner and in which it held a 98.7% interest as of December 31, 2016. Under the partnership agreement of the Operating Partnership, Agree Realty Corporation, as the sole general partner, has exclusive responsibility and discretion in the management and control of the Operating Partnership. The terms “Agree Realty,” the "Company," “Management,” "we,” “our” or "us" refer to Agree Realty Corporation and all of its consolidated subsidiaries, including the Operating Partnership. Note 2 – Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements of Agree Realty Corporation include the accounts of the Company, the Operating Partnership and its wholly-owned subsidiaries. The Company controlled, as the sole general partner, 98.7% and 98.3% of the Operating Partnership as of December 31, 2016 and 2015. All material intercompany accounts and transactions are eliminated. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of (1) assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and (2) revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain reclassifications of prior period amounts have been made in the consolidated financial statements and footnotes in order to conform to the current presentation. As a result of the adoption of ASU 2015-03, unamortized debt issuance cost is presented as a direct deduction from the carrying amount of the debt liability; in previously filed reports the unamortized debt issuance cost was classified on the Balance Sheet as an Unamortized Deferred Expense. Also, prepaid rents are presented on the Balance Sheet as Deferred Revenue; in previously filed reports it was presented in Accounts Payable - Operating. Segment Reporting The Company is primarily in the business of acquiring, developing and managing retail real estate which is considered to be one reporting segment. The Company has no other reportable segments. Real Estate Investments The Company records the acquisition of real estate at cost, including acquisition and closing costs. For properties developed by the Company, all direct and indirect costs related to planning, development and construction, including interest, real estate taxes and other miscellaneous costs incurred during the construction period, are capitalized for financial reporting purposes and recorded as property under development until construction has been completed. Properties classified as “held for sale” are recorded at the lower of their carrying value or their fair value, less anticipated selling costs. Accounting for Acquisitions of Real Estate The acquisition of property for investment purposes is typically accounted for as an asset acquisition. The Company allocates the purchase price to land, building and identified intangible assets and liabilities, based in each case on their relative estimated fair values and without giving rise to goodwill. Intangible assets and liabilities represent the value of in-place leases and above- or below-market leases. In making estimates of fair values, the Company may use a number of sources, including data provided by independent third parties, as well as information obtained by the Company as a result our due diligence, including expected future cash flows of the property and various characteristics of the markets where the property is located. F-9 Agree Realty Corporation Notes to Consolidated Financial Statements December 31, 2016 In allocating the fair value of the identified intangible assets and liabilities of an acquired property, in-place lease intangibles are valued based on the Company’s estimates of costs related to tenant acquisition and the carrying costs that would be incurred during the time it would take to locate a tenant if the property were vacant, considering current market conditions and costs to execute similar leases at the time of the acquisition. Above and below market lease intangibles are recorded based on the present value of the difference between the contractual amounts to be paid pursuant to the leases at the time of acquisition of the real estate and the Company’s estimate of current market lease rates for the property, measured over a period equal to the remaining non-cancelable term of the lease. The fair value of identified intangible assets and liabilities acquired is amortized to depreciation and amortization over the remaining term of the related leases. Depreciation The Company’s real estate portfolio is depreciated using the straight-line method over the estimated remaining useful life of the properties, which generally ranges from 30 to 40 years for buildings and 10 to 20 years for improvements. Properties classified as “held for sale” are not depreciated. Impairments The Company reviews its real estate investments periodically for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Events or circumstances that may occur include, but are not limited to, significant changes in real estate market conditions or our ability to re-lease or sell properties that are vacant or become vacant. Management determines whether an impairment in value has occurred by comparing the estimated future cash flows (undiscounted and without interest charges), including the residual value of the real estate, with the carrying cost of the individual asset. An asset is considered impaired if its carrying value exceeds its estimated undiscounted cash flows and an impairment charge is recorded in the amount by which the carrying value of the asset exceeds its estimated fair value. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity date of three months or less from the date purchased to be cash equivalents. Cash and cash equivalents consist of cash and money market accounts. The account balances periodically exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance coverage, and as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Company had $32.4 million and $1.7 million in cash as of December 31, 2016 and 2015, respectively, in excess of the FDIC insured limit. Accounts Receivable – Tenants The Company reviews its rent receivables for collectability on a regular basis, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area where the property is located. In the event that the collectability of a receivable with respect to any tenant is in doubt, a provision for uncollectible amounts will be established or a direct write-off of the specific rent receivable will be made. For accrued rental revenues related to the straight-line method of reporting rental revenue, the Company performs a periodic review of receivable balances to assess the risk of uncollectible amounts and establish appropriate provisions. The Company’s leases provide for reimbursement from tenants for common area maintenance (“CAM”), insurance, real estate taxes and other operating expenses ("Operating Cost Reimbursement Revenue"). A portion of our Operating Cost Reimbursement Revenue is estimated each year end and is recognized as revenue in the period the recoverable costs are incurred and accrued. Receivables from Operating Cost Reimbursement Revenue is included in our Accounts Receivable - Tenants line item in our consolidated balance sheets. The balance of unbilled Operating Cost Reimbursement Revenue at December 31, 2016 and 2015 are $1.1 million and $0.5 million, respectively. In addition, many of the Company’s leases contain rent escalations for which we recognize revenue on a straight- line basis over the non-cancelable lease term. This method results in rental revenue in the early years of a lease being higher than actual cash received, creating a straight-line rent receivable asset which is included in the Accounts Receivable - Tenants line item in our consolidated balance sheets. The balance of straight-line rent receivable at December 31, 2016 and 2015 are $9.6 million and $6.0 million, respectively. To the extent any of F-10 Agree Realty Corporation Notes to Consolidated Financial Statements December 31, 2016 the tenants under these leases become unable to pay their contractual cash rents, the Company may be required to write down the straight-line rent receivable from those tenants, which would reduce operating income. Sales Tax The Company collects various taxes from tenants and remits these amounts, on a net basis, to the applicable taxing authorities. Unamortized Deferred Expenses Deferred expenses include debt financing costs, leasing costs and lease intangibles, and are amortized as follows: (i) debt financing costs on a straight-line basis to interest expense over the term of the related loan, which approximates the effective interest method; (ii) leasing costs on a straight-line basis to depreciation and amortization over the term of the related lease entered into; and (iii) lease intangibles on a straight-line basis to depreciation and amortization over the remaining term of the related lease acquired. The following schedule summarizes the Company’s amortization of deferred expenses (in thousands) for the years ended December 31, 2016, 2015 and 2014, respectively: Year Ended December 31, 2016 2015 2014 Credit Facility Financing Costs Leasing Costs Lease Intangibles Total $ $ $ 228 124 8,010 8,362 225 97 4,859 5,181 280 126 2,491 2,897 $ $ $ The following schedule represents estimated future amortization of deferred expenses as of December 31, 2016 (in thousands): Year Ending December 31, 2017 2018 2019 2020 2021 Thereafter Total Credit Facility Financing Costs Leasing Costs Lease Intangibles Total $ $ $ $ $ 394 162 9,813 10,369 379 159 9,637 10,175 379 157 9,135 9,671 379 137 8,870 9,386 $ $ $ $ $ 21 117 8,592 8,730 - $ 495 63,777 64,272 $ $ 1,552 1,227 109,824 112,603 $ Revenue Recognition The Company leases real estate to its tenants under long-term net leases which we account for as operating leases. Under this method, leases that have fixed and determinable rent increases are recognized on a straight- line basis over the lease term. Rental increases based upon changes in the consumer price indexes, or other variable factors, are recognized only after changes in such factors have occurred and are then applied according to the lease agreements. Certain leases also provide for additional rent based on tenants’ sales volumes. These rents are recognized when determinable after the tenant exceeds a sales breakpoint. Contractually obligated reimbursements from tenants for recoverable real estate taxes and operating expenses are generally included in operating costs reimbursement in the period when such expenses are recorded. Earnings per Share Earnings per share have been computed by dividing the net income by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the weighted average common and potentially dilutive common shares outstanding in accordance with the treasury stock method. The following is a reconciliation of the denominator of the basic net earnings per common share computation to the denominator of the diluted net earnings per common share computation for each of the periods presented: F-11 Agree Realty Corporation Notes to Consolidated Financial Statements December 31, 2016 2016 Year Ended December 31, 2015 2014 Weighted average number of common shares outstanding Less: Unvested restricted stock 23,096,267 (227,531) 18,215,628 (212,506) 15,121,212 (238,626) Weighted average number of common shares outstanding used in basic earnings per share 22,868,736 18,003,122 14,882,586 Weighted average number of common shares outstanding used in basic earnings per share Effect of dilutive securities: restricted stock Weighted average number of common shares outstanding used in diluted earnings per share 22,868,736 91,063 18,003,122 62,293 14,882,586 84,309 22,959,799 18,065,415 14,966,895 Income Taxes The Company has made an election to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) and related regulations. The Company generally will not be subject to federal income taxes on amounts distributed to stockholders, providing it distributes 100% of its REIT taxable income and meets certain other requirements for qualifying as a REIT. For each of the years in the three-year period ended December 31, 2016, the Company believes it has qualified as a REIT. Notwithstanding the Company’s qualification for taxation as a REIT, the Company is subject to certain state taxes on its income and real estate. The Company and its taxable REIT subsidiaries (“TRS”) have made a timely TRS election pursuant to the provisions of the REIT Modernization Act. A TRS is able to engage in activities resulting in income that previously would have been disqualified from being eligible REIT income under the federal income tax regulations. As a result, certain activities of the Company which occur within its TRS entity are subject to federal and state income taxes (See Note 7). All provisions for federal income taxes in the accompanying consolidated financial statements are attributable to the Company’s TRS. Fair Values of Financial Instruments The Company’s estimates of fair value of financial and non-financial assets and liabilities are based on the framework established in the fair value accounting guidance. The framework specifies a hierarchy of valuation inputs which was established to increase consistency, clarity and comparability in fair value measurements and related disclosures. The guidance describes a fair value hierarchy based upon three levels of inputs that may be used to measure fair value, two of which are considered observable and one that is considered unobservable. The following describes the three levels: Level 1 – Valuation is based upon quoted prices in active markets for identical assets or liabilities. Level 2 – Valuation is based upon inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include option pricing models, discounted cash flow models and similar techniques. Recent Accounting Pronouncements In January 2017, the Financial Accounting Standards Board (”FASB”) issued ASU No. 2017-01, “Business Combinations: Clarifying the Definition of a Business” (“ASU 2017-01”). The objective of ASU 2017-01 is to clarify the definition of a business by adding guidance on how entities should evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 will be effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods in the year of adoption. Early adoption is permitted for any interim or annual period. The Company is in the process of determining the impact that the implementation of ASU 2017-01 will have on the Company’s financial statements. F-12 Agree Realty Corporation Notes to Consolidated Financial Statements December 31, 2016 In August 2016 and October 2016, the FASB issued ASU No. 2016-15 “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” and ASU No. 2016-18 “Statement of Cash Flows (Topic 230): Restricted Cash.” The objective of these standards are to provide specific guidance on cash flow classification issues and how to reduce diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The Company is in the process of determining the impact that the implementation of these standards will have on the Company’s financial statements. In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments – Credit Losses (Topic 326): Measurements of Credit Losses on Financial Instruments (“ASU 2016-13”).” The objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the current incurred impairment methodology in current GAAP is to be replaced by a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company evaluated the impact that the implementation of ASU 2016-13 and concluded the standard will not have a material impact on the Company’s financial statements upon adoption. In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which amends ASC Topic 718, Stock Compensation. ASU 2016-09 includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. ASU 2016-09 will allow entities to make an accounting policy election for the impact of most types of forfeitures on the recognition of expense for share-based payment awards by allowing the forfeitures to be either estimated, as is currently required, or recognized when they actually occur. If elected, the change to recognize forfeitures when they occur will be adopted using a modified retrospective approach, with a cumulative effect adjustment recorded to retained earnings. ASU 2016-09 will be effective for the Company for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted in any interim or annual period. The Company has adopted ASU 2016-09 in the context of how the Company accounts for stock forfeitures, which is reflected in the Company’s financial statements. The adoption had no impact since we were already using a 0% forfeiture rate. In March 2016, the FASB issued ASU No. 2016-05 “Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships” (“ASU 2016-05”). ASU 2016-05 addresses the impact on hedge accounting due to a change in a counterparty to a derivative instrument that has been designated as a hedging instrument under Topic 815. The amendments in this update apply to all reporting entities for which there is a change in the counterparty to a derivative instrument that has been designated as a hedging instrument under Topic 815. The amendments in this update clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria (including those in paragraphs 815-20-35-14 through 35-18) continue to be met. For public business entities, the amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company evaluated ASU 2016-05 in the context of our hedge accounting and concluded that it will not have a material impact on the Company’s financial statements upon adoption. In February 2016, the FASB issued ASU No. 2016-02 “Leases” (“ASU 2016-02”). The new standard creates Topic 842, Leases, in FASB Accounting Standards Codification (FASB ASC) and supersedes FASB ASC 840, Leases. ASU 2016-02 requires a lessee to recognize the assets and liabilities that arise from leases (operating and finance). However, for leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities. The main difference between the existing guidance on accounting for leases and the new standard is that operating leases will now be recorded in the statement of financial position as assets and liabilities. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases and operating leases. ASU 2016-02 is expected to impact the Company’s consolidated financial statements as the Company has certain operating land lease arrangements for which it is the lessee. Current GAAP requires only capital (finance) leases to be recognized in the statement of financial position and amounts related to operating leases largely are reflected F-13 Agree Realty Corporation Notes to Consolidated Financial Statements December 31, 2016 in the financial statements as rent expense on the income statement and in disclosures to the financial statements. ASU 2016-02 is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2018. Early adoption is permitted. The Company is in the process of determining the impact that the implementation of ASU 2016-02 will have on the Company’s financial statements. We anticipate there will be an immaterial impact for the leases in which the Company is the lessor and/or the lessee. In April 2015, the FASB issued ASU No. 2015-03 “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). The objective of ASU 2015-03 is to identify, evaluate, and improve areas of GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. To simplify presentation of debt issuance costs, the amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments. ASU 2015-03 is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2015. Early adoption is permitted. The Company has adopted ASU 2015-03 and determined the resulting impact on the statements is a reclassification of certain deferred financing costs from other assets to each respective balance sheet debt account. In May 2014, with subsequent updates issued in August 2015 and March, April and May 2016, the FASB issued ASU No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 was developed to enable financial statement users to better understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The update’s core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Companies are to use a five-step contract review model to ensure revenue is recognized, measured and disclosed in accordance with this principle. ASU 2014-09, as updated, is effective for fiscal years and interim periods beginning after December 15, 2017. The Company is in the process of engaging a professional services firm to assist in the implementation of ASU 2014-09 and has not currently selected a transition method. In addition we are in the process of determining the impact that the implementation of ASU 2014-09, as updated, will have on the Company’s financial statements and it is considered likely the implementation will change the Company’s disclosures. Note 3 – Real Estate Investments Real Estate Portfolio The Company’s real estate investments consisted of the following as of December 31, 2016 and December 31, 2015 (in thousands, except number of properties): Number of Properties Gross Leasable Area December 31, 2016 December 31, 2015 366 7,033 278 5,207 Land Buildings Property under Development Gross Real Estate Investments $ $ $ $ 309,687 703,506 6,764 1,019,957 $ $ $ $ 225,274 526,912 3,663 755,849 Less Accumulated Depreciation Net Real Estate Investments $ $ (69,696) 950,261 $ $ (56,401) 699,448 Lease Intangibles The following table details lease intangibles, net of accumulated amortization, as of December 31, 2016 and December 31, 2015 (in thousands): F-14 Agree Realty Corporation Notes to Consolidated Financial Statements December 31, 2016 December 31, 2016 $ December 31, 2015 $ Intangible Lease Asset - In-Place Leases Less: Accumulated Amortization Intangible Lease Asset - Above-Market Leases Less: Accumulated Amortization Intangible Lease Liability - Below-Market Leases Less: Accumulated Amortization Lease Intangible Asset, net 62,422 (11,976) 103,116 (13,690) (37,126) 7,078 109,824 $ $ 47,052 (7,239) 61,241 (7,367) (21,163) 4,028 76,552 As of December 31, 2016, our portfolio was approximately 99.6% leased and had a weighted average remaining lease term of approximately 10.6 years. Tenant Leases The properties that the Company owns are typically leased to tenants under long term operating leases. The leases are generally net leases which typically require the tenant to be responsible for minimum monthly rent and property operating expenses including property taxes, insurance and maintenance. Certain of our properties are subject to leases under which we retain responsibility for specific costs and expenses of the property. The leases typically provide the tenant with one or more multi-year renewal options subject to generally the same terms and conditions, including rent increases, consistent with the initial lease term. As of December 31, 2016, the future minimum rental income to be received under the terms of all non-cancellable tenant leases is as follows (in thousands): For the Year Ending December 31, 2017 2018 2019 2020 2021 Thereafter Total $ 91,308 90,109 87,285 84,578 81,195 575,249 1,009,724 $ Since lease renewal periods are exercisable at the option of the tenant, the above table only presents future minimum lease payments due during the current lease terms. In addition, this table does not include amounts for potential variable rent increases that are based on the Consumer Price Index (“CPI”) or future contingent rents which may be received on the leases based on a percentage of the tenant’s gross sales. Of these future minimum rents, approximately 11.6% of the total is attributable to Walgreens as of December 31, 2016. The loss of this tenant or the inability of them to pay rent could have an adverse effect on the Company’s business. No other tenant contributed 5.0% or more of the Company’s total revenues as of December 31, 2016. Deferred Revenue In July 2004, the Company’s tenant in a joint venture property located in Boynton Beach, FL repaid $4.0 million that had been contributed by the Company’s joint venture partner. As a result of this repayment, the Company became the sole member of the limited liability company holding the property. Total assets of the property were approximately $4.0 million. The Company has treated the $4.0 million as deferred revenue and accordingly, will recognize rental income over the term of the related leases. The remaining deferred revenue for the Boynton Beach, FL property was fully recognized in 2016. As of December 31, 2016 and December 31, 2015, there was $1.8 million and $1.7 million, respectively, in deferred revenues resulting from rents paid in advance. Land Lease Obligations F-15 Agree Realty Corporation Notes to Consolidated Financial Statements December 31, 2016 The Company is subject to land lease agreements for certain of its properties. Land lease expense was $0.7 million, $0.6 million, and $0.5 million for the years ending December 31, 2016, 2015 and 2014, respectively. As of December 31, 2016, future annual lease commitments under these agreements are as follows (in thousands): For the Year Ending December 31, 2017 2018 2019 2020 2021 Thereafter Total $ 640 641 634 632 588 7,840 10,975 $ Acquisitions During 2016, the Company purchased 82 retail net lease assets for approximately $295.6 million, including acquisition and closing costs. These properties are located in 27 states and 100% leased to 49 different tenants operating in 22 unique retail sectors for a weighted average lease term of approximately 10.7 years. The underwritten weighted average capitalization rate on our 2016 investments was approximately 7.8%. None of the Company’s investments during 2016 caused any new or existing tenant to comprise 10% or more of the Company’s total assets or generate 10% or more of the Company’s total annualized base rent at December 31, 2016. The aggregate 2016 acquisitions were allocated approximately $84.3 million to land, $170.0 million to buildings and improvements, and $41.3 million to lease intangible costs. The acquisitions were substantially all cash purchases and there was no contingent consideration associated with these acquisitions. During 2015, the Company purchased 73 retail net lease assets for approximately $220.6 million, including acquisition and closing costs. These properties are located in 24 states and 100% leased to 40 different tenants operating in 19 unique retail sectors for a weighted average lease term of approximately 12.2 years. The underwritten weighted average capitalization rate on our 2015 investments was approximately 8.0%. None of the Company’s investments during 2015 caused any new or existing tenant to comprise 10% or more of the Company’s total assets or generate 10% or more of the Company’s total annualized base rent at December 31, 2015. The aggregate 2015 acquisitions were allocated approximately $33.8 million to land, $152.8 million to buildings and improvements, and $34.0 million to lease intangible costs. The acquisitions were substantially all cash purchases and there was no contingent consideration associated with these acquisitions. The Company calculates the weighted average capitalization rate on our investments by dividing annual expected net operating income derived from the properties by the total investment in the properties. Annual expected net operating income is defined as the straight-line rent for the base term of the lease less property level expenses (if any) that are not recoverable from the tenant. Unaudited Pro Forma Information The following unaudited pro forma total revenue and income before discontinued operations for 2016, 2015 and 2014, assumes all of our 2016 acquisitions had taken place on January 1, 2016 for the 2016 pro forma information, January 1, 2015 for the 2015 pro forma information, and on January 1, 2014 for the 2014 pro forma information (in thousands): F-16 Agree Realty Corporation Notes to Consolidated Financial Statements December 31, 2016 Supplemental pro forma for the year ended December 31, 2016 (1) Total Revenue Income before discontinued operations Supplemental pro forma for the year ended December 31, 2015 (1) Total Revenue Income before discontinued operations Supplemental pro forma for the year ended December 31, 2014 (1) Total Revenue Income before discontinued operations $ 104,178 $ 56,375 $ 79,056 $ 36,149 $ 57,840 $ 19,369 (1) This unaudited pro forma supplemental information does not purport to be indicative of what our operating results would have been had the acquisitions occurred on January 1, 2016, January 1, 2015 or January 1, 2014 and may not be indicative of future operating results. Various acquisitions were of newly leased or constructed assets and may not have been in service for the full periods shown. Developments During the fourth quarter, construction continued on the Company’s four development and PCS projects with anticipated total project costs of approximately $21.7 million. These projects include one Burger King development in Heber, Utah; two Camping World projects in Tyler, Texas and Georgetown, Kentucky; and the redevelopment and expansion of an existing property in Boynton Beach, Florida for Orchard Supply Hardware. For the year ended December 31, 2016, the Company completed or commenced construction on 14 development or PCS projects net leased to a number of industry-leading retail tenants. Total anticipated project costs for those developments are approximately $38.0 million and include the following completed or commenced projects: Tenant Hobby Lobby Family Fare Quick Stop Burger King(1) Chick-fil-A Burger King(1) Wawa Starbucks Burger King(1) Texas Roadhouse Burger King(1) Camping World Burger King(1) Camping World Orchard Supply Location Springfield, OH Marshall, MI Farr West, UT Frankfort, KY Devil's Lake, ND Orlando, FL North Lakeland, FL Hamilton, MT Mount Pleasant, MI West Fargo, ND Tyler, TX Heber, UT Georgetown, KY Boynton Beach, FL Lease Structure Build-to-Suit Ground Lease Build-to-Suit Ground Lease Build-to-Suit Ground Lease Build-to-Suit Build-to-Suit Ground Lease Build-to-Suit Build-to-Suit Build-to-Suit Build-to-Suit Build-to-Suit Lease Term 15 Years 10 Years 20 Years 20 Years 20 Years 20 Years 10 Years 20 Years 15 Years 20 Years 20 Years 20 Years 20 Years 15 Years Actual or Anticipated Rent Commencement Q1 2016 Q2 2016 Q2 2016 Q3 2016 Q3 2016 Q3 2016 Q4 2016 Q4 2016 Q4 2016 Q4 2016 Q1 2017 Q1 2017 Q3 2017 Q3 2017 Status Completed Completed Completed Completed Completed Completed Completed Completed Completed Completed Under Construction Under Construction Under Construction Under Construction (1) Franchise restaurants operated by Meridian Restaurants Unlimited, LC. Dispositions During 2016, the Company sold four properties for aggregate gross proceeds of $29.7 million, which resulted in a gain of $10.0 million. The four properties sold are single tenant buildings, all leased to Walgreens(Port St. John, Florida; Rancho Cordova, California; Macomb, Michigan, and Silver Springs Shores, Florida). During 2015, the Company sold eight properties for aggregate gross proceeds of $29.0 million, which resulted in a gain of $12.1 million. Dispositions included three land parcels, two single tenant buildings and three non-core community shopping centers (Marshall Plaza in Marshall, Michigan, Ferris Commons in Big Rapids, Michigan and Lakeland Plaza in Lakeland, Florida). F-17 Agree Realty Corporation Notes to Consolidated Financial Statements December 31, 2016 During 2014, the Company sold four properties for aggregate gross proceeds of $12.9 million, which resulted in a loss of $0.4 million. Dispositions included three non-core community shopping centers (Ironwood Commons in Ironwood, Michigan, Petoskey Town Center in Petoskey, Michigan and Chippewa Commons in Chippewa Falls, Wisconsin) as well as a ground lease parcel in East Lansing, Michigan. Impairments As a result of our review of Real Estate Investments we recognized the following real estate impairment charges for the year ended December 31(in thousands): 2016 2015 2014 Continuing operations Discontinued operations $ - - $ - - $ 3,020 - Total $ - $ - $ 3,020 In 2014, we recognized impairment charges of $0.2 million and $2.8 million, for Petoskey Town Center and Chippewa Commons, respectively, which were included in continuing operations. Petoskey Town Center was under contract for sale, but not classified as held for sale at September 30, 2014 due to contingencies associated with the contract, and a $0.2 million impairment charge was taken to write down the carrying value of the property to an amount that reflected the sales price. The property was subsequently sold in the fourth quarter of 2014. In the second quarter of 2014, an anchor tenant at Chippewa Commons declined to exercise a lease extension option which we deemed would contribute to vacancy and diminished cash flows and result in a fair value that was less than the net book value of the asset. A $2.8 million impairment charge was taken to write down the carrying value of the property to an amount that reflected management’s best estimate of fair market value. Note 4 – Debt In April 2015, FASB issued ASU 2015-03, which requires that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the gross carrying amount of that debt liability, consistent with debt discounts. We adopted ASU 2015-03, effective March 31, 2016, and applied the guidance retrospectively to our Mortgage Notes Payable, Unsecured Term Loans and Senior Unsecured Notes for all periods presented. Unamortized debt issuance costs of approximately $3.1 million and $2.6 million are included as an offset to the respective debt balances as of December 31, 2016 and 2015, respectively (previously included in Unamortized Deferred Expenses on our Consolidated Balance Sheets). As of December 31, 2016, we had total indebtedness of $404.0 million, including (i) $70.0 million of mortgage notes payable; (ii) $160.0 million of unsecured term loans; (iii) $160.0 million of senior unsecured notes; and (iv) $14.0 million of borrowings under our Credit Facility. Mortgage Notes Payable As of December 31, 2016, the Company had total gross mortgage indebtedness of $70.0 million which was collateralized by related real estate with an aggregate net book value of $90.3 million. Including mortgages that have been swapped to a fixed interest rate, the weighted average interest rate on the Company’s mortgage notes payable was 4.79% as of December 31, 2016 and 4.17% as of December 31, 2015. In August 2016, the Company prepaid a $20.3 million amortizing mortgage note due May 2017, secured by seven properties, that had an interest rate of LIBOR plus 170 basis points. Concurrently therewith, the Company entered into a $20.3 million unsecured amortizing term loan. Refer to unsecured term loan facility section for further detail. In March 2016, the Company prepaid a mortgage note payable with an outstanding balance of $8.6 million. The fully-amortizing loan carried a 6.56% interest rate and the final monthly payment was due in June 2016. Mortgages payable consisted of the following (in thousands): F-18 Agree Realty Corporation Note payable in monthly installments of interest only at 6.56% annum, with a balloon payment in the amount of $8,580,000 was repaid on March 11, 2016; collateralized by related real estate and tenants’ leases Note payable in monthly principal installments of $56,380 plus interest at 170 basis points over LIBOR, swapped to a fixed rate of 3.62% as of December 31, 2015. A balloon payment in the amount of $20,283,000 was repaid on August 19, 2016; collateralized by related real estate and tenants’ leases Note payable in monthly installments of interest only at LIBOR plus 160 basis points, swapped to a fixed rate of 2.49% with a balloon payment due April 4, 2018; collateralized by related real estate and tenants' leases Note payable in monthly installments of $153,838, including interest at 6.90% per annum, with the final monthly payment due January 2020; collateralized by related real estate and tenants’ leases Note payable in monthly installments of $23,004, including interest at 6.24% per annum, with a balloon payment of $2,781,819 due February 2020; collateralized by related real estate and tenant lease Note payable in monthly installments of interest only at 3.60% per annum, with a balloon payment due January 1, 2023; collateralized by related real estate and tenants' leases Note payable in monthly installments of $35,673, including interest at 5.01% per annum, with a balloon payment of $4,034,627 due September 2023; collateralized by related real estate and tenant lease Note payable in monthly installments of $91,675 including interest at 6.27% per annum, with a final monthly payment due July 2026; collateralized by related real estate and tenants’ leases Notes to Consolidated Financial Statements December 31, 2016 Decem ber 31, 2016 Decem ber 31, 2015 $ - $ 8,580 - 20,741 25,000 25,000 5,114 6,553 3,049 3,129 23,640 23,640 5,294 5,448 7,910 8,493 Total principal Unamortized debt issuance costs Total 70,007 (940) 69,067 $ 101,584 (1,193) 100,391 $ The following table presents scheduled principal payments related to our debt as of December 31, 2016 (in thousands): F-19 Agree Realty Corporation Notes to Consolidated Financial Statements December 31, 2016 2017 2018 2019 2020 2021 (1) Thereafter Total Scheduled Principal $ 3,147 3,337 3,008 1,100 998 8,764 20,354 Balloon Payment $ - 25,000 18,290 37,767 79,000 223,640 383,697 $ Total $ 3,147 28,337 21,298 38,867 79,998 232,404 404,051 $ $ (1) The balloon payment balance includes the balance outstanding under the Credit Facility as of December 31, 2016. The Credit Facility matures in January 2021, with options to extend the maturity for one year at the Company’s election, subject to certain conditions. The mortgage loans encumbering our properties are generally non-recourse, subject to certain exceptions for which we would be liable for any resulting losses incurred by the lender. These exceptions vary from loan to loan, but generally include fraud or a material misrepresentations, misstatements or omissions by the borrower, intentional or grossly negligent conduct by the borrower that harms the property or results in a loss to the lender, filing of a bankruptcy petition by the borrower, either directly or indirectly, and certain environmental liabilities. At December 31, 2016, there were no mortgage loans with partial recourse to us. We have entered into mortgage loans which are secured by multiple properties and contain cross-default and cross-collateralization provisions. Cross-collateralization provisions allow a lender to foreclose on multiple properties in the event that we default under the loan. Cross-default provisions allow a lender to foreclose on the related property in the event a default is declared under another loan. The Company was in compliance with covenant terms for all mortgages payable at December 31, 2016. Senior Unsecured Notes The following table presents the Senior Unsecured Notes balance net of unamortized debt issuance costs as of December 31, 2016, and 2015 (in thousands): Decem ber 31, 2016 Decem ber 31, 2015 2025 Senior Unsecured Note 2027 Senior Unsecured Note 2028 Senior Unsecured Note Total Principal $ 50,000 50,000 60,000 160,000 $ 50,000 50,000 - 100,000 Unamortized debt issuance costs Total $ (824) 159,176 $ (839) 99,161 In May 2015, the Company completed a private placement of $100.0 million principal amount of senior unsecured notes. The senior unsecured notes were sold in two series; $50.0 million of 4.16% notes due in May 2025 and $50.0 million of 4.26% notes due in May 2027. The weighted average term of the senior unsecured notes is 11 years and the weighted average interest rate is 4.21%. Proceeds from the issuance were used to repay borrowings under the Company's revolving credit facility and for general corporate purposes. In July 2016, the Company completed a private placement of $60.0 million principal amount of senior unsecured notes. The senior unsecured notes bear a fixed interest rate of 4.42% per annum and mature in July 2028. Proceeds from the issuance were used to repay borrowings under the Company's revolving credit facility and for general corporate purposes. F-20 Agree Realty Corporation Notes to Consolidated Financial Statements December 31, 2016 Senior Unsecured Revolving Credit In December 2016, the Company amended and restated the credit agreement that governs the Company's senior unsecured revolving credit facility and the Company's unsecured term loan facility to increase the aggregate borrowing capacity to $350.0 million. The agreement provides for a $250.0 million unsecured revolving credit facility, a $65.0 million unsecured term loan facility and a $35.0 million unsecured term loan facility. The unsecured revolving credit facility matures in January 2021 with options to extend the maturity date to January 2022. The unsecured term loan facilities mature in January 2024. The Company has the ability to increase the aggregate borrowing capacity under the credit agreement up to $500.0 million, subject to lender approval. Borrowings under the revolving credit facility bear interest at LIBOR plus 1.30% to 1.95%, depending on the Company’s leverage ratio. Additionally, the Company is required to pay an unused commitment fee at an annual rate of 0.15% or 0.25% of the unused portion of the revolving credit facility, depending on the amount of borrowings outstanding. The credit agreement contains certain financial covenants, including a maximum leverage ratio, a minimum fixed charge coverage ratio, and a maximum percentage of secured debt to total asset value. As of December 31, 2016 and December 31, 2015, the Company had $14.0 million and $18.0 million outstanding borrowings under the revolving credit facility, respectively, bearing weighted average interest rates of approximately 1.9% and 1.7%, respectively. As of December 31, 2016, $236.0 million was available for borrowing under the revolving credit facility and the Company was in compliance with the credit agreement covenants. Additionally, conforming changes were made to the $40.0 million unsecured term loan facility and $20.0 million unsecured amortizing term loan facility. Unsecured Term Loan Facilities The following table presents the Unsecured Term Loans balance net of unamortized debt issuance costs as of December 31, 2016 and 2015 (in thousands): 2019 Term Loan 2024 Term Loan 2024 Term Loan 2023 Term Loan Total Principal Decem ber 31, 2016 Decem ber 31, 2015 $ 20,044 35,000 65,000 40,000 160,044 - $ 35,000 65,000 - 100,000 Unamortized debt issuance costs Total $ (1,365) 158,679 $ (610) 99,390 The amended and restated credit agreement described above extended the maturity dates of the $65.0 million unsecured term loan facility and $35.0 million unsecured term loan facility (together, the “2024 Term Loan Facilities”) to January 2024. In connection with entering into the amended and restated credit agreement, the prior notes evidencing the existing $65.0 million unsecured term loan facility and $35.0 million unsecured term loan facility were canceled and new notes evidencing the 2024 Term Loan Facilities were executed. Borrowings under the unsecured 2024 Term Loan Facilities bear interest at a variable LIBOR plus 1.65% to 2.35%, depending on the Company's leverage ratio. The Company utilized existing interest rate swaps to effectively fix the LIBOR rate (see “Derivative and Hedging Activities” below). In August 2016, the Company entered into a $20.3 million unsecured amortizing term loan that matures in May 2019 (the “2019 Term Loan”). Borrowings under the 2019 Term Loan are priced at LIBOR plus 170 basis points. In order to fix LIBOR on the 2019 Term Loan at 1.92% until maturity, the Company had an interest rate swap agreement in place, which was assigned by the lender under the Mortgage Note to the 2019 Term Loan lender. As of December 31, 2016, $20.0 million was outstanding under the 2019 Term Loan bearing an all-in interest rate of 3.62%. In July 2016, the Company completed a $40.0 million unsecured term loan facility that matures in July 2023 (the “2023 Term Loan”). Borrowings under the 2023 Term Loan are priced at LIBOR plus 165 to 225 basis points, depending on the Company’s leverage. The Company entered into interest rate swap to fix LIBOR at 1.40% until F-21 Agree Realty Corporation Notes to Consolidated Financial Statements December 31, 2016 maturity. As of December 31, 2016, $40.0 million was outstanding under the 2023 Term Loan, which is subject to an all-in interest rate of 3.05%. Note 5 – Common Stock On May 6, 2015, the Company implemented a $100.0 million at-the-market equity program (“ATM program”) by entering into multiple equity distribution agreements through which the Company may, from time to time, sell shares of common stock. The Company uses the proceeds generated from its ATM program for general corporate purposes including funding our investment activity, the repayment or refinancing of outstanding indebtedness, working capital and other general purposes. During the year ended December 31, 2016, the Company issued 499,209 shares of common stock under its ATM program at an average price of $47.74, realizing gross proceeds of approximately $23.8 million. The Company has approximately $36.2 million remaining under the ATM program as of December 31, 2016. In March 2015, the Company filed, and the SEC declared effective, a shelf registration statement that expires in March 2018. The securities covered by this registration statement cannot exceed $500.0 million in the aggregate and include common stock, preferred stock, depositary shares and warrants. The Company may periodically offer one or more of these securities in amounts, prices and on terms to be announced when and if these securities are offered. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering. The Company completed a follow-on offering of 2,087,250 shares of common stock in October 2016. The offering, which included the full exercise of the overallotment option by the underwriters, raised net proceeds of approximately $95.0 million after deducting the underwriting discount. The proceeds from the offering were used to repay borrowings under our revolving credit facility to fund property acquisitions and for general corporate purposes.. The Company completed a follow-on offering of 2,875,000 shares of common stock in May 2016. The offering, which included the full exercise of the overallotment option by the underwriters, raised net proceeds of approximately $109.6 million after deducting the underwriting discount. The proceeds from the offering were used to repay borrowings under our revolving credit facility to fund property acquisitions and for general corporate purposes. The Company completed a follow-on offering of 1,725,000 shares of common stock in December of 2015. The offering, which included the full exercise of the overallotment option by the underwriters, raised net proceeds of approximately $53.0 million after deducting the underwriting discount. The proceeds from the offering were used to pay down amounts outstanding under the Credit Facility and for general corporate purposes. Note 6 – Dividends and Distribution Payable The Company declared dividends of $1.92, $1.845 and $1.74 per share during the years ended December 31, 2016, 2015 and 2014; the dividends have been reflected for federal income tax purposes as follows: For the Year Ended December 31, Ordinary Income Return of Capital $ 2016 1.557 0.363 $ 2015 1.519 0.326 $ 2014 1.398 0.342 Total $ 1.920 $ 1.845 $ 1.740 On December 6, 2016, the Company declared a dividend of $0.495 per share for the quarter ended December 31, 2016. The holders Operating Partnership Units were entitled to an equal distribution per Operating Partnership Unit held as of December 23, 2016. The dividends and distributions payable are recorded as liabilities in the Company's consolidated balance sheet at December 31, 2016. The dividend has been reflected as a reduction of stockholders' equity and the distribution has been reflected as a reduction of the limited partners' non-controlling interest. These amounts were paid on January 3, 2017. F-22 Agree Realty Corporation Note 7 – Income Taxes Notes to Consolidated Financial Statements December 31, 2016 The Company is subject to the provisions of Financial Accounting Standards Board Accounting Standard Codification 740-10 (“FASB ASC 740-10”), and has analyzed its various federal and state filing positions. The Company believes that its income tax filing positions and deductions are documented and supported. Additionally, the Company believes that its accruals for tax liabilities are adequate. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to FASB ASC 740-10. The Company’s Federal income tax returns are open for examination by taxing authorities for all tax years after December 31, 2011. The Company has elected to record related interest and penalties, if any, as income tax expense on the consolidated statements of operations and comprehensive income. For income tax purposes, the Company has certain TRS entities that have been established and in which certain real estate activities are conducted. As of December 31, 2016, and 2015, the Company had accrued a deferred income tax liability in the amount of $705,000. This deferred income tax balance represents the federal and state tax effect of deferring income tax in 2007 on the sale of an asset under section 1031 of the Internal Revenue Code. This transaction was accrued within the TRS entities described above. During the years ended December 31, 2016, and 2015, the Company recognized total federal and state tax expense of $7,747, and $3,317, respectively. Note 8 – Derivative Instruments and Hedging Activity The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risk, including interest rate, liquidity and credit risk primarily by managing the amount, sources and duration of its debt funding and, to a limited extent, the use of derivative instruments. For additional information regarding the leveling of our derivatives see Note 10. The Company’s objective in using interest rate derivatives is to manage its exposure to interest rate movements and add stability to interest expense. To accomplish this objective, the Company uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable rate amounts from a counterparty in exchange for the Company making fixed rate payments over the life of the agreement without exchange of the underlying notional amount. In April 2012, the Company entered into an amortizing forward-starting interest rate swap agreement to hedge against changes in future cash flows resulting from changes in interest rates on $22.3 million in variable-rate borrowings. Under the terms of the interest rate swap agreement, the Company receives from the counterparty interest on the notional amount based on 1 month LIBOR and pays to the counterparty a fixed rate of 1.92%. This swap effectively converted $22.3 million of variable-rate borrowings to fixed-rate borrowings from July 1, 2013 to May 1, 2019. As of December 31, 2016, this interest rate swap was valued as a liability of approximately $0.2 million. In December 2012, the Company entered into interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates on $25.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreement, the Company receives from the counterparty interest on the notional amount based on 1 month LIBOR and pays to the counterparty a fixed rate of 0.89%. This swap effectively converted $25.0 million of variable-rate borrowings to fixed-rate borrowings from December 6, 2012 to April 4, 2018. As of December 31, 2016, this interest rate swap was valued as an asset of approximately $0.1 million. In September 2013, the Company entered into an interest rate swap agreement to hedge against changes in future cash flows resulting from changes in interest rates on $35.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreement, the Company receives from the counterparty interest on the notional amount based on 1 month LIBOR and pays to the counterparty a fixed rate of 2.20%. This swap effectively converted $35.0 million of variable-rate borrowings to fixed-rate borrowings from October 3, 2013 to September 29, 2020. As of December 31, 2016, this interest rate swap was valued as a liability of approximately $0.7 million. In July 2014, the Company entered into interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates on $65.0 million in variable-rate borrowings. Under the terms of the F-23 Agree Realty Corporation Notes to Consolidated Financial Statements December 31, 2016 interest rate swap agreement, the Company receives from the counterparty interest on the notional amount based on 1 month LIBOR and pays to the counterparty a fixed rate of 2.09%. This swap effectively converted $65.0 million of variable-rate borrowings to fixed-rate borrowings from July 21, 2014 to July 21, 2021. As of December 31, 2016, this interest rate swap was valued as a liability of approximately $1.0 million. In June 2016, the Company entered into an interest rate swap agreement to hedge against changes in future cash flows resulting from changes in interest rates on $40.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreement, the Company receives from the counterparty interest on the notional amount based on 1 month LIBOR and pays to the counterparty a fixed rate of 1.40%. This swap effectively converted $40.0 million of variable-rate borrowings to fixed-rate borrowings from August 1, 2016 to July 1, 2023. As of December 31, 2016, this interest rate swap was valued as a asset of approximately $1.4 million. Companies are required to recognize all derivative instruments as either assets or liabilities at fair value on the balance sheet. The Company has designated these derivative instruments as cash flow hedges. As such, the effective portion of changes in the fair value of the derivatives designated and that qualify as cash flow hedges is recorded as a component of other comprehensive income (loss). The ineffective portion of the change in fair value of the derivative instrument is recognized directly in interest expense. For the years ended December 31, 2016 and 2015, the Company has not recorded any hedge ineffectiveness in earnings. Amounts in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next twelve months, the Company estimates that an additional $2.0 million will be reclassified as an increase to interest expense. The Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (in thousands, except number of instruments): Interest Rate Derivatives Number of Instruments Notional December 31, 2016 December 31, 2015 December 31, 2016 December 31, 2015 Interest Rate Swap 5 4 $ 185,044 $ 145,741 The table below presents the estimated fair value of the Company’s derivative financial instruments as well as their classification in the consolidated balance sheets (in thousands). Asset Derivatives December 31, 2016 December 31, 2015 Balance Sheet Location Fair Value Balance Sheet Location Fair Value Other Assets $ 1,409 Other Assets $ 98 Liability Derivatives December 31, 2016 December 31, 2015 Balance Sheet Location Fair Value Balance Sheet Location Fair Value Other Liabilities $ 1,994 Other Liabilities $ 3,301 Derivatives designated as cash flow hedges: Interest Rate Swaps Derivatives designated as cash flow hedges: Interest Rate Swaps The table below presents the effect of the Company’s derivative financial instruments in the consolidated statements of operations and other comprehensive loss for the years ended December 31, 2016 and 2015 (in thousands). F-24 Agree Realty Corporation Derivatives in Cash Flow Hedging Relationships Amount of Income/(Loss) Recognized in OCI on Derivative (Effective Portion) Notes to Consolidated Financial Statements December 31, 2016 Location of Income/(Loss) Reclassifed from Accumulated OCI into Income (Effective Portion) Amount of Income/(Loss) Reclassified from Accumulated OCI into Expense (Effective Portion) Twelve months ended December 31 Interest rate swaps $ 2,618 $ (1,093) Interest Expense $ (2,493) $ (2,796) 2016 2015 2016 2015 The Company does not use derivative instruments for trading or other speculative purposes and did not have any other derivative instruments or hedging activities as of December 31, 2016. Credit-risk-related Contingent Features The Company has agreements with two of its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company's default on the indebtedness. As of December 31, 2016, the fair value of derivatives in a net liability position related to these agreements, which includes accrued interest but excludes any adjustment for nonperformance risk, was $2.1 million. As of December 31, 2016, the Company has not posted any collateral related to these net liability positions. If the Company had breached any of these provisions as of December 31, 2016, it could have been required to settle its obligations under the agreements at their termination value of $2.1 million. Although the derivative contracts are subject to master netting arrangements, which serve as credit mitigants to both us and our counterparties under certain situations, we do not net our derivative fair values or any existing rights or obligations to cash collateral on the consolidated balance sheets. The table below presents a gross presentation of the effects of offsetting and a net presentation of the Company’s derivatives as of December 31, 2016 and December 31, 2015. The gross amounts of derivative assets or liabilities can be reconciled to the Tabular Disclosure of Fair Values of Derivative Instruments above, which also provides the location that derivative assets and liabilities are presented on the consolidated balance sheets (in thousands): Offsetting of Derivative Assets As of December 31, 2016 Gross Amounts Not Offset in the Statement of Financial Position Gross Amounts of Recognized Assets Gross Amounts Offset in the Statement of Financial Position Net Amounts of Assets presented in the statement of Financial Position Financial Instruments Cash Collateral Received Net Amount Derivatives $ 1,409 $ - $ 1,409 $ 50 $ - $ 1,359 Offsetting of Derivative Liabilities As of December 31, 2016 Gross Amounts Not Offset in the Statement of Financial Position Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Statement of Financial Position Net Amounts of Liabilities presented in the statement of Financial Position Financial Instruments Cash Collateral Received Net Amount Derivatives $ 1,994 $ - $ 1,994 $ 50 $ - $ 1,944 F-25 Agree Realty Corporation Offsetting of Derivative Assets As of December 31, 2015 Notes to Consolidated Financial Statements December 31, 2016 Gross Amounts Not Offset in the Statement of Financial Position Gross Amounts of Recognized Assets Gross Amounts Offset in the Statement of Financial Position Net Amounts of Assets presented in the statement of Financial Position Financial Instruments Cash Collateral Received Net Amount Derivatives $ 98 $ - $ 98 $ - $ - $ 98 Offsetting of Derivative Liabilities As of December 31, 2015 Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Statement of Financial Position Net Amounts of Liabilities presented in the statement of Financial Position Financial Instruments Cash Collateral Received Net Amount Derivatives $ 3,301 $ - $ 3,301 $ - $ - $ 3,301 Gross Amounts Not Offset in the Statement of Financial Position Note 9 – Discontinued Operations The Company elected to early adopt ASU 2014-08 "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity" in the first quarter of 2014. The adoption of this guidance had an effect on the presentation of our consolidated financial statements. Beginning in 2014, activities related to individual asset sales are generally no longer classified as discontinued operations except for the property classified as held for sale as of December 31, 2014. In January 2014, the Company sold a Kmart-anchored shopping center in Ironwood, Michigan, which was classified as held for sale on December 31, 2013, for approximately $5,000,000. The results of operations for this property are reported in discontinued operations for the year ending December 31, 2014, including revenues of approximately $42,600, and expenses of approximately $28,000. Note 10 – Fair Value Measurements Assets and Liabilities Measured at Fair Value The Company accounts for fair values in accordance with FASB Accounting Standards Codification Topic 820 Fair Value Measurements and Disclosure (ASC 820). ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances. that fair value ASC 820 emphasizes is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), F-26 Agree Realty Corporation Notes to Consolidated Financial Statements December 31, 2016 such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls, is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Derivative Financial Instruments Currently, the Company uses interest rate swap agreements to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. To comply with the provisions of ASC 820, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of December 31, 2016, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2016, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands): Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Balance at December 31, 2016 Asset: Interest rate swaps $ - $ 1,409 $ - $ 1,409 Liability: Interest rate swaps Mortgage notes payable Unsecured term loans Senior unsecured notes Revolving credit facility $ - - $ $ - $ - $ - $ 1,994 - $ $ - $ - $ 14,000 $ - $ 75,756 $ 165,971 159,674 $ $ - $ $ $ $ $ 1,994 68,758 158,988 159,176 14,000 The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2015, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands): F-27 Agree Realty Corporation Asset: Notes to Consolidated Financial Statements December 31, 2016 Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Balance at December 31, 2015 Interest rate swaps $ - $ 98 $ - $ 98 Liability: Interest rate swaps Mortgage notes payable Unsecured term loans Senior unsecured notes Revolving credit facility $ - - $ $ - $ - $ - 3,301 $ - $ $ - $ - $ 18,000 $ - $ 105,033 $ 97,742 $ 99,645 $ - $ $ $ $ $ 3,301 100,391 99,390 99,161 18,000 Note 11 – Equity Incentive Plan In 2005, the Company’s stockholders approved the 2005 Equity Incentive Plan (the “2005 Plan”), which replaced a stock incentive plan established in 1994. The 2005 Plan authorized the issuance of a maximum of 1,000,000 shares of common stock. In 2014, the Company’s stockholders approved the 2014 Omnibus Incentive Plan (the “2014 Plan”), which replaced the 2005 Equity Incentive Plan. The 2014 Plan authorizes the issuance of a maximum of 700,000 shares of common stock. No options were granted during 2016, 2015 or 2014. Restricted common stock has been granted to certain employees under the 2014 Plan. As of December 31, 2016, there was $5.3 million of unrecognized compensation costs related to the outstanding restricted stock, which is expected to be recognized over a weighted average period of 3.4 years. The Company used 0% for both the discount factor and forfeiture rate for determining the fair value of restricted stock. The holder of a restricted share award is generally entitled at all times on and after the date of issuance of the restricted shares to exercise the rights of a stockholder of the Company, including the right to vote the shares and the right to receive dividends on the shares. The Company granted 93,363, 85,597 and 83,210 shares of restricted stock in 2016, 2015 and 2014, respectively to employees and Board of Directors. The restricted shares vest over a five-year period based on continued service to the Company. Restricted share activity is summarized as follows (in thousands, except per share data): F-28 Agree Realty Corporation Notes to Consolidated Financial Statements December 31, 2016 Shares Outstanding Weighted Average Grant Date Fair Value Unvested restricted stock at December 31, 2013 249 $ 24.33 Restricted stock granted Restricted stock vested Restricted stock forfeited 83 (79) (14) $ $ $ 28.72 22.64 26.03 Unvested restricted stock at December 31, 2014 239 $ 26.24 Restricted stock granted Restricted stock vested Restricted stock forfeited 86 (80) (32) $ $ $ 33.46 25.13 29.54 Unvested restricted stock at December 31, 2015 213 $ 29.07 Restricted stock granted Restricted stock vested Restricted stock forfeited 93 (72) (6) $ $ $ 37.67 27.07 35.58 Unvested restricted stock at December 31, 2016 228 $ 33.02 Note 12 – 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 2016, 2015, or 2014. Note 13 – Quarterly Financial Data (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, 2015 through December 31, 2016. Certain amounts have been reclassified to conform to the current presentation of discontinued operations: F-29 Agree Realty Corporation Revenue Net Income Notes to Consolidated Financial Statements December 31, 2016 2016 Three Months Ended March 31 June 30 September 30 December 31 $ 20,224 $ 21,844 $ 24,161 $ 25,299 $ 7,586 $ 10,828 $ 14,476 $ 12,906 Earnings per Share - diluted $ 0.36 $ 0.48 $ 0.61 $ 0.50 2015 Three Months Ended March 31 June 30 September 30 December 31 $ 15,743 $ 17,219 $ 17,850 $ 19,154 $ 6,494 $ 10,465 $ 14,876 $ 7,927 Revenue Net Income Earnings per Share - diluted $ 0.37 $ 0.58 $ 0.81 $ 0.41 Note 14 – Commitments and Contingencies In the ordinary course of business, we are party to various legal actions which we believe are routine in nature and incidental to the operation of our business. We believe that the outcome of the proceedings will not have a material adverse effect upon our consolidated financial position or results of operations Note 15 – Subsequent Events In February 2017, the Company granted shares of restricted stock to employees under the 2014 Plan. The fair value of these grants were approximately $3.6 million and the restricted shares vest over a five year period based on continued service to the Company. There were no other reportable subsequent events or transactions as of February 23, 2017 F-30 Agree Realty Corporation Schedule III – Real Estate and Accumulated Depreciation December 31, 2016 COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G Description Real Estate Held for Investment Encumbrance Land Initial Cost Costs Capitalized Gross Amount at Which Carried at Close of Period Building and Improvements Subsequent to Acquisition Land Building and Improvements Total Accumulated Depreciation Date of Acquisition Borman Center, MI Capital Plaza, KY Grayling Plaza, MI Oscoda Plaza, MI West Frankfort Plaza, IL Omaha Store, NE Wichita Store, KS Monroeville, PA Boynton Beach, FL Waterford, MI Chesterfield Township, MI Grand Blanc, MI Pontiac, MI Mt Pleasant Shopping Ctr, MI Rochester, MI Ypsilanti, MI Petoskey, MI Flint, MI Flint, MI New Baltimore, MI Flint, MI Indianapolis, IN Big Rapids, MI Flint, MI Canton Twp, MI Flint, MI Webster, NY Albion, NY Flint, MI Lansing, MI Boynton Beach, FL Midland, MI Grand Rapids, MI Delta Township, MI Roseville, MI Mt Pleasant, MI N Cape May, NJ - - - - - - - - - - - - - - - - - - - - - - - 1,669,449 1,024,860 925,647 643,861 971,162 835,639 712,901 2,597,545 3,010,506 2,301,578 - - - 1,252,087 550,000 7,379 200,000 183,295 8,002 150,000 1,039,195 6,332,158 1,534,942 971,009 1,350,590 1,104,285 1,144,190 907,600 2,438,740 2,050,000 - 2,026,625 1,477,680 1,250,000 1,729,851 180,000 1,201,675 - 1,550,000 1,537,400 1,600,000 1,900,000 1,029,000 785,000 1,569,000 2,350,000 1,450,000 2,075,000 1,771,000 1,075,000 1,075,000 562,404 2,240,607 1,778,657 1,872,854 784,077 - 1,690,644 2,249,724 2,043,122 1,562,869 1,757,830 1,998,919 1,808,955 8,081,968 2,188,050 2,222,097 2,332,473 1,879,700 2,241,293 2,285,781 1,798,091 1,117,617 2,014,107 471,272 2,132,096 1,961,674 2,438,781 3,037,864 2,165,463 348,501 2,363,524 2,313,413 2,646,591 2,535,971 2,327,052 1,432,390 1,430,092 1,087,596 3,510,131 (46,867) (39,150) 202,463 - (149,392) 592,003 3,743,613 135,390 (46,164) 43,929 (113,506) 1,531,359 1,950 32,641 1,179 (1,200) - (16,503) 660 19,931 (2,000) (201,809) 23,021 - - - (6,666) 3,045 - 2,070 - 7,014 395 4,787 495 550,000 7,379 200,000 183,295 8,002 150,000 1,139,677 3,153,890 1,534,942 971,009 1,350,590 1,104,285 1,144,190 907,600 2,438,740 2,050,000 - 2,026,625 1,477,680 1,250,000 1,729,851 180,000 1,201,675 - 1,550,000 1,537,400 1,600,000 1,900,000 1,029,000 785,000 1,569,000 2,268,695 1,450,000 2,075,000 1,771,000 1,075,000 1,075,000 1,650,000 5,750,738 1,731,790 1,833,704 986,540 - 1,541,252 2,841,727 5,786,735 1,698,259 1,711,666 2,042,848 1,695,449 9,613,327 2,190,000 2,254,738 2,333,652 1,878,500 2,241,293 2,269,278 1,798,751 1,137,548 2,012,107 269,463 2,155,117 1,961,674 2,438,781 3,037,864 2,158,797 351,546 2,363,524 2,315,483 2,646,591 2,542,985 2,327,447 1,437,177 1,430,587 2,200,000 5,758,117 1,931,790 2,016,999 994,542 150,000 2,680,929 5,995,617 7,321,677 2,669,268 3,062,256 3,147,133 2,839,639 10,520,927 4,628,740 4,304,738 2,333,652 3,905,125 3,718,973 3,519,278 3,528,602 1,317,548 3,213,782 269,463 3,705,117 3,499,074 4,038,781 4,937,864 3,187,797 1,136,546 3,932,524 4,584,178 4,096,591 4,617,985 4,098,447 2,512,177 2,505,587 1,650,000 3,174,720 1,403,479 1,486,073 749,710 - 842,130 1,091,652 1,624,990 805,636 792,227 915,885 775,258 5,482,375 958,104 957,402 972,265 751,408 889,509 872,429 661,377 428,150 691,705 152,661 704,850 629,451 779,903 920,858 654,341 109,821 753,517 663,215 749,867 709,976 647,210 398,203 396,387 1977 1978 1984 1984 1982 1995 1995 1996 1996 1997 1998 1998 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2003 2004 2004 2004 2004 2004 2004 2005 2005 2005 2005 2005 2005 COLUMN H Life on Which Depreciation in Latest Income Statement is Computed 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 20 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years F-31 Agree Realty Corporation Schedule III – Real Estate and Accumulated Depreciation December 31, 2016 COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G Description Encumbrance Land Building and Improvements Subsequent to Acquisition Land Building and Improvements Total Accumulated Depreciation Date of Acquisition Initial Cost Costs Capitalized Gross Amount at Which Carried at Close of Period 1,073,217 1,483,000 - - - Baton Rouge, LA Southfield, MI Clifton Heights, PA Newark, DE Vineland, NJ Fort Mill, SC Spartanburg, SC Springfield, IL Jacksonville, NC Morrow, GA Charlotte, NC Lyons, GA Fuquay-Varina, NC Minneapolis, MN Lake Zurich, IL Lebanon, VA Harlingen, TX Wichita, TX Pensacola, FL Pensacola, FL Venice, FL St. Joseph, MO Statham, GA North Las Vegas, NV Memphis, TN Rancho Cordova, CA Kissimmee, FL Pinellas Park, FL Manchester, CT Rapid City, SD Chicago, IL Brooklyn, OH Madisonville, TX Baton Rouge, LA Forest, MS Sun Valley, NV Rochester, NY - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,178,215 2,543,941 2,117,547 4,102,710 750,000 250,000 302,520 676,930 525,000 1,822,900 121,627 2,042,225 1,088,015 780,974 300,000 430,000 340,000 650,000 400,000 1,300,196 377,620 191,919 214,552 322,520 3,889,612 1,453,500 2,625,000 397,800 1,017,800 272,222 3,643,700 96,680 271,400 - 308,495 2,500,000 1,188,322 - 3,038,561 4,777,516 1,501,854 1,187,380 765,714 653,654 1,482,748 1,383,489 3,531,275 2,155,635 1,763,768 345,958 7,909,277 612,582 1,614,378 1,530,971 1,165,415 1,507,583 - 7,639,521 3,851,073 717,435 748,890 3,232,662 971,683 874,542 325,705 2,348,032 649,063 15,079,714 1,087,642 1,086,434 1,298,176 1,373,336 7,398,639 - - (3,105) (4,881) 7,986 - - 1,960 - (99,850) (572,344) (103,392) (255,778) 206,950 28,174 20,380 12,854 12,855 12,854 12,854 - - - - - (3,232,662) - 4,163 - - 2,451 1,553 - - - 3,992 1,722 - 1,178,215 2,543,941 2,117,547 4,102,710 750,000 250,000 302,520 676,930 525,000 1,822,900 121,627 2,042,225 826,635 780,974 300,000 430,000 340,000 650,000 400,000 1,305,088 377,620 191,919 214,552 322,520 1,339,612 1,453,500 2,625,000 397,800 1,017,800 272,222 3,643,700 96,680 271,400 - 253,495 2,500,000 1,188,322 - 3,035,456 4,772,635 1,509,840 1,187,380 765,714 655,614 1,482,748 1,283,639 2,958,931 2,052,243 1,507,990 552,908 7,937,451 632,962 1,627,232 1,543,826 1,178,269 1,520,437 - 7,639,521 3,851,073 717,435 748,890 - 971,683 878,705 325,705 2,348,032 651,514 15,081,267 1,087,642 1,086,434 1,298,176 1,377,328 7,400,361 1,188,322 1,178,215 5,579,397 6,890,182 5,612,550 1,937,380 1,015,714 958,134 2,159,678 1,808,639 4,781,831 2,173,870 3,550,215 1,379,543 8,718,425 932,962 2,057,232 1,883,826 1,828,269 1,920,437 1,305,088 8,017,141 4,042,992 931,987 1,071,410 1,339,612 2,425,183 3,503,705 723,505 3,365,832 923,736 18,724,967 1,184,322 1,357,834 1,298,176 1,630,823 9,900,361 136,162 - 338,330 532,013 168,288 131,106 83,752 71,015 160,630 137,012 310,604 207,435 154,474 56,014 801,983 68,870 162,721 154,383 117,825 152,045 - 748,036 377,082 69,501 71,772 - 91,096 78,643 29,858 212,789 58,270 1,319,541 95,170 92,798 110,887 114,707 608,895 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 COLUMN H Life on Which Depreciation in Latest Income Statement is Computed 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years F-32 Agree Realty Corporation Schedule III – Real Estate and Accumulated Depreciation COLUMN C COLUMN A COLUMN B COLUMN D COLUMN E COLUMN F COLUMN G December 31, 2016 Description Encumbrance Land Building and Improvements Subsequent to Acquisition Land Building and Improvements Total Accumulated Depreciation Date of Acquisition Initial Cost Costs Capitalized Gross Amount at Which Carried at Close of Period 7,089,196 5,293,915 Allentown, PA Casselberry, FL Berwyn, IL Grand Forks, ND Ann Arbor, MI Joplin, MO Red Bay, AL Birmingham, AL Birmingham, AL Birmingham, AL Birmingham, AL Montgomery, AL Littleton, CO St Petersburg, FL St Augustine, FL East Palatka, FL Pensacola, FL Jacksonville, FL Jacksonville, FL Fort Oglethorpe, GA New Lenox, IL Rockford, IL Indianapolis, IN Terre Haute, IN Junction City, KS Baton Rouge, LA Lincoln Park, MI Novi, MI Bloomfield Hills, MI Moorehead, MN Fergus Falls, MN Fergus Falls, MN Park Rapids, MN Jackson, MS Belton, MO Great Falls, MT Irvington, NJ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2,525,051 1,804,000 186,791 1,502,609 3,000,000 1,208,225 38,981 230,106 245,234 98,271 235,641 325,389 819,000 1,225,000 200,000 730,000 136,365 297,066 299,312 1,842,240 2,010,000 303,395 575,000 103,147 78,271 226,919 543,303 1,803,857 1,340,000 511,645 405,617 327,247 413,151 256,789 714,775 945,765 315,000 7,896,613 793,101 933,959 2,301,337 4,595,757 1,160,843 2,528,437 231,313 251,339 179,824 127,477 217,850 8,756,266 1,025,247 1,523,230 575,236 398,773 312,818 348,862 2,844,126 6,206,252 2,436,873 1,871,110 2,477,263 2,504,294 347,691 1,408,544 1,488,505 2,003,406 870,732 561,332 655,973 706,884 172,184 7,173,999 753,222 1,313,025 - - 5,400 1,801,028 277,040 - 3,856 (297) (324) - (313) - 399 6,592 - 6,911 - 10,077 12,497 7,307 107,873 - - 9,676 10,831 - - 22,490 357,881 8,369 100,344 (89,330) 5,925 - - 12,712 - 2,525,051 1,804,000 186,792 1,502,609 3,000,000 1,208,225 38,981 230,106 245,234 98,271 235,641 325,389 819,000 1,225,000 200,000 730,000 136,365 297,066 299,312 1,842,240 2,010,000 303,395 575,000 103,147 78,271 226,919 543,303 1,803,857 1,341,900 511,645 405,617 327,247 413,151 256,789 714,775 945,765 315,000 7,896,613 793,101 939,359 4,102,365 4,872,797 1,160,843 2,532,293 231,016 251,015 179,824 127,164 217,850 8,756,665 1,031,839 1,523,230 582,147 398,773 322,895 361,359 2,851,433 6,314,125 2,436,873 1,871,110 2,486,939 2,515,125 347,691 1,408,544 1,510,995 2,361,287 879,101 661,676 566,643 712,809 172,184 7,173,999 765,934 1,313,025 10,421,664 2,597,101 1,126,151 5,604,974 7,872,797 2,369,068 2,571,274 461,122 496,249 278,095 362,805 543,239 9,575,665 2,256,839 1,723,230 1,312,147 535,138 619,961 660,671 4,693,673 8,324,125 2,740,268 2,446,110 2,590,086 2,593,396 574,610 1,951,847 3,314,852 3,703,187 1,390,746 1,067,293 893,890 1,125,960 428,973 7,888,774 1,711,699 1,628,025 649,826 67,744 72,398 317,266 374,987 91,899 137,152 12,033 13,075 9,366 6,624 11,347 492,558 70,661 85,681 32,704 20,769 16,122 18,039 207,897 344,320 137,074 128,638 124,336 125,756 18,108 96,837 75,515 124,481 47,570 35,807 30,663 38,575 8,968 358,699 38,287 90,269 2013 2013 2013 2013 2013 2013 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 F-33 COLUMN H Life on Which Depreciation in Latest Income Statement is Computed 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years Agree Realty Corporation Schedule III – Real Estate and Accumulated Depreciation December 31, 2016 COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G Description Encumbrance Land Initial Cost Building and Improvements Costs Subsequent to Acquisition Gross Amount at Which Carried at Close of Period Building and Improvements Land Total Accumulated Depreciation Date of Acquisition East Grand Forks, ND Fargo, ND Fargo, ND Jamestown, ND Grand Forks, ND Grand Forks, ND Grand Forks, ND Toledo, OH Toledo, OH Toledo, OH Toledo, OH Port Clinton, OH Mansfield, OH Orville, OH Akron, OH Akron, OH Hubbard, OH Youngstown, OH Calcutta, OH Columbus, OH Tulsa, OK Ligonier, PA Clarion, PA Mercer, PA Limerick, PA Harrisburg, PA Anderson, SC Easley, SC Spartanburg, SC Spartanburg, SC Columbia, SC Alcoa, TN Knoxville, TN Red Bank, TN New Tazewell, TN Maryville, TN Morristown, TN - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 313,454 513,505 629,484 234,545 540,658 762,471 529,087 500,000 155,250 213,750 168,750 75,000 306,000 344,250 427,750 696,000 204,000 285,000 208,050 - 459,148 330,000 121,200 121,200 369,000 124,757 781,200 332,275 141,307 94,770 303,932 329,074 214,077 229,100 91,006 94,682 46,404 914,676 1,201,532 707,799 1,158,486 813,776 554,595 676,026 1,372,363 762,500 754,675 785,000 721,100 725,600 716,600 715,700 845,000 726,500 745,700 758,750 1,136,250 640,550 5,021,849 771,500 770,000 - 1,446,773 4,441,535 268,612 446,706 261,640 1,221,964 270,719 286,037 302,146 328,561 1,529,621 801,506 313,454 513,505 629,484 234,545 540,658 762,471 529,087 500,000 155,250 213,750 168,750 75,000 306,000 344,250 427,750 696,000 204,000 285,000 208,050 - 459,148 330,000 121,200 121,200 369,000 124,757 781,200 332,275 141,307 94,770 303,932 329,074 214,077 229,100 91,006 94,682 46,404 7,085 (548,994) 505,065 8,499 7,714 7,555 6,925 (12) - - 16,477 - - - - - - - 1,462 - (16,477) (9,500) - - - 11,175 - - - - (13,830) - - - 5,073 27,242 4,989 F-34 921,761 652,538 1,212,864 1,166,985 821,490 562,150 682,951 1,372,351 762,500 754,675 801,477 721,100 725,600 716,600 715,700 845,000 726,500 745,700 760,212 1,136,250 624,073 5,012,349 771,500 770,000 - 1,457,948 4,441,535 268,612 446,706 261,640 1,208,134 270,719 286,037 302,146 333,634 1,556,863 806,495 1,235,215 1,166,043 1,842,348 1,401,530 1,362,148 1,324,621 1,212,038 1,872,351 917,750 968,425 970,227 796,100 1,031,600 1,060,850 1,143,450 1,541,000 930,500 1,030,700 968,262 1,136,250 1,083,221 5,342,349 892,700 891,200 369,000 1,582,705 5,222,735 600,887 588,013 356,410 1,512,066 599,793 500,114 531,246 424,640 1,651,545 852,899 49,887 34,001 65,631 63,163 44,453 30,406 36,953 94,348 46,067 45,595 48,252 43,567 43,838 43,294 43,241 51,052 43,893 45,053 45,845 66,282 44,548 303,407 46,612 46,522 - 72,815 323,862 13,991 23,266 13,627 63,520 14,100 14,898 15,736 16,674 77,477 40,316 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 COLUMN H Life on Which Depreciation in Latest Income Statement is Computed 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years Agree Realty Corporation Schedule III – Real Estate and Accumulated Depreciation December 31, 2016 COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G Description Encumbrance Land Building and Improvements Subsequent to Acquisition Land Building and Improvements Total Accumulated Depreciation Date of Acquisition Initial Cost Costs Capitalized Gross Amount at Which Carried at Close of Period Clinton, TN Knoxville, TN Sweetwater, TN McKinney, TX Forest Va Colonial Heights, VA Chester, VA Midlothian, VA Ashland, VA Mecanicsville, VA Glen Allen, VA Burlington, WA Wausau, WI Foley AL Sulligent, AL Eutaw, AL Tallassee, AL Orange Park, AL Aurora, CO Pace, FL Pensacola, FL Orange Park, FL Jacksonville Beach, FL Freeport, FL Glenwood, GA Albany, GA Belvidere, IL Springfield, IL Peru, IL Davenport, IA Le Mars, IA Buffalo Center, IA Sheffield, IA Topeka, KS Lenexa, KS Tompkinsville , KY Hazard, KY - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,189,490 2,277,951 1,016,029 6,785,815 956,027 1,053,594 790,640 798,763 960,875 902,365 1,122,627 3,642,676 1,405,899 506,203 1,085,906 1,214,941 850,448 1,775,000 2,001,394 524,400 775,059 354,876 370,612 1,277,386 1,027,370 641,123 644,492 2,870,606 2,125,498 6,623,542 613,534 700,460 729,543 12,427,839 2,186,864 1,132,033 13,731,876 1,259,115 2,438,008 1,095,129 9,456,835 1,238,627 1,601,286 1,091,223 1,031,100 1,387,271 1,121,861 1,712,728 4,252,676 2,314,991 811,535 1,144,709 1,318,687 1,004,885 2,424,652 2,978,259 562,260 1,084,666 636,729 993,643 1,590,001 1,056,859 689,078 828,628 3,550,651 2,505,752 7,399,908 666,732 859,813 861,337 14,281,440 2,490,039 1,202,285 22,124,717 59,463 113,875 50,789 424,113 59,750 54,879 41,182 41,605 50,049 47,000 58,474 191,111 87,868 26,238 49,705 55,608 35,435 59,167 54,201 25,027 36,949 16,235 16,171 47,902 44,902 27,969 28,083 119,608 66,422 248,383 23,008 24,808 25,838 569,024 54,672 51,815 343,297 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 69,625 160,057 79,100 2,671,020 282,600 547,692 300,583 232,337 426,396 219,496 590,101 610,000 909,092 305,332 58,803 103,746 154,437 649,652 976,865 37,860 309,607 281,853 623,031 312,615 29,489 47,955 184,136 680,045 380,254 776,366 53,198 159,353 131,794 1,853,601 303,175 70,252 8,392,841 1,177,927 2,265,025 1,009,290 6,785,815 956,027 1,059,557 794,417 802,602 965,925 906,590 1,129,495 3,647,279 1,405,899 506,203 1,085,906 1,212,006 850,448 1,775,000 1,999,651 524,400 775,084 354,876 370,612 1,277,386 1,027,370 641,123 644,492 2,870,606 2,125,498 6,623,542 613,534 700,460 729,543 12,427,839 2,186,864 1,132,033 13,731,648 11,563 12,926 6,739 - - (5,963) (3,777) (3,839) (5,050) (4,225) (6,868) (4,603) - - - 2,935 - - 1,743 - (25) - - - - - - - - - - - - - - - 228 69,625 160,057 79,100 2,671,020 282,600 547,692 300,583 232,337 426,396 219,496 590,101 610,000 909,092 305,332 58,803 103,746 154,437 649,652 976,865 37,860 309,607 281,853 623,031 312,615 29,489 47,955 184,136 680,045 380,254 776,366 53,198 159,353 131,794 1,853,601 303,175 70,252 8,392,841 F-35 COLUMN H Life on Which Depreciation in Latest Income Statement is Computed 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years COLUMN H Life on Which Depreciation in Latest Income Statement is Computed Agree Realty Corporation Schedule III – Real Estate and Accumulated Depreciation COLUMN C COLUMN A COLUMN B COLUMN D COLUMN E COLUMN F December 31, 2016 COLUMN G Description Encumbrance Land Building and Improvements Subsequent to Acquisition Land Building and Improvements Total Accumulated Depreciation Date of Acquisition Initial Cost Costs Capitalized Gross Amount at Which Carried at Close of Period DeQuincy, LA Portland, MA Flint, MI Hutchinson, MN Lowry City, MO Branson, MO Branson, MO Enfield, NH Stanley, ND Marietta, OH Lorain, OH Franklin, OH Elyria, OH Elyria, OH Bedford Heights, OH Newburgh Heights, OH Warrensville Heights, OH Heath, OH Lima, OH Elk City, OK Salem, OR Westfield, PA Bloomsburg, PA Altoona, PA Grindstone, PA Blythewood, SC Columbia, SC Liberty, SC Blacksburg, SC Easley, SC Fountain Inn, SC Walterboro, SC Jackson, TN Arlington, TX Sweetwater, TX Fort Worth, TX Brenham, TX - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 114,407 - 120,078 67,914 103,202 564,066 721,135 93,628 341,597 319,157 293,831 264,153 82,023 126,641 226,920 224,040 186,209 325,381 335,386 45,212 1,450,000 47,346 152,645 555,903 288,246 475,393 249,900 27,929 27,547 51,325 107,633 21,414 277,000 494,755 626,578 2,999,944 355,486 1,881,056 3,831,860 2,561,015 720,799 614,065 940,585 717,081 1,295,320 3,611,702 1,225,026 1,044,956 1,191,777 910,404 695,072 959,528 959,099 920,496 757,994 592,154 1,242,220 2,951,167 1,117,723 1,091,115 9,489,791 500,379 878,586 809,935 1,222,856 1,468,101 1,187,506 1,076,633 1,156,820 495,103 710,416 652,127 6,198,198 17,280,895 - 3,172 20,489 - - 175 760 125 912 - - - - - - - 4,900 135 - - 1,346,565 - - 896 - - - 90 - - - - - - - - - 114,407 - 120,078 67,914 103,202 564,066 721,135 93,628 341,597 319,157 293,831 264,153 82,023 126,641 226,920 224,040 186,209 325,381 335,386 45,212 1,450,000 47,346 152,645 555,903 288,246 475,393 249,900 27,929 27,547 51,325 107,633 21,414 277,000 494,755 626,578 2,999,944 355,486 1,881,056 3,835,032 2,581,504 720,799 614,065 940,760 717,841 1,295,445 3,612,614 1,225,026 1,044,956 1,191,777 910,404 695,072 959,528 959,099 925,396 758,129 592,154 1,242,220 4,297,732 1,117,723 1,091,115 9,490,687 500,379 878,586 809,935 1,222,946 1,468,101 1,187,506 1,076,633 1,156,820 495,103 710,416 652,127 6,198,198 17,280,895 1,995,463 3,835,032 2,701,582 788,713 717,267 1,504,826 1,438,976 1,389,073 3,954,211 1,544,183 1,338,787 1,455,930 992,427 821,713 1,186,448 1,183,139 1,111,605 1,083,510 927,540 1,287,432 5,747,732 1,165,069 1,243,760 10,046,590 788,625 1,353,979 1,059,835 1,250,875 1,495,648 1,238,831 1,184,266 1,178,234 772,103 1,205,171 1,278,705 9,198,142 17,636,381 86,111 143,774 64,538 25,528 23,026 27,438 20,934 61,960 90,312 53,537 43,540 47,175 34,140 26,065 33,983 33,968 32,642 22,112 14,804 49,171 107,440 53,457 43,190 296,573 12,509 39,281 35,335 53,416 61,171 47,006 42,617 45,790 12,378 33,748 31,248 258,259 720,037 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years F-36 Agree Realty Corporation Schedule III – Real Estate and Accumulated Depreciation COLUMN C COLUMN A COLUMN B COLUMN D COLUMN E COLUMN F COLUMN G December 31, 2016 Description Encumbrance Land Building and Improvements Subsequent to Acquisition Land Building and Improvements Total Accumulated Depreciation Date of Acquisition Initial Cost Costs Capitalized Gross Amount at Which Carried at Close of Period Corpus Christi, TX Harlingen, TX Midland, TX Rockwall, TX Bluefield, VA Princeton, WV Beckley, WV Martinsburg, WV Grand Chute, WI New Richmond, WI Ashland, WI Baraboo, WI Mauston, WI Decatur, AL Greenville, AL Bullhead City, AZ Page, AZ Safford, AZ Tuscon, AZ Bentonville, AR Sunnyvale, CA Upland, CA Whittier, CA Aurora, CO Aurora, CO Evergreen, CO Apopka, FL Lakeland, FL Mt Dora, FL North Miami Beach, FL Orlando, FL Port Orange, FL Royal Palm Beach, FL Sarasota, FL Venice, FL Vero Beach, FL Dalton, GA - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 316,916 126,102 194,174 578,225 88,431 111,653 162,024 620,892 2,766,417 71,969 142,287 142,563 289,882 337,738 203,722 177,500 256,982 349,269 3,208,580 610,926 7,351,903 4,413,871 4,237,918 847,349 1,132,676 1,998,860 1,996,995 61,000 1,678,671 1,622,742 903,411 1,493,863 2,052,463 1,769,175 281,936 4,469,033 211,362 2,140,056 869,779 5,005,720 1,768,930 1,161,840 1,029,090 991,653 943,163 7,084,942 648,850 684,545 653,176 3,302,490 510,706 905,780 1,364,406 1,299,283 1,196,307 4,410,679 897,562 4,638,432 8,318,559 7,343,869 834,301 5,716,367 3,827,245 3,456,839 1,227,037 3,691,615 512,717 1,627,159 3,114,697 956,768 3,587,992 1,291,748 - 220,927 2,140,056 869,779 5,007,720 1,769,140 1,161,840 1,029,090 991,653 943,163 7,084,942 648,850 684,545 653,176 3,302,490 510,706 905,780 1,364,406 1,299,283 1,196,307 4,410,679 897,562 4,638,432 8,318,559 7,343,869 834,301 5,716,367 3,827,245 3,456,839 1,227,037 3,691,615 512,717 1,627,159 3,114,697 956,768 3,587,992 1,291,748 - 220,927 2,456,972 995,881 5,201,894 2,347,365 1,250,271 1,140,743 1,153,677 1,564,055 9,851,359 720,819 826,832 795,739 3,592,372 848,444 1,109,502 1,541,906 1,556,265 1,545,576 7,619,259 1,508,488 11,990,335 12,732,430 11,581,787 1,681,650 6,849,043 5,826,105 5,453,834 1,288,037 5,370,286 2,135,459 2,530,570 4,608,560 3,009,231 5,357,167 1,573,684 4,469,033 432,289 71,335 28,993 156,466 44,224 50,786 44,960 43,334 23,579 309,773 24,332 24,244 23,133 96,323 2,128 - 25,568 24,362 12,328 55,133 16,867 67,458 121,312 107,098 - - 55,814 50,412 5,113 53,836 - 13,184 45,423 9,966 52,325 10,669 - 2,738 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 - - 2,000 210 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 316,916 126,102 194,174 578,225 88,431 111,653 162,024 620,892 2,766,417 71,969 142,287 142,563 289,882 337,738 203,722 177,500 256,982 349,269 3,208,580 610,926 7,351,903 4,413,871 4,237,918 847,349 1,132,676 1,998,860 1,996,995 61,000 1,678,671 1,622,742 903,411 1,493,863 2,052,463 1,769,175 281,936 4,469,033 211,362 F-37 COLUMN H Life on Which Depreciation in Latest Income Statement is Computed 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years Agree Realty Corporation Schedule III – Real Estate and Accumulated Depreciation COLUMN C COLUMN A COLUMN B COLUMN D COLUMN E COLUMN F Description Encumbrance Land Initial Cost Costs Capitalized Gross Amount at Which Carried at Close of Period Building and Improvements Subsequent to Acquisition Land Building and Improvements Total Accumulated Depreciation COLUMN G December 31, 2016 COLUMN H Life on Which Depreciation in Latest Income Statement is Computed Date of Acquisition Crystal Lake, IL Glenwood, IL Morris, IL Wheaton, IL Bicknell, IN Fort Wayne, IN Indianapolis, IN Des Moines, IA Frankfort, KY DeRidder, LA Lake Charles, LA Shreveport, LA Marshall, MI Mt Pleasant, MI Norton Shores, MI Portage, MI Stephenson, MI Sterling, MI Cambridge, MN Eagle Bend, MN Brandon, MS Clinton, MS Columbus, MS Flowood, MS Holly Springs, MS Jackson, MS Jackson, MS Meridian, MS Pearl, MS Ridgeland, MS Bowling Green, MO St Robert, MO Hamilton, MT Beatty, NV Alamogordo, NM Alamogordo, NM Alcalde, NM - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2,446,521 815,483 1,206,749 447,291 215,037 711,430 734,434 322,797 - 814,891 1,308,418 891,872 339,813 - 495,605 262,181 223,152 127,844 536,812 96,558 428,464 370,264 1,103,458 360,267 413,316 242,796 732,944 396,329 299,839 407,041 360,201 394,859 558,047 198,928 654,965 524,763 435,486 7,012,819 970,108 2,062,495 751,458 2,381,471 1,258,357 970,175 1,374,153 514,277 2,156,542 4,235,719 2,058,257 - 511,282 667,982 1,102,990 1,044,947 905,607 1,334,601 1,165,437 969,346 1,057,143 2,128,089 1,044,807 952,574 963,188 2,862,813 1,152,729 616,351 864,498 2,809,170 1,305,366 1,083,570 1,265,084 2,716,166 941,615 836,499 7,012,819 970,108 2,062,495 751,458 2,381,471 1,258,357 970,175 1,374,153 514,277 2,156,542 4,235,719 2,058,257 - 511,282 667,982 1,102,990 1,044,947 905,607 1,334,601 1,165,437 969,346 1,057,143 2,128,089 1,044,807 952,574 963,188 2,862,813 1,152,729 616,351 864,498 2,809,170 1,305,366 1,083,570 1,265,084 2,716,166 941,615 836,499 9,459,340 1,785,591 3,269,244 1,198,749 2,596,508 1,969,787 1,704,609 1,696,950 514,277 2,971,433 5,544,137 2,950,129 339,813 511,282 1,163,587 1,365,171 1,268,099 1,033,451 1,871,413 1,261,995 1,397,810 1,427,407 3,231,547 1,405,074 1,365,890 1,205,984 3,595,757 1,549,058 916,190 1,271,539 3,169,371 1,700,225 1,641,617 1,464,012 3,371,131 1,466,378 1,271,985 14,610 4,042 30,078 12,524 19,738 28,837 18,190 20,040 4,828 26,980 8,824 25,738 - - 1,392 11,489 - 3,773 19,463 7,222 16,156 17,619 44,335 17,413 11,782 16,053 17,893 19,190 - 14,408 17,511 - 2,257 7,907 16,934 1,962 - 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2,446,521 815,483 1,206,749 447,291 215,037 711,430 734,434 322,797 - 814,891 1,308,418 891,872 339,813 - 495,605 262,181 223,152 127,844 536,812 96,558 428,464 370,264 1,103,458 360,267 413,316 242,796 732,944 396,329 299,839 407,041 360,201 394,859 558,047 198,928 654,965 524,763 435,486 F-38 Agree Realty Corporation Schedule III – Real Estate and Accumulated Depreciation December 31, 2016 COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G Initial Cost Costs Capitalized Gross Amount at Which Carried at Close of Period Description Encumbrance Land Building and Improvements Subsequent to Acquisition Cimarron, NM La Luz, NM Fayetteville, NC Gastonia, NC Devils Lake, ND West Fargo, ND Cambridge, OH Columbus, OH Grove City, OH Lorain, OH Reynoldsburg, OH Springfield, OH Ardmore, OK Dillon, SC Jasper, TN Austin, TX Carthage, TX Cedar Park, TX Granbury, TX Hemphill, TX Lampasas, TX Lubbock, TX Odessa, TX Port Arthur, TX Tyler, TX Farr West, UT Provo, UT St George, UT Tappahannock, VA Kirkland, WA Manitowoc, WI Oak Creek, WI - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Subtotal 70,006,575 Property Under Development 345,693 487,401 1,267,529 401,119 323,508 789,855 168,717 1,109,044 334,032 808,162 843,336 982,451 571,993 85,896 190,582 4,986,082 597,995 1,386,802 944,223 250,503 245,312 1,501,556 921,043 1,889,732 4,446,648 679,206 1,692,785 313,107 1,076,745 816,072 879,237 487,277 317,752,804 1,236,437 835,455 2,527,462 979,803 1,133,773 600,976 1,113,232 1,291,313 176,274 1,390,481 1,197,966 3,957,512 1,590,151 1,697,160 966,125 5,179,446 1,965,290 4,656,229 2,362,540 1,955,918 1,063,701 2,341,031 2,434,384 8,121,417 3,178,302 1,040,737 5,874,584 1,009,161 14,904 - 4,467,960 3,082,180 694,003,714 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 9,501,919 Land 345,693 487,401 1,267,529 401,119 323,508 789,855 168,717 1,109,044 334,032 808,162 843,336 982,451 571,993 85,896 190,582 4,986,082 597,995 1,386,802 944,223 250,503 245,312 1,501,556 921,043 1,889,732 4,446,648 679,206 1,692,785 313,107 1,076,745 816,072 879,237 487,277 309,687,125 Building and Improvements 1,236,437 835,455 2,527,462 979,803 1,133,773 600,976 1,113,232 1,291,313 176,274 1,390,481 1,197,966 3,957,512 1,590,151 1,697,160 966,125 5,179,446 1,965,290 4,656,229 2,362,540 1,955,918 1,063,701 2,341,031 2,434,384 8,121,417 3,178,302 1,040,737 5,874,584 1,009,161 14,904 - 4,467,960 3,082,180 703,505,633 Total 1,582,130 1,322,856 3,794,991 1,380,922 1,457,281 1,390,831 1,281,949 2,400,357 510,306 2,198,643 2,041,302 4,939,963 2,162,144 1,783,056 1,156,707 10,165,528 2,563,285 6,043,031 3,306,763 2,206,421 1,309,013 3,842,587 3,355,427 10,011,149 7,624,950 1,719,943 7,567,369 1,322,268 1,091,649 816,072 5,347,197 3,569,457 1,013,192,758 Accumulated Depreciation Date of Acquisition 2,576 1,741 5,266 2,041 8,976 - 23,192 16,058 2,184 26,072 14,909 82,291 23,191 38,893 - 118,696 24,573 67,903 29,540 12,176 13,291 29,273 30,439 67,440 24,231 11,736 61,083 18,922 152 - 37,061 64,212 69,696,727 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 COLUMN H Life on Which Depreciation in Latest Income Statement is Computed 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years 40 Years Various Sub Total Total - - - - 6,763,571 6,763,571 - - - - 6,763,571 6,763,571 6,763,571 6,763,571 - - N/A N/A $ 70,006,575 $ 317,752,804 $ 700,767,285 $ 9,501,919 $ 309,687,125 $ 710,269,204 $ 1,019,956,329 $ 69,696,727 F-39 Agree Realty Corporation Notes to Schedule III December 31, 2016 1. Reconciliation of Real Estate Properties The following table reconciles the Real Estate Properties from January 1, 2014 to December 31, 2016. 2016 2015 2014 Balance at January 1 Construction and acquisition cost Impairment charge Disposition of real estate $ 755,848,938 284,968,286 $ 589,147,012 196,672,924 - - (20,860,895) (29,970,998) $ 476,168,824 143,365,974 (3,020,000) (27,367,786) Balance at December 31 $ 1,019,956,329 $ 755,848,938 $ 589,147,012 2. Reconciliation of Accumulated Depreciation The following table reconciles the Real Estate Properties from January 1, 2014 to December 31, 2016. 2016 2015 2014 Balance at January 1 Current year depreciation expense Disposition of real estate $ 56,401,423 15,201,469 (1,906,165) $ 59,089,851 11,464,695 (14,153,123) $ 65,436,739 8,361,698 (14,708,586) Balance at December 31 $ 69,696,727 $ 56,401,423 $ 59,089,851 3. Tax Basis of Building and Improvements The aggregate cost of Building and Improvements for federal income tax purposes is approximately $29,401,000 less than the cost basis used for financial statement purposes. F-40 AGREE REALTY CORPORATION Financial Highlights NYSE: ADC Financial - For Year Ended December 31, 2016 2015 2014 Total revenues ($000's) Operating income ($000's) Funds from operations ($000's) Funds from operations per share Dividends per share Property Portfolio Real estate assets, at cost ($000's) Total assets ($000's) Total debt and accrued interest ($000's) Number of properties Gross leasable area (sq. ft) $ 91,527 $ 69,966 $ 53,559 $ 35,833 $ 27,627 $ 19,318 $ 59,168 $ 44,051 $ 33,316 $ 2.54 $ 2.39 $ 2.18 $ 1.92 $ 1.845 $ 1.74 2016 2015 2014 $ 1,019,957 $ 755,849 $ 589,147 $ 1,111,925 $ 789,907 $ 593,581 $ 403,332 $ 317,905 $ 222,483 366 278 209 7,033,000 5,207,000 4,315,000 TOTAL RETURN PERFORMANCE 260 220 180 140 l e u a V x e d n I 100 12.31.11 12.31.12 12.31.13 12.31.14 12.31.15 12.31.16 Agree Realty Corporation Russell 2000 SNL REIT Retail Shopping Ctr Index 12.31.11 12.31.12 12.31.13 12.31.14 12.31.15 12.31.16 Agree Realty Corporation Russell 2000 SNL REIT Retail Shopping Ctr 100.00 100.00 100.00 117.48 116.35 126.26 134.63 161.52 134.90 152.88 169.43 174.80 177.32 161.95 184.16 250.67 196.45 190.57 Period Ending $60,000 $50,000 $40,000 $30,000 $20,000 AGREE REALTY CORPORATION Financial Highlights NYSE: ADC FUNDS FROM OPERATIONS (in thousands) 2012 2013 2014 2015 2016 REAL ESTATE ASSETS (in thousands) $1,000,000 $900,000 $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 2012 2013 2014 2015 2016 CORPORATE INFORMATION EXECUTIVE OFFICERS DIRECTORS Richard Agree Executive Chairman Board of Directors Joey Agree President Chief Executive Officer Director John Rakolta, Jr. Chairman Chief Executive Officer Walbridge William S. Rubenfaer President Rubenfaer Associates, PC Leon Schurgin Of Counsel Dawda Mann Farris Kalil Former, Director of Business Development of Commercial Lending Michigan National Bank Annual Meeting of Stockholders Friday, May 19, 2017 at 10:00 am Embassy Suites 850 Tower Drive Troy, MI 48098 Auditors Grant Thornton LLP 27777 Franklin Road Southfield, MI 48034 Matthew Partridge Chief Financial Officer Secretary Laith Hermiz Chief Operating Officer Daniel Ravid Chief Administrative Officer Jerry Rossi Former, Group President The TJX Companies n Chief Executive Officer R&R Consulting Merrie S. Frankel President Minerva Realty Consultants, LLC Adjunct Professor Columbia University New York University Gene Silverman Former, President Chief Executive Officer Polygram Video Counsel Honigman 39400 Woodward Ave., Ste. 101 Bloomfield Hills, MI 48304 Registrar & Transfer Agent Computershare P.O. Box 30170 College Station, TX 77842
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