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Stag Industrial, Inc. (STAG)

STAG 
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STAG Industrial, Inc. (STAG)

Q4 2017 Earnings Conference Call

February 16, 2018 10:00 AM ET

Executives

Matts Pinard - VP, Investor Relations

Ben Butcher - Chief Executive Officer

Bill Crooker - Chief Financial Officer

Steve Mecke - Chief Operating Officer

Dave King - Director of Real Estate Operations

Analysts

Sheila McGrath - Evercore ISI

Michael Carroll - RBC Capital Markets

Dave Rodgers - Robert W. Baird

Michael Mueller - JPMorgan

John James Massocca - Ladenburg Thalmann

Chris Lucas - Capital One Security

Jon Petersen - Jefferies

Presentation

Operator

Greetings, and welcome to the STAG Industrial Fourth Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation [Operator Instructions]. As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Matts Pinard, Vice President, Investor Relations. Please go ahead, sir.

Matts Pinard

Thank you. Welcome to STAG Industrial's conference call covering the fourth quarter 2017 results. In addition to the press release distributed yesterday, we posted an unaudited quarterly supplemental information presentation on the Company's Web site at stagindustrial.com under the Investor Relations section.

On today's call, the Company's prepared remarks and answers to your questions will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. Examples of forward-looking statements include statements relating to earnings trends, G&A amounts, acquisition and disposition volumes, retention rates, debt capacity, dividend rates, industry and economic trends, and other matters.

We encourage all of our listeners to review the more detailed discussions related to these forward-looking statements contained in the Company's filings with the SEC and the definitions and reconciliations of non-GAAP measures contained in the supplemental informational package available on the Company's Web site. As a reminder, forward-looking statements represent management's estimates as of today. STAG Industrial assumes no obligation to update any forward-looking statements. On today's call, you will hear from Ben Butcher, our Chief Executive Officer and Bill Crooker, our Chief Financial Officer.

I will now turn the call over to Ben.

Ben Butcher

Thank you, Matts. Good morning everybody, and welcome to the fourth quarter earnings call for STAG Industrial. We're pleased to have you join us and look forward to telling you about our fourth quarter and full year results.

Presenting today in addition to myself, will be Bill Crooker, our Chief Financial Officer who will discuss the bulk of the financial and operational data. Also with me today are Steve Mecke, our Chief Operating Officer, and Dave King, our Director of Real Estate Operations. They'll be available to answer questions specific to their areas of focus.

The fourth quarter was another successful quarter for STAG and a great way to close out our 2017. For the year, the team continues to identify accretive opportunities, closing $613 million of acquisitions at 7.4% stabilized cash cap rate. Net acquisitions $545 million after dispositions, grew by more than 70% over the prior year. We continue to see a persisting opportunity to acquire on an attractive relative value basis in the 60 plus markets that we monitor.

The team was equally busy on the leasing front this quarter with 2.4 million square feet leased, including approximately 1.3 million of square feet of new leases at 5% roll over cash rents. This is our highest new leashing total in our Company’s history. These favorable leasing results enabled us to exceed our revised same-store guidance for the year. This was our third consecutive quarter demonstrating the powerful combination of growing per share earnings while reducing leverage.

For the fourth quarter, the platform produced 4.8% core FFO per share accretion while reducing leverage from 5.1 times to 4.9 times debt to EBITDA when compared to the same quarter in 2016. The industrial sector is very healthy, both generally and specifically in the markets in which we operate. We are seeing the strong tenant demand for our buildings, declining vacancy and rising rents across the majority of these markets.

Industrial rents are highly correlated to GDP and with continued GDP growth expected, we are confident in our ability to reprise our expiring leases. The macro events for the first quarter of 2018 have significantly impacted the valuations in the REIT market. The broad equity markets rallied to all time highs and have recently corrected. The 10 year treasury rate has recently spiked to full-year high and has weighed on REIT shares. This key interest rate remains volatile and strategic course remains to some degree unknown. We entered 2018 well prepared should this rise in interest rates persists.

First, we have a well laddered and almost entirely fixed rate balance sheet. Second, the rise in interest rates is likely the result of continued economic growth, good for both rents and the occupancy of our buildings. Third, our acquisitions remain accretive with the moderate rise in interest rates. Fourth, after a lag period, cap rates will likely also rise. Fifth, our principle competition, which is local private buyers to acquire buildings are more dependent on levers than we are. Interest rate increases will impact them more diversely than us.

2017 was another productive year for the STAG platform; accretive acquisitions, healthy leasing results and efficient and conservative capitalization has resulted in another year of first year earnings growth. The attractive opportunities continue to persist, industrial fundamental picture remains strong and the STAG team continues its robust execution at all phases of our business.

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