Joey Agree - President and CEO Brian Dickman - CFO and Secretary.

RJ Milligan - Raymond James Craig Kucera - Wunderlich Securities Daniel Donlan - Ladenburg Thalmann.

Good morning, ladies and gentlemen and welcome to Agree Realty Corporation's Third Quarter 2014 Earnings Conference Call. During today’s presentation all parties will be in listen-only mode. Following the formal presentation the conference will be open for questions. As a reminder this conference is being recorded.

It is now my pleasure to introduce Joey Agree, President and Chief Executive Officer of Agree Realty Corporation. Mr. Agree, you may begin..

Thank you. Good morning, everyone and thank you for joining us for Agree Realty's third quarter 2014 conference call. Joining me today is Brian Dickman, our Chief Financial Officer. Overall I’m very pleased with the company’s performance in the quarter. All three of our external growth platforms produced exciting real estate opportunities.

Our acquisition volume of over $41 million was a record pace because we did two developments for industry leading restaurant operators as well as our Joint Venture Capital Solutions project in New Lenox, Illinois.

Meanwhile our continued focused on disciplined capital deployment has enabled us to scale and diversify the portfolio, generate earnings growth and maintain a strong balance sheet. As we look at the end of 2014 and into 2015 we are enthusiastic about our investment pipeline.

We are currently going through diligence on a robust set of opportunities including potential transactions in a gas and convenient store, quick service restaurant, auto parts, auto service and sporting goods among other retail sectors.

Our investment teams continue to do a great job of sourcing transactions that meet our underwriting criteria and we look forward to building off the momentum we established in the third quarter. Before I summarize the quarter a few thoughts on our year-to-date activities.

Thus far in 2014 we’ve added 33 properties to our net lease portfolio which now spans 22 diverse retail sectors. Net of dispositions we have increased annual rental income by over 13% while reducing the rental income generated by our top ten tenants from 65% to 58% and reducing exposure to Michigan from 36% to 30%.

This has resulted in higher quality and more diversified revenues while generating 4.5% year-to-date growth in both FFO and AFFO per share. As announced earlier this quarter we also closed on a new $250 million credit facility. This facility provides us the additional balance sheet capacity and flexibility to accommodate our growing platforms.

Subsequent to quarter-end we announced the disposition of another non-core shopping center, Petoskey Town Center, which further improves our earnings quality. The reposition of Hobby Lobby to the asset provided for the opportune time to divest and redeploy the capital in to our core net lease business.

With this disposition rental income derived from our shopping center portfolio has decreased to 11% and rent attributable to K-Mart has been reduced to 3.9%.

At quarter end and pro forma for the sale of Petoskey Town Center, our portfolio consisted of a 161 properties in 35 states and accounting approximately 4.1 million square feet of gross leasable area.

The portfolio was 98.5% occupied and consisted of a 154 retail net leased assets which generated over 89% of our annualized base rents and [17] shopping centers which generated the remainder. You’ll note in our press release that we put the additional stuff of breaking out our net lease properties that are ground leased to tenants.

These properties generate approximately 11% of our annualized base rents and generally command a significant market premium as a result of the ground lease structure. While [Agree Realty] is the owner of these properties the tenants have invested significant capital to construct the site improvement and buildings.

Approximately 89% of our ground lease rental income is derived from investment grade retailers such as Wal-Mart, Lowe’s, [inaudible], Wawa and McDonalds. These leases have a weighted average of 14.8 years of term remaining.

As of September 30th the company’s total portfolio had a weighted average remaining lease term of approximately 11.6 years, which increased to 12.5 years specifically for the net lease portfolio.

Investment grade retailers generated approximately 58.4% of annualized rent across the entire portfolio and approximately 64.5% when looking specifically at the net lease assets.

This quarter’s acquisition volume was a record $41.3 million and included a 13 property Taco Bell portfolio leased to Charter Foods North as well as properties leased to Giant Eagle, Bridgestone/Firestone, 24 Hour Fitness, Golden Corral and Giant Gas.

These 18 properties were acquired at a weighted average cap rate of 8.14% and carried a weighted average remaining lease term of almost 16 years. These acquisitions are consistent with our deliberate strategy of acquiring high quality properties leased to leading retailers operating e-commerce and recessionary resistant sectors.

All of these tenants are new to the company’s portfolio. On the development front, during the third quarter the company completed projects of Buffalo Wild Wings in St. Augustine, Florida and McDonald’s in East Palatka, Florida. Both restaurants were delivered ahead of schedule and held their respected grand opening in September.

Buffalo Wild Wings is on a net lease through September 2029 and McDonald is under 20 years ground lease that expires on September 2034. These projects represent the company’s first Buffalo Wild Wings development and the second ground lease development for McDonald. In addition T.J.

Maxx and Petco and Ross Dress for Less have all opened for business at the company’s Joint Venture Capital Solutions project in New Lenox, Illinois. Our development and construction team did an outstanding job on this project delivering it both timely and on budget despite the difficult condition experienced this past winter.

We are excited to add these three new tenants to the company’s portfolio and look forward to growing our relationship with each of them. Work continues on our JVCS project in Burlington, Washington and we expect to deliver the building ahead of schedule.

This property is preleased to Cash & Carry under a 15 year net lease and we anticipate rent to commence late in the fourth quarter. Lastly leasing activity during the quarter was also significant.

In addition to Staples executing a five-year lease extension to remain at the company’s Central Michigan Commons Shopping Center until July 2020 the company also executed new leases or extensions for additional 21,000 square feet of small shop space within the shopping center portfolio.

We also filled an 8,000 plus square foot vacancy adjacent to the company’s recently acquired Academy Sports in McKinney, Texas. We acquired this asset in June having unwritten the vacancy and were quickly able to lease the space to Texas Archery Academy and increase NOI of the property by approximately 5% in less than two months post-closing.

It is transactions such as this that differentiate our firm in the net leased space. We are able to leverage our relationships and real estate capability to immediately enhance value. With that I'll turn it over to Brian to discuss the financial results..

Thanks, Joey. Good morning everyone. As a reminder please note that during this call the company will make certain statements that may be considered forward-looking under Federal Securities Laws. 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 the company's earnings release.

As announced yesterday, for the third quarter of 2014 the company reported rental revenue of $12.6 million, an increase of 21.2% over Q3, 2013. FFO for the quarter was $8.3 million, an increase of 14.7% and AFFO was $8.4 million, an increase of 13.7% over 2013.

On a per share basis FFO of $0.55 and AFFO of $0.56 represented increases of 1.8% and 1.9% respectively over Q3, 2013. For the nine months ended September 30 2014 revenue of $36.1 million was up 21% over the comparable period in 2013.

FFO of $24.3 million and AFFO of $24.8 million were both up approximately 19% over the nine months ended September 30, 2013. And on per share basis year-to-date FFO of $1.61 and AFFO of $1.64 each increased by approximately 4.5% over the same period in 2013.

The company sold one property in the third quarter for gross sales price of $1.8 million incurring a loss of approximately $293,000 as a result of the sale. The property, a land parcel under a third party Rite-Aid in East Lansing, Michigan was subject to a purchase option held by the ground lessee.

Moving on to the balance sheet, the company continues to maintain a very strong credit profile. Total debt to total market capital capitalization at September 30 was approximately 35% and debt-to-EBITDA was approximately 5.2 times.

These metrics are comfortably within our targeted leverage levels of 30% to 40% and 4.5 to 5.5 times respectively and provide the balance sheet with additional capacity for growth. Fixed charge coverage, which include principal amortizations was robust at 3.3 times.

The company has no debt maturing in 2014 or 2015 and only one $8.6 million loan maturing in 2016. As mentioned previously we closed on a new $250 million unsecured credit facility early in the third quarter.

The transaction included a new $150 million revolver, a new $65 million seven year term loan and conforming amendments to our existing $35 million term loan. We’re very pleased with the new facility and the increased borrowing capacity and additional flexibility it provides us as we continue to grow the company.

We appreciate the support of the eight financial institutions that participated in the transaction. Finally the company paid a dividend of $0.43 per share in the third quarter or $1.72 on an annualized basis. This represents the company’s 82nd consecutive cash dividend.

Our payout ratio currently at 78% of FFO and 77% of AFFO are at the lower end of the company’s target ranges and imply very well covered dividend. With that I would like to turn the call back to Joey..

Thank you for the update Brian. In conclusion it was a very strong quarter for the company as we remain dedicated to executing our operating strategy. We continue to strategically to deploy capital in a disciplined manner improving and diversifying our portfolio while maintaining a best-in-class balance sheet.

We look forward to delivering more of the same result as we close 2014 and move into 2015. At this time we would like to open it up for questions..

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions). The first question comes from RJ Milligan with Raymond James. Please go ahead..

Hey, good morning guys..

Good morning, RJ.

How are you doing?.

Good. I was wondering if you could give a little bit more color on the disposition of the Petoskey Town Center, sort of the thought process there.

I know guys had recycled out of sort of the lower quality shopping centers that you wanted to get rid of out of the portfolio over the past couple of years and I am just curious just sort of the thought process in terms of timing today as to what prompted that sale?.

Sure, I think it was back in 2012 the [vacant] grocer provided an opportunity for us to backfill that box which was approximately 50,000 square feet.

Upon executing the lease for Hobby Lobby, doing some minor TI work and Hobby Lobby opening for business we thought it provided the opportune time, as I mentioned in the prepared remarks, to market the asset for disposition and that’s exactly what we did transacting on it subsequent to the quarter close..

And how much were the TIs to put in the Hobby Lobby?.

Pretty minimal on the TI and then also some miscellaneous roof repairs and some HVAC units. So it was essentially an as-is deal for Hobby Lobby. They put their own capital in the store and executed a new 10 year lease which really provided the opportune time to monetize and redeploy into the net lease portfolio..

Got you. Looking at acquisitions, first purchase here in Colorado, curious as to if you are going to be more aggressive in terms of diversifying geographically.

I know you have obviously been focused on diversifying the tenant base but just curious as to how you are thinking about your geographic exposure?.

That’s a great question. We look at diversification as most net lease operators. We look at diversification in three ways, first and most importantly by tenant. Second by sector where we look for and focus on really e-commerce resistant and recession resistant tenants. And third geographically.

As I mentioned in the call, today from a geographic perspective we made significant inroads. We diversified away from our home state in Michigan here and Michigan now represents less than 30% of the total AVR for the portfolio and today we are really broadly represented across the Continental United States.

So we are -- if we add Colorado to the map I would tell you that geographic location itself is not a driver for us. That said we are cognizant of continuing to diversify the portfolio and we’re looking at a number of assets spread really throughout the Continental United States..

Okay, thanks Joey. And just one more question on -- interested on the development side.

Obviously you guys have a couple of projects here that you announced and were not really building any new malls, very few shopping centers and I am just curious what the development demand is from retailers out there for more of the single tenant type properties and if you are seeing a pickup there in terms of demand for new projects?.

Another good question. And that it really varies by sector and by tenant. So we see some significant slowdowns in terms of obviously big bucks, home improvement retailers, [pharmacy] retailers have slowed down post-recession obviously during and post-recession here, but at the same time auto service and tire stores have ramped up development.

We’ve seen wholesale clubs ramping up development, restaurant operators folks really focused in the quick service sectors but as well the Buffalo Wild Wings is the good example of the casual dining operator. So it varies pretty dramatically across sectors. We’ve seen some exponential growth in terms of dollar stores obviously.

We’re really focused on working with both existing tenants in our portfolio such as Buffalo Wild Wings and McDonalds, but also new tenants that have plans, significant plans for geographic expansion as well as relocation of older profitable locations.

Obviously another sector that’s expanding pretty vigorously through the country is the gas and C store. Obviously with our relationship with Wawa, but you can look up at a number of those regional operators which continue to expand pretty aggressive, rolling out larger store formats in 4,000 to 5,000 square feet with multi-fuel centers..

Okay.

And I know acquisition has been the big driver for growth over the past couple of years and given that development backdrop would you expect development to be a larger contributor, at least would you expect it to announce more projects than average that we have seen over the past couple of years going forward or given the size of the organization just figure that -- assume that we’re going to see the same number of development projects announced?.

That’s a very good question.

I think it depends on a multitude of factors and I think most importantly our capabilities and the diverse capabilities and really the ability to cross those capabilities across acquisitions, development as well as joint venture provides us a number of unique opportunities such as the Burlington JVCS project, the New Lenox JVCS project where we can bring skills and experience to the table through unique types of structures.

That said we have a number relationships that we are working on in the development arena, obviously nothing that we have announced to-date, nothing that shows up in CIP or frankly that even has some [inaudible] leases signed to-date.

So we are working with a number of retailers on an organic development basis which has expressed interest and some pretty significant growth. Now whether those opportunities materialize is another thing. We don’t fully control that. There is entitlement hurdles, there are obviously macroeconomic condition which can change retailer priorities.

To look at it today I think is premature. I think we’ll see throughout the course of the remainder of ‘14 and then throughout the course of ‘15 how some of those relationships play out. We are very excited about some of the smaller opportunities on a dollars per asset, some of them are larger opportunities.

We’re really focused on converting those going into 2015 and hopefully having some announcements which will bring some new tenants and again some existing tenants back in the fold..

All right thanks guys..

Thanks RJ..

(Operator Instructions). The next question comes from Craig Kucera with Wunderlich Securities. Please go ahead..

Thank you, good morning guys..

Good morning, Craig..

I jumped in the call a little bit late, so I might have missed this.

You did have record acquisition volume you reference that, can you discuss what drove the acceleration, did pricing or spreads improve and you put more bids out or did you just happen to win a greater percentage of the bids that you would typically have out there?.

I think first we aren’t traditional buyers in the sense we are out there in an auction like environment putting bids forward.

I think to think of our acquisition platform in that context do we have competing offers for properties at times, sure but we are really focused on sourcing through relationships with brokers, direct developers, general contractors, a number of different avenues, opportunities there are pretty unique.

I think the volume in the quarter was obviously driven by the Taco Bell net lease back with Charter Foods North that was almost $20 million.

That was a historical opportunity we've been tracking in conjunction with a franchise finance advisor and working with the franchisees for frankly upwards of three quarters that transaction really manifested itself with a different purchaser, leader in the game, different purchaser on the operator side and our participation in the sale-lease back really came to fruition because of our knowledge of the asset as well as some intricacies with the transaction.

So I think that was approximately 50% of the volume and I would tell you that the remainder of the volume was one-off opportunistic transactions that we are able to source during the quarter. The Giant Eagle in Ligonier, the Bridgestone in Columbus, Giant Gas, Golden Corral relationship transaction, we participated with another acquirer.

And then the 24 Hour Fitness was the transaction that was sourced really in the first quarter and had to go through the [inaudible] process, the [inaudible] process and was able to pull it in the third quarter.

So I think the volume isn't related directly to, really isn't related to any change either from external or internal conditions but this transaction is materializing and frankly the growth of our platform and the growth of our pipeline which continues really to engender itself to the investment sales community, the development community and as we saw with the Taco Bell the franchise restaurants here..

Well that makes sense and I appreciate the color.

I guess asked differently than, with the transactions that you originated during the, the quarter, did you see any change in pricing, your average cap rate was still in the 8% plus range, did you see any movement there with the things you are looking at it as the 10 year sort of drop throughout the quarter?.

No, I can see investment sales community isn't attuned to the 10 year dropping or frankly raising that quickly. I think it takes time for interest rates fluctuations to really roll through to cap rates. How much time is left for debate but I don't think the volatility in the 10 year directly affected pricing.

I think our -- in terms of our metrics for the quarter we were right where we anticipated to be and we were operating frankly to plan..

Got it. Right. Thanks. I appreciate the color..

Thank you..

The next question comes from Dan Donlan with Ladenburg Thalmann. Please go ahead..

Thank you and good morning..

Good morning, Dan..

Joey, just a little quick on the cap rate you guys cited year-to-date, I think it was 8.21% is that the GAAP cap rate I would imagine, what's the cash cap rate for your year-to-date acquisition?.

Correct. This is a -- that 8.21% is a GAAP cap rate. On year one basis you can think of these as mid to high seven..

Okay. Perfect. And then as far as I'm kind of blanking right now on the next question I had, as far as the sale of the shopping center goes what’s the cap rate range on that, I’m sorry if you provided I got on the call a little bit late..

No, that's okay. There is a few different ways to look at that, Kmart had a lease liability extending through November of next year. We look at that as frankly on a semi stabilized basis in the mid-teens..

Okay. And then as far as the additional color you provided, really appreciate that.

How should we think about the ground lease assets in terms of what the value does for your net asset value versus the ones that are single tenant where you own the entire building everything, I realize that the ground lease is almost 90% and [inaudible] probably make them more, even more.

But what's the now as a general of thumb for a delta and how we should value those versus -- the ground lease versus…?.

Yeah, that's, that's a great question. A general rule of thumb is 75 basis points inside turnkey lease and that's pretty broad.

Now when you get into some of the lower price points typically sub $2 million ground leases a number of which we have here, the JPMorgan Chase ground leases, the P&P ground leases, the McDonalds ground leases, some of the Wawa ground leases, those can be even -- frankly inside of that -- or outside I would say of that 75 basis points, greater than 75 basis points inside of those turnkey transactions.

I think in general our ground lease portfolio as you mentioned and as we disclosed this quarter and you’re talking about 90% investment grade, almost 15 years of weighted average term remaining. Typically those asset has anywhere from 5% to 10% bumps every five years.

So there’s a significant gap step up to the cap rate anywhere from a 50 to 125 basis points. If you mark those assets to market today over five cap assets. We don’t [spend at time] mark them to market but there is a significant serious appetite out there for 1031 buyers, from private investors that want our capital.

And frankly investors that like to see their tenant shoulder to shoulder in terms of the investments. I think another thing that really differentiates this ground lease portfolio as well a number of these opportunities not only did the tenant deploy the capital to construct the building they also constructed their own site improvement.

So if you see it a lot of times tenants are aligned, tenants with a significantly lower cost of capital than we do or frankly any REITs do JPMorgan Chase, McDonalds, Wal-Mart, P&C now leveraging our real estate expertise all the way from site selection to entitlement and permitting expertise.

We will then take down the land potentially demolish any existing structures and then turn over the projects to those retailers so their capital contribution to the project inclusive of site improvement as well as vertical constructions often exceed dollars and the plot to McDonalds is an appropriate example of that.

That was a multi-parcel assemblage off-site attention some entitlement work that work for the order I’ll call it semi-difficult to procure. After that we really turned that project over to McDonalds and they constructed their own building, put in their own improvements and their investments exceeds ours there.

So you see a number of investors obviously who are attracted to that type of lease structure also attracted to the amount of the investment that the retailer has in there. .

Okay thank you Joey. .

Thanks Dan. .

As there are no further questions this concludes our question-and-answer session. I would like now to turn the conference back over to Mr. Joey Agree for any closing remarks. .

Thanks very much. That about wraps it up. Again I would like to thank everyone for joining us. We look forward to speaking with you when we report fourth quarter and full year 2014 next year. Thank you. .

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