Stag Industrial, Inc. (STAG)

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STAG Industrial, Inc. (STAG)

Q1 2019 Earnings Conference Call

May 01, 2019, 10:00 ET

Company Participants

Matts Pinard - VP

Benjamin Butcher - Chairman, CEO & President

William Crooker - CFO, EVP & Treasurer

Stephen Mecke - EVP & COO

David King - EVP & Director, Real Estate Operations

Conference Call Participants

Sheila McGrath - Evercore ISI

Brendan Finn - Wells Fargo Securities

Mitchell Germain - JMP Securities

David Rodgers - Robert W. Baird & Co.

Jason Idoine - RBC Capital Markets

Sarah Tan - JPMorgan Chase & Co.

John Massocca - Ladenburg Thalmann & Co.

Christopher Lucas - Capital One Securities



Greetings, and welcome to the STAG Industrial First Quarter 2019 Earnings Call. [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, Senior Vice President of Investor Relations for STAG Industrial. Thank you. You may begin.

Matts Pinard

Thank you. Welcome to STAG Industrial's conference call covering the first quarter 2019 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 the 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 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 information 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 from 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, Matts. Good morning, everybody, and welcome to the first quarter earnings call for STAG Industrial. We're pleased to have you join us and look forward to telling you about our first quarter 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 will be available to answer your questions specific to their areas of focus.

Our first quarter operating results represent a great start to 2019. The $185 million of accretive acquisitions represents the largest first quarter acquisition volume in the history of our company by a significant margin. The portfolio produced 3.5% same-store NOI growth, reflecting a strong start to the year. These impressive metrics demonstrates STAG's ability to provide both external and internal growth. These operationally-based achievements are further supported by the continuing strength of underlying industrial fundamentals. The tenants in our portfolio are both healthy and active. They're continuing to sign leases with significant rollouts and elevated contractual rental escalators.

After many consecutive quarters of net industrial demand exceeding new supply, the elevated supply is projected to potentially reverse that balance in 2019. However, it is important to note that this excess supply is isolated in a handful of large primary markets, and in some cases, more specifically, certain submarkets within these markets. Supply remains constrained across the vast majority of markets and submarkets in which STAG operates.

It should be noted that large book assets generally have different leasing demand drivers than smaller distribution buildings located in the same city. It is thus vitally important to evaluate assets in the context of how they are positioned in and relative to other assets within the submarket they operate in. This is one part of the fulsome analysis that STAG performs to apply a relative vital lens to assets across the 60-or-so markets we're active in. The result of this broad inquiry is, we regularly identify mispriced assets that can be acquired on an attractive risk-adjusted return basis.

As we have always done, we're continuing to maintain broad diversification within our portfolio in any of the prior parameters that might introduce an undue degree of correlated risk. In addition to other benefits, this diversification also helps meet any exposure to submarket specific supply considerations to the extent they were to occur.

In early April, the company executed an equity offering at very attractive pricing that directly funded our Q1 and April acquisitions as well as reduced our overall leverage levels. This was STAG's first equity transaction outside of ATM issuance since October 2014. The offering was upsized and resulted in approximately $215 million of net proceeds to the company. This recent equity transaction demonstrates our willingness to remain flexible and evaluate all available options to efficiently capitalize the business.

STAG leverages its real estate platform to create value in several ways. Our principal business is identifying, acquiring and managing stabilized industrial real estate assets. We also pursue non-stabilized value-add acquisitions. These include acquiring vacant or under-occupied assets, assets prying for repositioning or those with significant capital investment needs. The stabilization of these acquisitions has created an average of approximately 100 basis points of incremental value at the asset level.

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