FARMINGTON HILLS, MI-Agree Realty Corp. reports 17% of the company’s annual base rent in 2003 were generated from Kmart locations owned by the locally based REIT. Agree has 14 leases with Kmart Corp., of which 11 are anchors in Agree-owned community shopping centers and three stores are freestanding net-leased properties.

Four of the Kmart stores paid percentage rent in addition to their minimum rent during 2003, Agree said as part of a recent SEC filing.

In May 2003, Kmart emerged from the bankruptcy proceeding it had initiated in January 2002. As part of the reorganization, Kmart closed approximately 600 of its stores, including one located in Agree’s shopping center in Lakeland, FL. Kmart vacated that store in April 2003. Agree says in its annual report that Kmart’s annual rent on this property was approximately $480,000 and their annual contribution under the lease for real estate taxes, insurance and common area maintenance was approximately $110,000.

Agree says some of the tenants in the Lakeland shopping center have co-tenancy clauses in their leases that provide either for modification of their rent to be based on gross sales or an option to terminate their lease when the Kmart store closed. However, as of Feb. 29, none of those tenants indicated they will exercise their option to terminate their leases.

“We believe it will take between 12 and 18 months to re-let the Kmart location,” according to Agree’s report. “In connection with the re-letting the Kmart location, we may have to agree to make capital expenditures with respect to the property. In addition, we have agreed to a rent reduction of $150,000 per year under a Kmart lease for a store in Perrysburg, OH. The rent reduction is for a five-year period.”

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