Joey Agree – President and Chief Executive Officer Matt Partridge – Chief Financial Officer Ken Howe – Interim Chief Financial Officer.

Dan Donlan – Ladenburg Thalmann Ki Bin Kim – SunTrust David Corak – FBR Michael Bilerman – Citigroup Nick Joseph – Citigroup Collin Mings – Raymond James R.J. Milligan – Robert W. Baird Ryan Meliker – Canaccord Genuity Rob Stevenson – Janney Capital Markets George Hoglund – Jefferies.

Good morning, and welcome to the Agree Realty Second Quarter 2017 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, sir..

Thank you, Dennis, and good morning everyone. Thank you for joining us for Agree Realty’s second quarter 2017 earnings call. Joining me this morning is Matt Partridge, our Chief Financial Officer, as well as Ken Howe who’ll service as Interim Chief Financial Officer upon Matt’s departure on August 4.

I’m pleased to report that we continued our strong performance during the quarter, executing across all phases of our operating strategy while maintain a sector leading balance sheet. Our many capabilities to create value were on full display during the quarter.

Total investment capital deployed across our three external growth platforms in the second quarter was approximately $140 million. We either acquired or completed development of 37 high quality retail net lease properties.

Of those 37 investments, 36 properties were sold through our acquisition platform, amounting to total acquisition volume of $131 million in the quarter. The properties were acquired in a weighted average cap rate of 7.7% with the weighted average remaining lease term of approximately 12.7 years.

The acquired properties are located in 19 states and now leased to 31 industry-leading tenants. These tenants operate in 18 e-commerce and recession resistant retail sectors, including discount apparel, convenience stores, auto parts, auto service, health and fitness and home improvement.

Through the first six months of year we’ve invested a record $201 million into 50 retail net lease properties spread across 22 states. Of the over $200 million invested through June 30, approximately $184 million was sourced through our acquisition platform.

The 47 properties acquired to the first two quarters of the year are leased to 38 leading retail tenants operating in 20 distinct sectors. These properties were acquired at a weighted average cap rate of 7.7% with the weighted average remaining lease term of 12.1 years.

While the company is achieved record investment volume in the first six months of the year, I want to reiterate that our investment standards remain as rigorous as ever.

Elevated acquisition volume during the quarter was opportunistic, including the combination of transactions that we’ve been actively working on for a number of years, as well as a handful of smaller portfolio transactions. We fully intend to remain disciplined, focused and inherent to our historical standards.

The assets that we recently added to our portfolio and those in our pipeline are of the highest quality of any assets that we’ve acquired since the launch of the acquisition platform in 2010.

We continue to emphasize retail real estate fundamentals including retail synergy, visibility, demographics, traffic patterns and access with a sharp focus on high quality real estate leased to industry leading tenants.

During the quarter we added a number of fantastic assets to our portfolio including our first Publix, Panera Bread, Ruler Foods, Kroger’s expanding deep discount concepts, as well as the portfolio of RaceTrac convenience stores.

We’ve also strategically increased our exposure to leading retailers including AutoZone, National Tire and Battery, HomeGoods, LA Fitness, O’Reilly Auto Parts, Starbucks, Ross Dress for Less, Bridgestone, Firestone and one of a kind Dave & Buster’s in Downtown, New Orleans.

Our focus remains on leading retailers and sectors that have a compelling omnichannel platform or a value oriented business model, necessitate of brick and mortar retail presence.

Turing to our development and Partner Capital Solutions programs, we are pleased to have completed and brought online our Camping World project in Georgetown, Kentucky during the quarter. The project was the company’s first ground-up development for Camping World, and is subject to a new 20-year net lease.

Total project costs were approximately $8.2 million. Also during the quarter, the company completed landlord’s work in Boynton Beach, Florida. The property has been redeveloped and expanded for Orchard Supply Hardware.

The project is leased to a new 15-year net lease that is guaranteed by Lowe’s Companies, which carries an A minus credit rating from S&P. Rent is anticipated to commence in the third quarter of this year, trailing completion of the tenant’s work.

Boynton Beach will join our Sunnyvale, California and be our second Orchard Supply Hardware in our growing portfolio. During the quarter we are very excited to welcome Jeff Konkle, our new Director of Construction.

Jeff is a longtime industry veteran who’s budgeting project management and leadership skills will be a fantastic addition to our growing team. We’ve worked with Jeff for a number of years and are very pleased to bring him in-house at Agree. We commenced three exciting new development in Partner Capital Solutions projects during the second quarter.

In June construction commenced on the company’s first Art Van Furniture project located in Canton, Michigan. The site is located on Ford Road, directly across the street from ensuring a signalized intersection with Michigan’s only IKEA store. The Ford Road Corridor is one of the state’s dominant retail trade areas.

The project is anticipated total cost of approximately $18 million and is subject to a new 20-year lease upon completion. Art Van, we paying incremental rent while the project is under development. We anticipate full rent to come online commensurate with the store opening during the first quarter of 2018.

This development represents a unique opportunity for our company to partner with an industry leading home furnishings retailer and a very familiar and compelling piece of real estate. It is our first investment in the retail furniture space.

We’re also very excited to launch the partnership with Mister Car Wash, nation’s leading car wash operator to develop newly created free standing prototypes. While we previously executed on a sale leaseback transaction Mister Car Wash, this is the first time that we’ve embarked on organically developing new units.

Construction commenced on our first two projects during the quarter. The projects which are subject to new 20-year net leases are located in Urbandale, Iowa and Bernalillo, New Mexico. We anticipate rent to commence on both projects during the fourth quarter of this year.

Our unique capability to acquire, as well as develop for the leading retailers is being leveraged to facilitate Mister Car Wash’s future growth. Through the first six months of this year we have projects completed or under construction that represent approximately $46 million of total committed capital.

We are pleased with our performance and remain excited about our development pipeline. The value proposition of being a full service net lease real estate company continues to differentiate our capabilities from growing retailers.

While we’ve been quite busy executing on our three external growth platforms, we’ve also sought to reduce exposures to our disposition efforts. This continued in the second quarter as we sold two properties net lease to Walgreens for gross proceeds of approximately $12 million.

The properties were located in Lowell, Michigan as well as Shelby Township, Michigan. Michigan. Dispositions were completed at a weighted average cap rate of approximately 6%. Year-to-date we have sold three Walgreens properties all located in Michigan for total gross proceeds of approximately $22.6 million.

As a result of these dispositions, our Walgreens’ concentration was down to 8.8% at quarter-end, we roll our goal of sub 10% by year-end. Over the past 12 months our Walgreens exposure has decreased to roughly 530 basis points down from 14.1% at the end of the second quarter of 2016.

We are committed and on track to bring our concentration below 5% by year-end 2018. Recent disposition activities and our continued growth have also served to reduce our exposure to both the pharmacy sector and the state of Michigan.

Our pharmacy exposure decreased approximately 540 basis points year-over-year to 13.7%, while our Michigan exposure decreased roughly 420 basis points to 12.5%.

Moving forward we will continue to call the portfolio of lower tier assets that are representative of our portfolio, and also looked opportunistically divested assets, where we have diversion perspective of value relative to market. Aside from dispositions our asset management team has been very proactive in addressing future lease maturities.

Today we only have one remaining lease maturity in 2017, representing just 0.3% of annualized base rents. The lease expires at year-end and we are working with the tenant to renew prior to the expiration date. During the quarter we executed new leases, extensions or options on approximately 86,000 square feet of gross leasable area.

The new leases, extensions or options including a 33,600 square foot Big Lots in Cedar Park, Texas. Through the first six months of the year, we’ve executed new leases, extensions or options on almost 432,000 square feet of gross leasable space, eliminating 22 pending lease maturities including four leases that were set to expire in 2018.

Our asset management team is now focused on addressing our remaining 2018 lease maturities, which represent only 1.5% of today’s annualized base rents. As of June 30, our growing retail portfolio consisted of 413 properties in 43 states.

Our tenants are comprised primarily of industry leading retailers operating in more than 25 distinct retail sectors with 44% of annualized basis rent coming from tenants with an investment grade credit rating. The portfolio remains effectively fully occupied in 99.6% and has a weighted average lease term of 10.6 years.

In addition to these metrics, the quality of our portfolio is further demonstrated by our ground leased portfolio, where over 86% of the ground leases are with leading retailers that carried investment grade credit rating. Our ground lease portfolio continues to represent 7% of total annualized base rent.

This quarter we’ve added four more assets to this unique portfolio that are ground leased to leading retailers including Starbucks and National Tire and Battery. This portfolio continues to present an extremely attractive risk adjusted investment for our shareholders.

Before I turn over to Matt to discuss our second quarter’s financial results, I’d like to take a minute to address the numerous retail headlines and reiterate our unique perspective on brick and mortar retail. For many years we have believed that omnichannel retail was the future.

My own personal perspective was informed by my experience with boarders as a young executive. Our acquisition platform which was launched in 2010 sought to identify the sectors and leading retailers that we believe will be successful in the disruptive period that would ensue.

Fast forward it to today and I believe that we have now entered the third phase of post Internet retail. Phase one was the launch of e-commerce. The landscape was dotted by e-commerce startups, the vast majority of which were unprofitable and frankly unsuccessful.

Profitability online only proved very difficult to achieve and only a few handful survived. We then moved in the phase two. Traditional brick and mortar retailers rushed to launch e-commerce sites to compete with their new e-commerce only competitors. Many retailers here too were highly unsuccessful.

Their technologies been ramped, their store visits dropped and their bottom line shrunk. Rushing to compete online with a bunch of startups was a challenge to say the least.

Fast forward it to the third phase; today we are witnessing the creation of true omnichannel retailers who effectively have access and profitable sales windows to their customers both physically as well as digitally.

An effective omnichannel retailer can drive customers to their stores with a compelling experience, has a website that is easily navigable, can offer in-store pickup as well as home delivery, and then the ability to return in-store driving a repurchase rate on new goods.

Whether it’s Warby Parker opening stores or Amazon’s purchase of Whole Foods, the in-store experience of brick and mortar retail has been validated. At the same time we see brick and mortar retailers such as Walmart acquiring Jet.com, Bonobos and Moosejaw; PetSmart buying Chewy; and Saks acquiring Gilt.

The bottom line is this, fast forward a decade, an effective omnichannel retailer will be comprised of both those that have brick and mortar routes as well as e-commerce routes. We really end up in the same place.

We believe the key is being able to look ahead and pick those retailers that are best positioned to be winners, not being reactive to the latest rumors of Amazon entering any given retail space. With that, I appreciate your patience and look forward to hearing your thoughts. I’ll turn it over to Matt to discuss our financial results..

Thanks Joey. Good morning everyone. As a reminder, please note that during this call we 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 our earnings release.

As we announced in yesterday’s press release, total rental revenue including percentage rents for the second quarter of 2017 was $25.2 million, an increase of 26.3% over the second quarter of 2016. Year-to-date total rental revenue has increased 28% over the comparable period in 2016 to $49.4 million.

General and administrative expenses were approximately 9.2% of total revenue, representing a decrease of roughly 10 basis points year-over-year as compared to 9.3% of total revenue in the second quarter of 2016.

We anticipate the G&A as a percentage of total revenue would be below 8.5% for the full year representing more than 700 basis point decrease in G&A as a percentage of total revenue of the last five years. Funds from operations for the second quarter was $18.1 million, representing an increase of 30.6% over the comparable period of 2016.

On a per share basis AFFO increased to $0.67 per share, a 10.2% increase as compared to the second quarter of 2016. Funds from operations for the first six months of 2017 was $35 million, representing an increase of 32.5% over the comparable period of 2016.

On a per share basis FFO increased to $1.32 per share, an 8.3% increase as compared to the first six months of 2016. Adjusted funds from operations for the second quarter was $17.9 million, representing an increase of 30.1% over the comparable period of 2016.

And on a per share basis AFFO increased to $0.67 per share, a 9.7% increase as compared to the second quarter of 2016. Adjusted funds from operations for the first six months of 2017 was $34.9 million, representing an increase of 32% over the comparable period of 2016.

And on a per share basis AFFO increased to $1.31 per share, a 7.9% increase as compared to the first six months of 2016. Turning to our capital markets activities, in June we completed a follow-on offering of 2,415,000 shares of common stock, which included the underwriters’ full exercise of their option to purchase additional shares.

Total net proceeds from the common equity offering were approximately $108 million after deducting the discount and offering expenses. This offering refortified our balance sheet which continues to be one of the strongest in the industry.

As of June 30, 2017, total debt enterprise value was approximately 24.7% and our fixed charge coverage ratio which includes principal amortization was a healthy 4 times. Furthermore net debt to recurring EBITDA was approximately 4.6 times below the low end of our stated leverage range of 5 times to 6 times.

The company paid a dividend of $0.505 per share on July 14 to stockholders of record on June 30, 2017. The quarterly dividend represents a 5.2% increase over the $0.48 per share quarterly dividend declared in the second quarter of 2016. The company has paid 93 consecutive dividends since the IPO in 1994.

Our quarterly payout ratios for the second quarter of 2017 were 75% of FFO and 76% of AFFO. Both payout ratios are at the low end of the company’s targeted ranges and reflect a very well covered dividend. With that, I’d like to turn the call back over to Joey..

Thank you, Matt. I’d like to take this opportunity to thank Matt for his contributions over the past year and a half. He’s been an important part of our growing team and we wish him and his family our very best in all their future endeavors.

I’d also like to reintroduce all of our stakeholders to Ken Howe, who’ll be serving as the Interim Chief Financial Officer while we conduct a thorough and comprehensive search for Matt’s successor. Ken has been with our company and he’s a private predecessor for nearly 40 years and served as Chief Financial Officer for almost two decades.

We are lucky to have him and are grateful of his willingness to step in on an interim basis.

Ken?.

Thanks Joey. I would also like to wish Matt best of luck in his new endeavor. And thank him for the assistance and helping me assume the Interim CFO position. I look forward to become reacquainted with all of you in the near future, and I am very excited to rejoin the very energetic and professional Agree team..

Thank you, Ken. That wraps up the prepared portion of the call, it was a fantastic quarter for our growing company. At this time we’ll open up it up for questions.

Dennis?.

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] And your first question will come from Dan Donlan of Ladenburg Thalmann. Please go ahead..

Thank you and good morning. First off, Matt, just wanted to congratulate you on your next experience. It’s been fun working with you..

Thanks, Dan..

You’re welcome. And then Joey, I just wanted to talk about your comments on the omnichannel world.

As you’re talking about picking future winners in this phase three as you described, I’m curious how you identified these winners and how critical is that you acquiring an asset, if you think you have very good real estate, in which case you might be able to put somebody in, should retailer get dark?.

Good morning, Dan, and I appreciate the question.

I think we really look for – starting with the lens of e-commerce and recession resistance and then really drive to three fundamental things in terms of retail sectors and then tenants; one, a unique and compelling customer experience in the brick and mortar arena, a value proposition that is delivered via that brick and mortar experience.

That value can come in price, but that value can also come in different areas. And then lastly, a brick and mortar experience isn’t easily replicable online, gas and c-stores, the RaceTrac portfolio we acquired this quarter, it is a good example of that. Our investment strategy it starts with a bottoms up approach on the individual asset level.

We’re an aggregator by nature, we’re not a sale leaseback financer, we’re not a portfolio purchaser. So real estate attributes are critical to all of our underwriting.

That said, when and if we see a credit that doesn’t necessarily – or a tenant that doesn’t necessarily fit within that context of retail in our perspective, but it’s a fantastic underlying piece of real estate is a compelling transaction for its real estate merits, a little market rents or frankly if we have a relationship with a tenant, who’s ready to take that space unbeknownst to a seller, those are transactions that we like to get our arms around as well.

So I would say that all transactions are different, we look at it through that 30,000 foot lens and then we start really from a bottoms up approach..

Okay, I appreciate your comment. And then just curious on your thoughts on the furniture space, Art Van is your first development with them, your first, I think, property in the furniture spaces.

Is this a sector that you think there’s more growth coming from an acquisition or it’s just kind of one-off opportunity that you saw in advantage to get a nice large development in your pipeline?.

Yes. As you mentioned, this is our first investment in furniture retailer. It is obviously our first exposure to Art Van. I will tell you that we’re very familiar with Art Van. As many people know they are recently acquired by T. H. Lee into the sale leaseback with some of our peers both private as well as public, I think its 37 stores.

That didn’t impress us, that isn’t our MO, that’s not our operating strategy. Art Van has been an operation based here in Michigan for almost 60 years, they have over a 100 stores, the ninth largest conventional furniture retailer in the country, the 18th largest when you rip out effectively mattress sales.

They are the number one retailer for furniture in the state of Michigan with 98% brand awareness which is frankly off the charts, I grew up listening to Art Van commercials.

This site specifically is one of the major retail corridors and destinations in the state of Michigan which we’re intimately familiar with, is on Ford Road right off of a major freeway I-275. Ford Road has 48,000 vehicles per day in terms of traffic counts. The five mile population density is almost 210,000 people. This store will draw for much larger.

It share an intersection newly signalized four-way intersection with Michigan’s only IKEA which draws 2 million people per year with median household income of approximately $75,000. So the combination of the underlying real estate, the familiarity of that real estate it sounds it’s frankly down the street from us here.

Our experience on the Ford Road Corridor both development – historic development, I mean, it’s really a compelling piece of real estate.

In terms of the additional investments in the furniture space, it’s something that we will consider, I’ll tell you, it’s not currently on the radar, it’s something that we’ll be aware of, but we thought that this transaction specifically was very unique..

Okay, thank you..

Thanks..

The next question will be from Ki Bin Kim of SunTrust. Please go ahead..

Good morning guys, this is Ian on for Ki Bin. Just wondering what you guys are seeing in the market for the back half of the year, you did a good chunk of your acquisition guidance. I’m just curious what you’re seeing in the back half right now..

Good morning. We haven’t seen it – we haven’t seen any significant movement in terms of the macros, in terms of cap rates, obviously interest rates remain low.

We’ve seen some coral changes, some of the – I would call it risk adverse from a headline perspective tenants and sectors we’ve seen cap rate compression in terms of tyre service, auto service, a number of those sectors where people don’t see the Amazon headlines on the Wall Street Journal flashing across their screen.

But at the same time we’ve seen a slight expansion in sectors where there’s isn’t – there hasn’t been a compelling bit and you have a significant amount of product coming online, specifically dollar stores with over a 1,000 dollar stores opening up within this country in 2017 alone between Dollar General, and Family Dollar Dollar Tree.

If cap rates frankly been quite stable, our focus and our goal remains finding those transactions across the net lease spectrum throughout three external growth strategies where we can deliver value to our shareholders..

Hey, Joey, it’s Ki Bin. Just going back to your earlier comments–.

Good morning.

Hey, good morning, about Amazon and e-commerce, you guys have a lot of different business segments that you’re lam or two.

Are there certain segments that you’re further kind of carving out, say, may be we don’t want to own those assets or be in that business longer-term besides the one that we already know about?.

Yes. It’s a good question, soft and hard goods that are easily can monetize or a retailer that doesn’t have a compelling experience or a unique value proposition or easily reparable gives us pause. I mean, there are a numbers of sectors that you can think about that we want to see that shake out.

Obviously the quintessential sectors which everyone gets concerned about are office supplies and electronics and things of that nature. That said, as we move forward, and I said in my prepared remarks over the next decade that obviously a round number. As we move forward, we believe there’s going to be winners and losers in those sectors.

Now are we actively pursuing opportunities within them? No. But like everybody we continue to refine our approach, we continue to learn and we continue frankly to target the retailers in those sectors which we are confident in that are at the top end of the spectrum in terms of performance on a go forward basis and historic..

And given what you are seeing, does it incrementally make you want to may be reprioritize what makes it to the top in terms of important, whether it would be tenant quality, business viability or may be even demographics? And does that have any implications for may be the go forward yields coming down? Like you said earlier, it seems like already some of the non-Amazonable businesses are seeing slightly compressed cap rate.

So just curious to see what we can see going forward from you guys..

I would tell you we retain the optionality if we really given our cost of capital today. We did it with the portfolio transaction last year. We’ve done it on single assets where we really honed in and really like the underlying real estate, the underlying store performance or something that we retain the optionality to go get something and to buy it.

That said, the fragmentation of the net lease space, the size of our funnel, the performance of our team, the commitment of our team, we see a host of different opportunities that levers our relationships with retailers to find value. As I said in the prepared remarks, our second quarter acquisitions were the highest quality since 2010.

RaceTrac is a leading gas and convenience store, we’re very pleased to execute on that transaction. We added Ross Dress for Less, which is a fantastic off-price retailer to the portfolio. A number of O’Reilly’s.

The LA Fitness in Columbus part of the new nationwide corporate campus in Grandview Heights is a fantastic piece of real estate and an exciting burgeoning submarket in downtown – adjacent to downtown Columbus with great store performance.

So we are picking the cream of the crop today and we’re able to see it because of the size of our funnel, and frankly the performance of all of our team members and partners here..

Okay, thanks, and congrats, Matt..

Thank you..

The next question will be from David Corak of FBR. Please go ahead..

Good morning, guys..

Good morning, David..

Looking at the development and PCS business, first time the only customers there would sort of proves out idea of leveraging existing relationships, I guess on the ownership side at least for one of them to get development business [indiscernible] but may be specifically with Mister Car Wash.

Can you just give us some background on how that came for us or is there other potential scenarios likewise in existing portfolio going forward?.

Yes. And we’re very pleased and we’re excited about our partnership with Mister Car Wash. Obviously we transacted in the sale leaseback with Mister Car Wash last year.

And similar to how we executed our sales leaseback with Camping World with Meridian, our Burger King franchisee with the acquisitions of the Wawa before we went in the ground actively with them in Florida, we’re able to use our balance sheet, selective use of sale leasebacks what we’re not able to telegraph to the market obviously we report acquisitions on a quarterly basis is what we’re doing behind the scenes in terms of the shadow pipeline in regards to development.

At the time of the sale leaseback with Mister Car Wash we were actively working on the design of prototypes. Mister Car Wash is obviously the number one car wash operator in the country over 200 car washes. Fantastic management team, over 48 years in operation operating in 21 states, but they had never developed net new units on organic perspective.

Their growth is common. It’s been tremendous growth through the acquisition of operators – desperate operators across the continental U.S.

And so we work with Mister Car Wash hand in hand and they are a fantastic partner in designing what’s the optimal prototypes for over a year; it’s been a process, a learning process for both of us, and we’re very pleased to get the first two in the ground in New Mexico and Iowa respectively two different prototypes and two exciting projects.

And we look forward to helping Mister Car Wash as an important constituent, and as a partner develop organically and/or relocations hopefully for years to come. And so those are again it is an example of us being able to leverage our multiple capabilities here.

And I think in the quarter you see our acquisition platform firing our Partner Capital Solutions producing off some opportunities and frankly our development platform we wish shovels in the ground..

Okay. And then I guess just sticking on with that, you mentioned getting the $50 million to $100 million deals in process for clothes I think was the term anyway by 2018.

Is that supposed to mean that you’re comfortable with or is there anything to change in the retail landscape that does kind of make you alter your thoughts there?.

We have $46 million delivered and/or under construction currently to development and Partner Capital Solutions. So obviously we’re on phase for that $50 million to $100 million frankly, ahead of phase.

In terms of go forward into 2018 and beyond, the retail landscape or the macro doesn’t really have frankly any bearing on what our pipeline – omnichannel pipeline work on, look like it.

Our performance will be based upon the opportunities that we uncover, our partners’ appetites for new stores, as well as any new business development that we’re working on frankly currently for 2018..

Okay.

And then one last one, can you just walk us through how you guys are balancing, how you think about doing a larger portfolio deal today on the acquisition side versus kind of spraying that over a few years with one off acquisitions kind of the strategy that you required year-to-date?.

Yes. We continue to be an aggregator through all three external growth platforms on a one-off basis, that’s our DNA, that’s our MO, that’s how we view real estate on a single transactional level. We look at portfolios up to the multi-billion dollar of size. We have not obviously struck on anything similar. If we find something larger that makes sense.

It would have to fit within context of the quality of our portfolio, and obviously would have to work from a financial perspective as well. When I speak of financial it have to work from for not only a P&L perspective, but a balance sheet perspective.

And so we aren’t going to take any outsize risks to the quality of the portfolio, the balance sheet, frankly the consistency and sustainability of our earnings and dividend. We are happy to continue and excited frankly to continue to scale and build out our three external growth platforms here regardless of larger portfolio opportunities..

Fair enough. Thanks guys..

Thank you, David..

The next question will come from Nick Joseph of Citigroup. Please go ahead..

Hey, Joe, it’s Michael Bilerman here with Nick. I’m just curious between Brian and Matt both CFOs you hired after Ken, taking his retirement sort of lasted, call it, a year and a half each.

So I guess as you’re going through the process now of rebackfilling the role third time, I guess what have you learned about the role at Agree that is limiting the tenure of these CFOs? Is it the responsibilities? Is it the pay? Is it the management or culture that they don’t like? What is it about the job that’s not keeping the bucks in the sea?.

Good morning, Michael. Look, it’s an interesting question. I would tell you that I think that the opportunity afforded by this organization whether it would be internally or externally at different companies or at different roles for people, this is the most important takeaway here.

I think also the testament to the organization that the management team here is frankly is talented, the company has experienced fantastic growth, the company has been very successful. And so it’s a testament to the management team that frankly there are outside suitors for them.

Now as a CEO and as ultimately accountable and a leader of this company I view my job as one is creating opportunities for people. And my important job – my most important job as a manager is putting people in a position to be successful. I would tell you that overall our turnover had been very well, unique to see. I’ll let you talk to Matt offline.

I don’t think he needs to go through in details on the call unless he wants to, but Matt specifically, and I’ll speak for Matt, feel to jump in – feel free to jump in, a unique opportunity for himself and his family. And we won’t hold anybody back from pursuing them. I mean Brian Dickman did a fantastic job as CFO.

He saw unique opportunity at Seritage, and Matt saw unique opportunity that they wanted to take advantage of. So we have a fantastic team in place, we will go through a contemplated search to find the right success – successor for the company on a go forward basis.

I would tell you that the position, the role, and the responsibility has dynamically changed. You’re talking about a company in Matt’s tenure alone that’s gone from 18 to 30 people in just 18 months.

And we’re confident that we’re going to find a fantastic successor to Matt and we’re also confident that Matt going to have a fantastic career ahead of him, and we have our main friend to give a touch..

Hey, Michael, this is Matt. I would just elaborate on that and say there’s nothing at Agree that that I would replace or change. It’s a terrific place to work, it has a terrific culture. There’s a bunch of wonderful people here that I’ve really enjoyed working with over the last year and a half.

And I think it’s a tremendous opportunity for anybody who’s lucky enough to have it. Like Joey said, I had a unique opportunity and I won’t speak for Brian, but I know he had a unique opportunity as well.

And sometimes those situations come up, but the company as a whole is obviously in a terrific place today and it’s a tremendous opportunity for anybody who’s lucky enough to have it..

Now Nick has a question..

Great, thanks Michael. Yes, this is Nick. You talked in the past about targeted net debt to EBITDA ratio of 5 times to 6 times, but over the last few quarters it’s been more in the mid to high 4’s.

So I’m wondering if it’s a shift in strategy to run at lower leverage or if it’s more of a reflection of just being opportunistic with capital and should we expect to see leverage actually drifted up going forward?.

It’s a good question, Nick, and I appreciate it, because again we had in the quarter at 4.6 times net debt to EBITDA. Without the equity offering pro-forma remove the equity offering we would have been in that 5 times , 6 times range. I think most important it’s not necessarily a shift in strategy.

I think there is a relative opportunistic approach to it. But I would tell you at the same time we know our operating strategy calls for us to continue to invest capital across three platforms and we want to continue to maintain the balance sheet and the liquidity to be able to invest that capital on an accretive basis.

At the same time, we don’t need to use short-term variable rate financing, we don’t need to use, we don’t need to lever the balance sheet to provide double-digit shareholder returns while maintaining the overall portfolio quality. We’re in a unique perspective.

Our spreads I would tell you are probably the largest in the net lease space our investment spreads. And so we are confident that we can deliver significant AFFO and FFO growth on an annual basis with out running frankly at the upper end of that leverage spectrum today.

And so we’re going to keep the balance sheet in a conservative, flexible or capable position to execute on the operating strategy while delivering the shareholder returns that our shareholders are looking for us to execute in..

Thanks.

And just finally on Rite Aid, how many of your stores will be sold to Walgreens and how does that impact your exposure to both tenants?.

Yes, we have seven Rite Aid totaled in the portfolio, three are in the geographic if you look at the maps that were in the investor deck, posted by I believe both Rite Aid and Walgreens, three are in the geographic territory where the Walgreens will be acquiring Rite Aids specifically in the Northeast.

And so it looks like potentially three of those stores will be acquired by Rite Aid one of those – by Walgreens, excuse me, one of those store is currently subleased for the remainder of the term and has been by Rite Aid to Fresenius for a number of years..

Thanks..

Thanks, Michael..

The next question will come from Collin Mings of Raymond James. Please go ahead..

Hey, good morning guys..

Good morning Collin..

Just one follow-up for me, just sticking with the questions this morning regarding just the strategy in the current environment, Joey may be can you just update us on how you’re thinking about your investment grade exposure again that’s down to 44% versus north of 50% two years ago.

I know it’s not a metric you like to get too focused on, but just maybe talk about the shift in that we’ve seen over the last two years, and how do you think about that metric as you kind of go through the strategy going forward?.

Yes. We’re cognizant that the investment community – it looks at that number and remainders. First I would tell you that our retailer investment grade exposure is the highest in the space by far, number one.

Number two, we have a number of high quality retailers in our portfolio that don’t have a credit rating at all, and I think I touched that on the last call, again Publix this quarter, Panera Bread these aren’t rated credits.

I think if you look at the balance sheets of Tractor Supply and Hobby Lobby specifically practiced by publicly available, Hobby Lobby is the company that has no debt. And so I don’t think they would have a problem getting investment grade credit rating.

So I think if you take the credits in our portfolio, another example is Myer, where we have a Myer ground lease in Plainfield, Indiana.

If you take those credits in our portfolio, if we were to impute investment grade credit ratings or you’re talking about being north of 50% with just those well known national or super regional retailers that are extremely capable.

So I’ll tell you we’re cognizant of it, we’re not going to start imputing credit ratings, we’re not going to deviate from – how we monitor credit or frankly mark credit, it’s something that will continue to monitor.

At the same time our focus again is not necessarily on credit per se from a major rating agencies, but how their retail or net piece of real estate fits in an omnichannel retail world. And so there’s a lot of retailers that aren’t rated, some that are rated speculative of some investment grade that are fantastic operators that we are very fond of.

So we’re going to continue to execute, that number will continue to monitor, but it won’t be a driver from an optical perspective, we’re not going to optics drive our investment strategy..

Okay, thanks Joey, and congratulations on your new update..

Thanks, Collin..

Thank you, Collin.

The next question will be from R.J. Milligan of Robert W. Baird. Please go ahead..

Hey, good morning guys.

Joey, just a quick follow up, I know you guys maintain your occupancy, I’m curious has your credit watch list changed at all or grown over the past six months?.

Good morning, R.J. I would say only the material credit on our watch list that we just touched on a couple questions ago is it is Rite Aid. Obviously with the acquisition they’re going to have some proceeds here. They’ll be more of a regional operator.

And so the watch list – there’s always movement, I would tell you that our watch list as defined we keep it frankly fairly, fairly broad, we want to watch – we’re watching every asset, all 415 in the portfolio.

And so we’re always, we’re always looking at store performance underlying real estate trends, demographic trends, retail absorption trends and market occupancy rates, as well as balance sheets and profitability of those retailers.

And so like I said, we will continue to watch Rite Aid, they’re down a number 16 at 1.6% 1.7% today, and we’ll see how that transaction transpires in which Walgreens – which stores Walgreens actually purchases..

Okay, thanks.

And I know you guys just started the search for match replacement, but can you give us an idea of what your targeted timeline is for bringing somebody else on board?.

Yes, I would tell you, our thought process today and we’ve had frankly 25 inbounds. That’s part of being publicly traded that when the news goes out there. And we have a number of interested candidates on it.

Our thought process today is to take our time, find the right candidate, find the right partner for this business to help execute on its operating strategy. And so in terms of a strict timeline we don’t have – we have the luxury of having Dan Ravid having accounting tax and audit report to him.

We have a fantastic luxury seat next to Ken Howe, who knows more about this company than anybody, and he’s been here for four years pre-IPO. And so the balance sheet is in fantastic shape, obviously we raise the equity. All the pieces and parts are there for us to take our time and find the right successor to Matt, who’s done a fantastic job.

And find the right partner for this growing and scaling business..

All right, thanks guys..

Thank you, R.J..

Your next question will be found Ryan Meliker of Canaccord Genuity. Please go ahead..

Hey, good morning guys. I just wanted to kind of talk, take a big picture question for you, Joey. You gave some good color on your views on the retailer environment and e-commerce shaping it.

I’m just wondering in over the past 5 years or 10 years, how has your view changed? Has it changed? And are there any industries that have surprised you either towards their resilience against the e-commerce environment or so that’s on the flipside more challenges around the e-commerce environment that have caused you guys to may be reasoning some positions there? Thanks..

It’s an interesting question, Ryan, and I appreciate it. Good morning. I think we’re always learning and we are always fighting.

I think what necessitate the prepared comment is that we often from investors and as well as also analysts get questions are you concerned about Amazon entering pharmacy? Well, if you look at the Wall Street Journal and you look at the headlines over the course of the last couple of months is that Amazon entering grocery obviously, Amazon entering pharmacy, Amazon entering auto parts, Amazon entering furniture, Amazon entering the appliance space now with their deal with Sears.

And the reactivity of the equity markets frankly we believe is overblown, that’s by definition the equity markets at times. And at the same time we think people are frankly conflating a number of different things that are going on in the brick and mortar retail world.

The failure and the evolution of the mall space is very divergent from the evolution of the net lease space. Macy’s, J.C. Penney and Sears and those struggled aren’t correlated necessarily to how would we see in terms of our sectors and the tenants in the net lease space.

I’ll tell you, one place that we’ve been with, I’ve personally been surprised about in terms of e-commerce penetration and the inability of brick and mortar retailers necessarily to maintain market share, I should say is women’s fashion.

I had always believed that women would prefer to touch and feel and shop in a brick and mortar store as part of an experience.

I would tell you that that the penetration in terms of women’s fashion in traditional brick and mortar retailers, inclusive of department stores, is as much of a factor as those historic brick and mortar retailers, a few of which I named and then few smaller operators in terms of GLA in national coverage is that they have not changed their business model and they’ve not evolved to maintain that market share.

The experience of shopping in those stores, the value proposition of shopping in those stores, frankly has not – hasn’t been successful. They haven’t changed their business model. I think the Internet impacted everything, including brick and mortar retail. At the same time in terms of women’s apparel you look at T.J.

Maxx – excuse me, Marshalls obviously, also TJX, you look at Ross, you look at Burlington, the off price retailers have derived.

And so which we – what I see happening in women’s fashion specifically is the traditional department store operators have not changed their business model, and you see the e-commerce penetration and taking market share, but you also see the off price taking market share. And so that’s one place that has surprised me.

I’m not sure if it’s much as the advent of shopping in a box and having it delivered or online ordering and home delivery as much as it is frankly, the inability for those – some of those brick and mortar retailers to evolve their business model..

Thanks Joey, that’s good color. And I guess just a second question. You touched about on this a little bit maybe a little bit more detail obviously 2Q was pretty skewed towards acquisition volumes, you did announce a few development in PCS fields.

How should we think about the breakdown between acquisitions and development in PCS going forward? Is it going to be more balanced? Are you just finding so many attractive acquisition opportunities at the right pricing that just makes sense to put your capital in that boat right now? Help us understand how we should think about that..

So, if we didn’t have the outsize acquisition volume which was a function of transaction, one which literally was four years in the making, another which was 18 months in the making, and then some single credit, mix credit portfolios.

If we didn’t have the outsize acquisition volume frankly the headline would probably be in the takeaways would be the ramp of the PCS in development activity. We have $25 million – $24 million, $25 million effectively in the ground are committed between the two Mister Car Wash and the Art Van.

If you take our Q1 acquisition volume of, call it, $55 million, $58 million, if you took that volume I think the headline would be that that the PCS and the development activity ramped.

Again, I would tell you, the elevated acquisition volume for Q2 by no means the run rate, it was highly opportunistic, and I think the key takeaway for investors here is as well analysts is we now we have three external growth platforms plus our active asset management platform which divested of two assets for over $11 million, that we’re all firing and I think that is – that’s the piece that gets the management team and the overall team here, the entire team excited is that we see opportunities across the full net lease spectrum from inception to older assets are the third-party basis acquired on a third-party basis where we can find, create and extract value..

Okay. Thanks Joey, that’s it from me..

Thank you, Ryan..

The next question will be from Rob Stevenson of Janney Capital Markets. Please go ahead..

Thanks.

Joey, can talk about your experience with and thoughts on the auto parts retailers and is it same amount of ability that business going forward with stocks of AutoZone and O’Reilly’s and the like are off roughly a third in the last three months? You’re viewing that basically as a stock market issue or is it singling something about the business long-term prospects there?.

Well, first of all good morning, and I think the auto parts space specifically as a number of things going on, I won’t try to predict or armchair quarterback the equity markets. Everything from the cycle of used cars to the age of the cars on the road have implications for the auto parts space.

Our two primary outside of tyre service which is of course Bridgestone, Firestone, the NTB, TBC concepts as well as Goodyear. Our focus has been on O’Reilly and AutoZone, they’re very good relationships of ours. Retailers that have fantastic balance sheets, we believe they have strong underlying business models.

I actually spent time in an AutoZone store a few months ago to better even better understand the business, because frankly I’m not very depth at auto parts personally. So they’re very different businesses frankly. AutoZone is more of a do it yourself customer that comes into the store.

And part of that experience, when we talk about experience part of that value proposition is the ability to talk to a consumer sales rep to find the right part, and to tinker and to be able to work through issues with that sales rep, and then take that part back immediately and go work on your car, sometimes frankly even in the parking lot of the AutoZone.

O’Reilly has a much bigger component than AutoZone of out the back door sales, back door is the proverbial bump shop collision dealerships, which who need to park in an hour. Now I think most interesting in all of this is the Amazon fears of Amazon entering the auto parts space, because they can win on price.

If you talk to somebody in the auto parts space, what they’ll tell you is Amazon has taken market share and windshield wiper blades and formats. We don’t see that as a threat to the top two operators in the space, so O’Reilly and AutoZone on a long-term basis.

Will they have to tweak and change their business effectuate an omnichannel strategy? Sure, 100% like every retailer in this country. But we don’t see Amazon shipping mufflers and heavy duty auto parts on an effected profitable basis and taking market share along, significant market share long-term from those two operators..

Okay. Thanks guys, I appreciate it..

Thank you..

The next question will be from George Hoglund of Jefferies. Please go ahead..

Hey, good morning, guys. And first of all, Matt, congratulations on the new job and it’s been a pleasure working with you over the past three years..

It’s been great working you as well..

Yes. Thanks. My question is on the new developments and PCS.

On those three projects, where there’s sort of an expected returns and that relatively consistent with what we’ve seen in the past?.

Consistent with what you’ve seen in the past in terms of both development and PCS. So nothing new to report on those fronts there..

Okay.

And then just generally about construction costs, have you seen any changes in costs or availability of labor?.

I wouldn’t tell you in short-term. And I talked to Jeff Konkle about it all the time by referenced in the prepared remarks. The general theme coming out of recession is that the availability of labor has been very challenging in the construction industry, because frankly 50% of the trade went out of business and did come back.

And so the availability of labor makes it even more important to get for our team to bit to qualified general contractors that have access to those trades and can perform on time and on budget.

Obviously, we don’t sell performer or any construction activities here, we go through a competitive bidding process that we have GMP contract, where we’ll bring in qualified regional contractors with experience in that product type. And then their ability to access trades on an effective basis is critical..

Okay, thanks for the color..

Thank you, George..

And ladies and gentlemen, this will conclude our question-and-answer session. I would like to hand the conference back to Joey Agree for his closing remarks..

Well, thank you everybody for your patience. With that, I’d like to thank you for joining us today and we look forward to you speaking to you in Q3. I appreciate it. Thank you..

Thank you, sir. Ladies and gentlemen the conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines..