Good morning, everyone, and welcome to the Agree Realty Fourth Quarter and Full Year 2018 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Joey Agree, President and CEO. Please go ahead, Joey.

Thank you, operator. Good morning, everyone, and thank you for joining us for Agree Realty’s fourth quarter and full year 2018 earnings call. Joining me this morning is Clay Thelen, our Chief Financial Officer. 2018 was an exceptional year for our growing company as we made tremendous progress further transforming Agree Realty into a leader of retail ownership. We achieved several significant milestones during the past year. Among them, we exceeded $3 billion in enterprise value, we added a record of over 230 high quality properties to our growing portfolio, we increased our exposure to leading investment grade retailers by approximately 800 basis points from 43% to 51% via leading tenants such as [indiscernible], TJX, Tractor Supply and Home Depot. We further improved the diversification of our portfolio by investing across 38 states and 22 retail sectors. We received an investment grade credit ratings for Moody's investor service, we solidified our balance sheet by raising worth $750 million in permanent capital and we increased our wealth covered dividend by 6.4%. While these metrics are quantifiable and visible to our shareholders, we simultaneously invested significantly in our very bright future, expanding our organization to 36 team members in counting as well as embarking on an expansion of our headquarters to accommodate our growing company. During the past year, we invested $629 million, of which a record $607 million was through our record acquisition platform activities. The 225 properties acquired during the year span 22 but diverse retail sectors, over 61% of annualized basis rents acquiring during the year are derived from retailers that carry an investment grade credit rating. While we achieved another record year of acquisition volume in 2018, we continue to adhere to our rigorous underwriting standards the parent emphasis on retail real estate fundamentals, with a top down…

Thank you, Joey. Good morning, everyone. I'll begin by quickly running through the cautionary language. As a reminder, please note that during this call, we will make certain statements that may be considered forward-looking under federal securities law. Our actual results may differ significantly from the matters discussed in any forward-looking statements. In addition, we discuss non-GAAP financial measures including funds from operations or FFO and adjusted funds from operations or AFFO. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings release. As announced in yesterday's press release, total rental revenue including percentage rents for the fourth quarter was $36.4 million, an increase of 27.1% compared to the same period last year. For the full year 2018, total rental revenue increased 26.4% to $133.1 million. General and administrative expenses in the fourth quarter totaled $3.2 million or 7.8% of total revenue. For the full year 2018, general and administrative expenses totaled $12.2 million or 8.2% of total revenues. For 2019, we anticipate G&A expenses to contract roughly 50 basis points and be closer to 7.7% of total revenue. Income tax expense for the fourth quarter was $125,000. For the full year 2018, income tax expense was approximately $516,000. For 2019, we anticipate total income tax expense for the year to be in the range of 525,000 to $575,000. Funds from operations for the fourth quarter was $25.6 million, representing an increase of 20% over the fourth quarter of 2017. On a per share basis, FFO increased to $0.72 per share, a 1.2% year-over-year increase. Funds from operations for the full year was $93.4 million, representing an annual increase of 22.5%.On a per share basis FFO increased to $2.85 per share, a 4.9% annual increase. Adjusted funds from operations for the…

Thank you, Clay. To conclude, I'm very pleased with our record performance during the year. We’re in excellent position for 2019 and I look forward to seeing many of you in the upcoming weeks. At this time operator, we will open it up for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question comes from Collin Mings with Raymond James. Please go ahead.

Good morning, Joey. Good morning, Clay.

Good morning, Collin. How you’re doing?

Good, good. First question for me, just going back to the prepared remarks on the Sherwin-Williams deal, as you look at your current deal pipeline, do you have any other sizeable sale leaseback portfolio opportunities you’re actively pursuing? And just along those lines do you expect these type of larger transactions will be an increasing share of your deal flow?

Yes. I think the Sherwin-Williams deal was a unique transaction. There was nothing in our pipeline of that nature of that size. As we mentioned in the prepared remarks, we’ve seen a significant flow of opportunities with our retail partners, smaller opportunities, but nothing of size of Sherwin-Williams that was really an atypical opportunity for us. But we continue to assess both typical granular sourcing activities, as well as larger opportunities as well.

Okay. And then moving to the JV and PCS business. Just as you think about the opportunity set with Gerber Collision, looks like they have over 400 locations already. Just moving forward, do you think that’s going to be a -- there is a runway there for more development opportunities. Just how are you thinking about that relationship?

Yes. We’re very pleased to have commenced our first project with Gerber in Round Lake. We’re working on a number of opportunities with a number of retailers inclusive of Gerber, Gerber of course is owned by the Boyd Group of Canada. We think they are the premier auto collision operator in the United States, very conservative company, very conservative balance sheet. We’ll continue to work with them on all types of opportunities through all three external growth platforms, Partner Capital Solutions acquisition. And hopefully we’re able to also layer in more development activity in the future.

Okay. I’ll turn it over. Thank you, Joey.

Thanks, Collin.

The next question comes from Christy McElroy with Citi. Please go ahead.

Hi. Good morning, everyone. Joey, just going back to your comment about those several unique opportunities anticipated to close in coming months. Do you have anything under contract today? And as we sort of think about that guidance range of $350 million to $400 million, which is unchanged from six weeks ago, what is this kind of visibility mean for how front loaded you expect that level of volume could be?

Yes. Good morning, Christy. It’s a good question. Yes, I referenced some unique opportunities. I’d tell you we’re working on everything; some are under contract going through different diligence have different unique attributes. So everything from urban condos that we’re working on in core city center locations to smaller sale and leaseback transactions with our retail partners to our typical granular sourcing activity inclusive of early extensions or what we call blend and extend. And so, the timing on a number of those transactions because of the complexities of them can be a little bit more difficult to pin down that are typical 71 days from LOI execution to closing. But at the same time we’re seeing a more and more of those unique real estate opportunities to fit into our pipeline. In terms of timing between front-end or back-end loaded, it’s hard to pin down. I’d tell you our pipeline is of similar quality and a similar nature as we executed in Q4, albeit most likely not as big given the Sherwin-Williams transaction, but we think it’s a robust pipeline in a fragmented market and we see tremendous opportunity.

Okay. And then just going back to Collin’s question, I mean, you don’t do a lot of sale and leaseback. So when you think about the potential for doing more just philosophically, how do you think about the balance of paying lower cap rate for an investment grade tenant versus sort of moving your tenant mix in the direction that you want? And just given where your stock trades today at that lower implied cap rate, does that enable you to do more of these deals?

I think to your last point, sure, it enables us, but I’ll tell you our discipline from a 30,000 foot perspective and our perspective on an omnichannel retail world and our bottoms up underwriting analysis are really the drivers of our asset level of portfolio level transactions. And so, we are very selective in terms of granular, I’d tell you we’re even more selective in terms of sale and leaseback transactions and wouldn't want anybody to think that we're the corporate -- we’re the provider of finance for corporate America. That's just not our business model. There are a handful of tenants where we have unique relationships they’re industry leaders such as Sherwin-Williams, where we will look at sale and leaseback transactions. But if and when we do look at those transactions, I think it's fair to assume we're also looking at granularly sourcing one-off opportunities, potentially developing for them or deploying our PCS capabilities simultaneously.

Thank you.

Thank you, Christy.

The next question comes from Ki Bin Kim with SunTrust. Please go ahead.

Thanks. Good morning guys. Can you talk about the replacement cost versus the price you pay for some of your deals and how that's trend over the past year?

Yes, I’ll tell you just given the growth of our ground lease portfolio, up to 9%, I mean we're paying significantly below replacement costs because of course we're not actually purchasing a building. And so the reversionary interest in the ground lease portfolio again adding another Walmart Supercenter, another Home Depot opportunity there is pretty unique. And so, I would say the same as for some of the junior boxes that we've acquired most notably the TJ Maxxis and the Rosses and of course the Burlington here one of which we developed of course. But I think from a replacement cost perspective we are able to find the opportunities given our relationships with tenants and also the unique transactional structure in the ground lease portfolio, which is fairly significantly below replacement costs.

And the one kind of deal that caught my eye was like the Big Lots construction deal. Is a retailer like that and a dealer like that is that something that you want to hold on to your -- hold on in your balance sheet for a long period of time or is it more of a kind of shorter term opportunity?

Yes. So the Big Lots you're referencing is the redevelopment of the former Kmart in Capital Plaza our Frankfurt, Kentucky. And so demolition is almost complete, the team was on site yesterday demolition of the former Kmart box the 80,000 foot boxes is almost complete. We're building a three tenant all on net leases three tenant, three juniors lined up ALDI, which we're very excited to add, Harbor Freight Tools as well as Big Lots. Big Lots is an investment grade operators, the overall asset upon completion will be comprised of those three tenants. The recently created Chick-fil-A out lot a freestanding Walgreens and a Family Dollar, which potentially will be converted to Dollar Tree. And so we're really pleased to be able to actually harvest the value we are very pleased to get the Kmart box back they were paying $2 net and there's some true incremental upside there. In terms of holding it long term, I think we'll get it complete, we’ll get it open and operating. We anticipate rent commencing in 2020. And then, we'll make a decision whether or not it’s a core asset for us to hold in the portfolio.

Okay. And if I think about Agree over the past couple years, your cost of capital is in a very enviable position multiple grade. The market is actually giving a green light to invest in smaller cities, non-typical of like the core urban areas that we’re used to, like, Miami, Ohio, Chickasha, Oklahoma. So I'm just curious, how do you balance locational quality versus tenant quality and safety in a contract and things like that?

Everything -- every asset is unique, obviously credit quality, real estate, term, store performance, replacement costs, residual value, synergy access visibility are all critical. I think what people are going to -- and our job I should say is to articulate better throughout the course of this year is to understand the different sub portfolios in context of the overall portfolio, which today spans over 650 assets. We talked a lot about our ground lease portfolio over 9%, we now have some additional ground lease assets we will be adding which are frankly very compelling. We have a number of -- as I mentioned earlier with Christy a number of urban condos, which are very interesting in our portfolio as well as our pipeline. We have a hard corner portfolio and dominant intersections, we have junior boxes adjacent to Targets and Costco as in dominant retailers positioned within their market. And we also have Out lots to dominant power and grocery anchored centers. And so, I think people are going to see we're going to do a better job of it. It's one of our goals this year the high quality nature of the portfolio and frankly the diversified nature of this portfolio because we believe it's the best retail portfolio not only from a credit perspective, but from a real estate quality perspective in the country today.

All right. Thanks guys.

Thank you, Ki Bin.

[Operator Instructions] The next question comes from Todd Stender with Wells Fargo. Please go ahead.

Thanks, guys. I just wanted to hear more details on the two ground leases you acquired. You got a Walmart, a Home Depot, so can we hear cost and cap rate and lease term? Thanks.

Sure. Good morning, Todd. So we specifically on the Walmart, that Walmart has approximately 10 years remaining high performing store, really a high quality asset great, fantastic underlying real estate. The Home Depot and Forked River, New Jersey I believe has 17 years, correct me if I'm wrong, 17 years -- 19 years of remaining term, so that's a long term Home Depot ground lease in New Jersey. So they'll be there for a while. With that Home Depot ground lease, we also acquired an out lot, which was a Taco Bell ground lease in Forked River as well as in ALDI on a turnkey basis. And so, again, we're looking at high quality real estate here with best in breed tenants and we'll continue to look for those opportunities and we see them in our pipeline.

It's just stuff that's sub-5 cap rate is this in that zip code?

No, no. But both of those transactions are in the mid-6s.

Okay. And just as a reminder, how do you capitalize these, you can predict a pretty high LTV long-term secured debt, but that's certainly not sure traditional balance sheet method, more on the unsecured side. How do you guys look at that stuff?

I'll leave it to Clay. But you can expect us to continue to be an unsecured borrower using -- leveraging that private placement market. Anything to add, Clay?

No. That's right, we'll continue to be an unsecured borrowers.

Thanks. And Clay just to stick with you the debt-to-EBITDA, you still sub-5 times, you kind of mentioned that you include the September forward equity agreement you're getting into the 3s. How does that factor and gets timing decision to settle those shares? Can we expect a delay potentially just because you're so low levered right now?

Sure. So where we ended the year really allows us to be opportunistic from a balance sheet perspective. As you said, we ended at 4.7 times the forward, the settlement of the forwards roughly a turn and half. So the settlement of the forward will really be dependent on the uses of capital, the timing of the uses of capital and we’ll continue to be strategic in settling those shares. But we'll always remain focused on maintaining our leverage within our stated range of 5 to 6 times and even operating below that range when opportunistic and when prudent to do so.

Okay, thank you. And then just finally, just to stick with you, Clay, you receive these pricing amendments on your term loans on the fourth quarter, was that triggered due to your better credit rating? Or is that something you guys proactively seek out?

So we proactively sought that out in -- was driven -- the pricing amendments were enhanced by our credit rating as well as just the timing of having some additional term burned off of what was originally a seven year loans re-modified to five year notes. So really two factors there, but certainly the investment grade credit rating was a significant boost to us.

Okay, thank you.

Thanks, Todd.

Okay. The next question comes from John Massocca with Ladenburg Thalmann. Please go ahead.

Good morning.

Good morning, John.

So ABR from general merchandise tenants came up by about $830,000 in the quarter, what drove that? And then, is there a possibility maybe for kind of a contrarian investment opportunity in that segment given kind of heard things about cap rates expanding for more traditional retail tenants?

Well, the general merchandise the driver there is the Walmart ground leases. So that is the driver in terms of general merchandise. To your second question in terms of contrarian, we just don't invest in opportunity, we just don't see that and I personally don't see that as a driver for our growth on a go forward basis. Now if we find something with real estate fundamentals that has a tenant that doesn't fit within our proverbial sandbox, below market rents or an opportunity or we have a backfill candidate we’ll look at it, but I tell you that we see tremendous opportunity based just in the fragmentation of the market that’s in front of us and all of the opportunities that the team is uncovering through the three external growth platforms. So I think you can expect more of the same from us consistency stability, but we are real estate opportunist at our heart and we’ll look at opportunities such as that.

Understood. And then, as you kind of have continued to reduce your pharmacy exposure and seem to look to reduce your pharmacy exposure, how have kind of cap rates drifted for that property type maybe over the course of last year and then as you kind of look out?

Yes, they really have not drifted and so we’ve sold effectively long-term Walgreens, medium term Walgreens we have really haven’t seen any drift. And just to give you an example, we have a couple of Walgreens right now that are under contract still subject to basic diligence requirements that are in the upper fives and low six cap. So we haven’t seen any cap rate drift. But we continue to look to prudently redeploy those proceeds and diversify the portfolio.

And then kind of a quick detail question, are there any additional portions of the Sherwin-Williams transaction that you plan to close or closed subsequent to quarter end? I know the original press release contemplated over 100 assets and over $150 million of investment?

Correct, so we’ve closed 98, there are -- I would tell you there are 10 plus or minus that are still going through diligence, title survey, environment or have some miscellaneous. The exact amount of the transaction in terms of the purchase price and number of assets that we will end up closing in the first quarter still a little bit open in the air I would anticipate plus or minus 10.

Makes sense, that’s it for me. Thank you very much.

Thanks, John.

The next question comes from Tayo Okusanya with Jefferies. Please go ahead.

Hi, good morning. When I think about your acquisition outlook, I remember in the past we talked about you weren’t seeing a lot of competition for deals the non-shredded REIT were not actively participating, would you kind of say that still the same environment you’re in today or whether you’re kind of facing more competition?

No, it’s a great question and holds true today. Blackstone obviously with their non-traded vehicle has led the fund raising efforts and proportionally has generated the majority if not vast majority of fund raising. We don’t see them playing in the $4 million to $5 million space, which is our typical granular activity really in retail in their non-traded vehicle. And so, the competition -- institutional competition that we faced is fairly diminish. Our typical competitors are private individuals 1031 buyers and we don’t run into the same competitor regularly or even two times. And so, again, the fragmentation of the market are positioning our cost of capital, our balance sheet and most importantly I’d tell you our relationships and the quality of the team here continues to just ramp our pipeline and uncover opportunities that we think are really unique.

Okay, that’s helpful. So just a follow up on that then, so kind of given that backdrop again you have acquisition guidance of $350 million to $400 million, you did over $600 million in 2018 just kind of curious a little bit about how did you kind of cope with the guidance number that’s about a third lower versus what you did in 2018? Or is that just ex- Sherwin-Williams you’re kind of doing similar number this year versus last year?

Yes, I think that is the starting point ex-Sherwin-Williams that transaction, effectively materialized in 30 days at the end of last year. And then, we start every year clean. I mean we have 60 to 70 days of visibility, we put a number out there to start the year that frankly we’re fairly confident that we’ll be able to achieve. We don’t want to set our bar too high or the bar too low. Again we’re opportunistic in a huge space in a fragmented market. And so, I would tell you as the year progresses we get more visibility right now, we have visibility where Q1 is based generally going to end up and we’re working into Q2 and Q3. And I wouldn’t preclude raising that as we progress through the year and get increased visibility that acquisition target volume.

Fair enough. Thank you, sir.

Thank you, Tayo.

The next question is a follow up from Ki Bin Kim with SunTrust. Please go ahead.

Thanks. So in 2018 you guys finished the year 4.9% higher AFFO per share. If I think about the parameter that you gave for 2019 guidance in terms of acquisitions and dispositions and the run rate you’re at already, it feels -- I mean it feels like that you should reaccelerate earnings growth in 2019. And because a lot of the equity needs are prefunded already, is that sound right to you, or is there something and that we should expect in 2019 maybe is more forward equity or early funding that could hamper that growth rate from reaccelerating.

No I think that's a generally a fair proposition and I would tell you that the 4.9% earnings growth that you quoted was post treasury impact from -- the treasury impact required by the forward equity offering. The opportunistic capital markets transactions the March and the September forward and then the ETM activity put ourselves in a position to continue to ramp and accelerate that growth in 2019. Our stated goal is to provide double digit growing shareholders returns, that's a comprised of two pieces in my mind AFFO as well as a growing and well covered dividend. And so, I think the premise of your question is true, that being said, when there is opportunities for access long-term capital at attractive pricing, we'll execute on those opportunities or at lease assessment. And we never want to be caught off thinking quarter-to-quarter over year-over-year. But the company, the investment spreads that we have, the smaller base that we have, the high quality assets that we're looking at and acquiring through all three platforms provides for meaningful and we think on a relative basis significantly meaningful risk adjusted returns for our shareholders that are outstretched from our peers.

All right. Thanks, Joey.

Thank you, Ki Bin.

Okay. This concludes our question-and-answer session. I would like to turn the conference back over to Joey Agree for any closing remarks.

Well, I thank you everybody for your patience and for joining us today. We look forward to seeing hopefully many of you in the upcoming conference season. Thanks, again.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.