Stag Industrial, Inc. (STAG)

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STAG Industrial, Inc. (STAG)

Q4 2018 Earnings Conference Call

February 14, 2019, 10:00 ET

Company Participants

Matts Pinard - VP

Benjamin Butcher - Chairman, CEO & President

William Crooker - CFO, EVP & Treasurer

David King - EVP & Director, Real Estate Operations

Conference Call Participants

Sheila McGrath - Evercore ISI

Michael Carroll - RBC Capital Markets

David Rodgers - Robert W. Baird & Co.

John Massocca - Ladenburg Thalmann & Co.

Jonathan Petersen - Jefferies



Greetings and welcome to STAG Industrial's Fourth Quarter 2018 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to Matts Pinard, Senior Vice President of Investor Relations. Thank you, please go ahead.

Matts Pinard

Thank you. Welcome to STAG Industrial's conference call covering the fourth quarter 2018 results. In addition to the press release distributed yesterday, we posted an unaudited quarterly supplemental information presentation on the company's website 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, 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 discussion related to these forward-looking statements contained in the company's filings with the SEC and the definitions and reconciliations to non-GAAP measures contained in the supplemental informational package available on the company's website. 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'll hear Ben Butcher, our Chief Executive Officer; and Bill Crooker, our Chief Financial Officer. I will now turn the call over to Ben.

Benjamin Butcher

Thank you, Matt. 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 results. Presenting today in addition to myself will be Bill Crooker, our Chief Financial Officer, who'll 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 wraps up an impressive 2018 for STAG Industrial. Our platform operated at a high level with continued accretion driven by record acquisition volume, robust leasing spreads and strong retention. All this was accomplished while maintaining a defensive balance sheet. We capped off the year with the execution of a successful portfolio sale and the achievement of an additional investment grade rating. The opportunity set for the company remains very attractive. The acquisition team continues to expand their marketing presence through seasoning, their time in market and additional outward-facing personnel. The investments made over the past several years to improve and enhance the company's use of data are producing noticeable returns. The underwriting process is more robust and closing is more efficient. The vast amount of internal and external data accumulated is being harnessed through wide insights and through investable opportunities.

During the fourth quarter, STAG executed on the portfolio sale that we had previously described and metrics consistent with our expectations. The transaction traded at a 6.2% cap rate, representing a 180 basis point compression from where these assets were acquired. These attractive pricing provided proceeds that will be redeployed into our opportunity set in an accretive manner. This portfolio sale demonstrates, once again, the power of aggregation and diversification. STAG has constructed a platform capable of evaluating thousands of transactions a year. Our strict pricing discipline has limited STAG's actual acquisitions to only between 10% and 15% of what we underwrite. This pricing/returns filter ensures that the assets we acquire generally represent the best relative value available across the wide landscape of markets we operate in. The risk reduction obtained through thoughtful aggregation only adds to this relative value.

We do not anticipate any portfolio sales in 2019. We'll continue to sell non-core assets that no longer fit the portfolio, including the flex/office portion as well as continue to opportunistically sell assets that are worth more to buyers than they are to STAG. During the quarter, STAG obtained an investment grade rating from Moody's Investor Services. This second investment grade rating is yet another confirmation of the value of low leverage, broad diversification and a strong portfolio. The end of 2018 and the beginning of this year have been marked by uncertainty. Volatility has reintroduced itself to the markets and the headlines. The list of macro issues, current potential likely and less likely is long and maybe growing. However, form where we sit today, we can tell you that the underlying fundamentals of the industrial sector are strong and our tenant base remains active and healthy. We cannot point to a single thing that makes us overly concerned about our operations in the near term.

Adding to our confidence in these uncertain macro times, the company is both widely diversified and defensively positioned. The portfolio and its tenants are diversified across the metrics that provide for low correlation, geography, lease term, industry, et cetera. The balance sheet is well positioned as we enter 2019, with leverage below 5x net debt-to-EBITDA with no debt maturing until September of 2020, and with almost $600 million of immediately available liquidity. Before I turn over to Bill to discuss our fourth quarter results and to reintroduce our 2019 guidance, let me note that our Board of Directors voted to increase our common dividend to $1.43 annually effective January 2019. We've increased our dividend every year since the IPO in 2011.

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