STAG Industrial, Inc. (STAG) Q4 2015 Earnings Report, Transcript and Summary

Greetings and welcome to the STAG Industrial Fourth Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Matts Pinard, Vice President of Investor Relations for STAG Industrial. Please go ahead, sir.

Thank you. Welcome to STAG Industrial's conference call covering the fourth quarter 2015 results. In addition to the press release distributed yesterday, we've 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 and disposition volume, 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 of 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, Friday, February 26, 2016. STAG Industrial will strive to keep its stockholders as current as possible on company matters, but assumes no obligation to update any forward-looking statements in the future. 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.

Thank you, Matts. Good morning, everybody. And welcome to the fourth quarter earnings call for STAG Industrial. We are pleased to have you join us and look forward to telling you about the quarter and the full year 2015. Presenting today in addition to myself will be Bill Crooker, our recently elevated 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 will be available to answer questions specific to their areas of focus. I want to start off today by mentioning the very strong fundamentals currently existing in the US industrial markets. Seemingly at odds with the preponderance of US -- excuse me, of current news headlines. As other industrial operating REITs have already reported, we are seeing strong tenant demand for our buildings, declining vacancy and rising rent across the broad array of markets we operate in. The tenant demand comes not only from e-commerce which itself is a broad geographic demand generator, but also from a variety of other industries benefiting from the health and confidence of the US consumer responsible for about 70% of GDP. New supply concerns have greatly moderated and in most of the market we operate in new supply was never really an issue. The combination of continued moderate growth and the relative insularity of the consumer driven US economy, only about 8% of GDP as related to non-NAFTA should provide advantageous operating conditions in the coming years. Fourth quarter was a strong finish to a solid operational year for STAG. This is readily apparent and a continuation of our robust booking activity, healthy acquisition volumes, continued asset disposition and resultant portfolio improvement. And most importantly continued strong earnings growth. We continue to see wide spread opportunities for accretive acquisitions. Our current pipeline contains over $1.4 billion of transactions that are past an initial triage. In response to this continuing opportunity, we've advanced our preparations to source alternative equity capital so that we can continue to accretively acquire for the benefit of our shareholders. Bill Crooker will share more detail on our results with you in a moment. Subsequent to the end of the quarter, we announced the departure of Geoff Jervis, our former CFO from STAG. Bill Crooker, our new CFO has been a member of the STAG team since before the IPO. He initially came to us as our Chief Accounting Officer bringing extensive REIT accounting and reporting experience and competence. During his tenure at STAG he has added both corporate finance and capital markets expertise to round out his qualifications for the CFO role. We view this transition as seamless and his elevation to CFO as a testimony to the bench strength in the company. We look forward to his continued contributions in the coming years. With that I'll turn it over to Bill to walk through our fourth quarter and full year 2015 results.

Thank you, Ben. And good morning, everyone. As Ben mentioned we had another solid quarter from an acquisition, disposition and operation standpoint. We acquired 14 properties for a purchase price of $138 million and weighted average cap rate of 8.8%. For the year, we acquired 49 properties for $427 million representing an 8.4% cap rate. These acquisitions are consistent with our prior acquisition in terms of tenant and asset quality as well as deal parameters. For 2016, we expect the relative value acquisition opportunity to continue, and we expect to acquire between $300 million and $400 million. During the fourth quarter, we executed on two types of dispositions. Opportunistic and non-core. This resulted in four dispositions for gross proceeds of $12.8 million. For the year we disposed of six properties for gross proceeds of $22 million. In 2016, we plan to significantly increase our opportunistic and non-core disposition activity. The opportunistic dispositions include both small and medium size portfolios. We consider all of our flex office to be non-core and intend to divest ourselves with this property type over time and in an orderly fashion consistent with maximizing our economic realization from individual properties. At quarter end, we owned 291 buildings in 38 states with a total of 55 million square feet. Occupancy stands at 95.6% for the portfolio with an average lease term of four years. We continue to see robust activity in our leasing markets as evidenced by cash and GAAP rent growth of approximately 1% and 12% respectively, another strong quarter. On a retention front, we had a retention rate of 49.2% on the 8,000 of square feet expiring in the fourth quarter. This low retention rate was driven entirely by one non-renewal of 400,000 square feet, 200,000 square feet of which the company relet with no downtime. In total, over the last 12 months, our retention rate has been 70% and we expect retention for 2016 to be in the 70% range. From an operation standpoint, cash NOI for the quarter grew by 18% from the prior year. Same store cash NOI grew approximately 2% quarter-over-quarter and up approximately 1% for the full year compared to 2014. Core FFO grew by 18% compared to the fourth quarter of 2014. On a per share basis, core FFO was $0.40, up 8% compared to last year and up 3% to the previous quarter. This is the second consecutive quarter of record core FFO per share results. Our AFFO for the quarter increased 27% compared to the fourth quarter 2014. This resulted in an AFFO payout ratio of 86% for the fourth quarter. Our balance sheet continues to be strong and in line with our BBB investment grade rating. At quarter end, our debt to run rate EBITDA was 5.6x and our fixed charge coverage ratio was 3.1x. We continue to operate in our promulgated leverage ranges of 5x to 6x debt to run rate EBITDA and greater than 2.5x on our fixed charged covered ratio. As of the fourth quarter, we have $56 million outstanding on our revolver and $422 million of immediately available liquidity, which includes cash in hand of $12 million and an unfunded $150 million term loan. During the quarter, the company closed a seven year unsecured private placement offering for $100 million of proceeds bearing a fix rate of 3.98%. The company also funded the previously committed $150 million term loan B. At quarter end, we had approximately $987 million of debt outstanding with an average maturity of 6.5 years and a weighted average interest rate of 4.1%. All of our debt is either fixed rate or has been swapped to a fixed rate with the exception of our revolver. In 2016, we will continue to maintain a flexible balance sheet, and be prudent allocators of capital. I'll now turn it back over to Ben.

Thanks, Bill. I'd like update you on our progress with STAG's five point action plan that we first announced last summer. First, we've continued to demonstrate equity discipline, we’ve not sold common stocks since June 30 of 2015 and are not contemplating issuing common equity in this environment. Second, we've shown G&A discipline while ensuring the company is appropriately staffed. We beat our G&A forecast for 2015, $28.8 million versus our forecast of $29 million. Further, our projections for 2016 have been reduced again to $31 million versus prior guidance of $32 million. The $31 million of G&A in 2016 excludes the one time charge for the departure of Geoff Jervis. The increase in G&A from 2015 to 2016 is related to the full year cost of 2015 hires. Third, we've allocated our available capital to its highest return, continue to make accretive acquisitions. We've established a large amount of available debt capacity in the third quarter of 2015, and due to our low leverage metrics and flexible balance sheet, we've been able to put this capital to work while staying well within our promulgated leverage levels. Fourth, we've shown continued earnings growth. Yesterday, we reported core FFO of $0.40 per share for the fourth quarter. This is an 8.1% increase over fourth quarter 2014 and a $0.01 increase over the prior quarter. Full year core FFO per share was a $1.49, a 3% increase over 2014. We finished 2015 on a strong growth curve and we'll continue to drive for earnings growth going forward. Our fifth goal, establish alternative equity capital sources is ongoing. As prudent managers and allocators of capital, we've identified a path for alternative equity sources which we plan to begin executing on in the near future. These sources include sales and preferred equity, asset sales and various forms of private equity principally joint ventures. We plan to increase our disposition activity in 2016 to a total of between $100 million and $200 million. This will be an important component in the funding of our acquisition activity in 2016. In continuation of this fifth point is prudent and rational allocators of capital, we are both conscious of and open to various potential uses of our capital. The big three uses by assets, reduced debt or buyback stock will all be considered in capital applied as appropriate at that time. As we move into 2016, we will continue to focus our efforts around the strength of both our investment pieces and the company. We thank you for your time this morning and for your continued support of our company. I'll now turn it back to the operator to open the floor for questions. Thank you.

[Operator Instructions] Our first question today is coming from David Toti from BB&T Capital Markets. Please proceed with your question.

Great. Good morning, guys. Ben, just a question for you and I want to touch on some of the information that you shared relative to capital costs. At what point did the capital cost begin to impact your investment strategy? Is there sort of -- is there kind of hurdle rate, is it a bit more grey, how do you guys think about that spread investing as your capital costs move up?

Well, I think that we think of -- excuse me, the return that we want to deliver to our shareholders and we sort of have the threshold that has been relatively static through the sort of variability of our equity cost of capital. I don't think that the need -- we haven't seen a need to change that threshold because again of that variability. We believe that the spread between our threshold and what we think a reasonable stabilize cost of capital is quite large. It's large versus our current cost of capital and even larger versus what we think our stabilized cost of capital. The long-term valuation of our portfolio.

Okay, that's helpful. And then my second question is relative to the assets you are seeing in the market today. Are you seeing any wholesale change in cap rates and valuations especially at the higher end, the higher yield end of the spectrum?

We are not really - despite the fact that people look at us sometimes and say you can't buy cap rates like that. We are really not working in the higher yield spectrum. I think that the sort of the range of 8 to 9 that we are buying in today, I think most observers who saw where we are buying and observe where are buying would find we are just identifying relative value with sort of in a middle spectrum if you will. So I think that we are -- we've seen maybe an end to the declining cap rate or at least there seem some indication that cap rate has stabilized. And if you listen to anecdotally to the sales brokers in the market, they are in the suspicion that there maybe a lot of asset coming to market but the -- if you will the long held belief that cap rate eventually rise is coming to the market and perhaps we will see an onslaught of assets that have been - people have been holding onto as they sort of -- with the expectation that perhaps cap rates was continuing to decline. People have been projecting that for a number of years. So we will see if that actually eventuates. But we are certainly seeing I think stability in cap rates as before.

Thank you. Our next question today is coming from Gaurav Mehta from Cantor Fitzgerald. Please proceed with your question.

Yes, thanks. Good morning. So you talked about alternative sources of capital, one of them being sales and you also talked about preferred equity and JVs. I was hoping if you could provide some color on preferred and JV? How you think about those resources?

Well, I think we've always been and I think being quite clear about that. We've always felt that as a public company our main source of equity capital should be common equity. Obviously, given the current pricing environment for our common equity that’s not a source that is particularly attractive. Asset sales as we described in our commentary will be a bigger component of our funding of equity capital going forward. Again, we are going to use that equity cap rate in its highest return to our shareholders which whether that be buying assets, reducing debt or buying back stock. But we are -- if we sell an asset at seven cap, it is effectively equivalent to raising equity, common equity in the $23, $24 range. And so that's going to be a bigger component as we look at the year. The joint ventures, again, are not our first choice but the private equity is available, aggressive and quite interested in what we do. And we have an accretive -- we've opportunities to do accretive acquisitions [indiscernible] if you will set up to do those and it's not unexpected that you would find people interested in accessing that ability to deploy capital.

Okay. And then second question, as you look to sell your assets in 2016 what's the timing of those sales and have you started marketing any of those assets?

We are always in the process of selling assets. We are just -- and we have I think -- I don't know whether we’ve announced but we have some granular asset sales that are coming in this quarter and beyond, about $40 million of asset sales already planned. In addition to that we are taking out a number of small geographically focused portfolios for sale in a number of markets where we have concentrations.

And the timing of those will be middle to back half of the year.

Thank you. Our next question is coming from Juan Sanabria with Bank of America. Please proceed with your question.

Hey, good morning. Just on joint ventures, how should we think about how you guys would deal with the potential conflicts in terms of growing asset either on the joint venture side relative to on balance sheet?

Juan, that's obviously a very interesting question and I think the answer maybe somewhat dynamic. The amount of equity capital that the public companies supplies to the joint venture I think varies with the expected return from that venture. And the opportunities that exist for the REIT to invest directly. So the answer is a little bit complicated but we are committed to the public company and to what's in the best interest of the shareholders.

Okay. And then just if I look at your statement of cash flows relative to maintenance and leasing CapEx, in your supplemental, seems to be a big variance. How should we think about that delta? Is there anything else included in the statement of cash flow figures which is about 5x greater than CapEx listed as maintenance and how do you think about that relative to divided?

Yes. The statement in cash flows is -- it's tough to tie that to the AFFO statement for a couple of reasons. One that has changes in our AP related to CapEx. So really is a cash statement and not on accrual basis similar to what's disclosed in our AFFO. Additionally, our AFFO is recurring CapEx and excludes non-recurring CapEx. The way we think about our CapEx and underwrite is about $0.15 per square foot on the portfolio will be non-recurring and about $0.10 per square foot is recurring. Over the past year, we've incurred less recurring CapEx in relation to the $0.10 per square foot which is why that number is little lower on AFFO statement.

And how much of that $0.15 have you actually had to book over the last couple of years that would make it non-recurring.

I’ll have to go back when you talk about going back to last couple of years. But we are pretty close to that number in 2015.

Thank you. Our next question today is coming from Tom Lesnick from Capital One Security. Please proceed with your question.

Hi. Good morning, everyone. I guess first just big picture historically you guys have kind of targeted growing your asset base by about 25% a year. Just wondering how are you thinking about the pace of growth year end in 2016 and depending on your ability to execute the all these alternative sources of capital, how are you potentially ratchet that growth rate either up or down.

Yes. That's a great question. At the time where I feel we promulgated this 25% growth a year. I freely admit we can't pull it out of thin air at time, for most of our existence we've exceeded that number. Last year we were right at or just slightly below that number. But it is never been a number that we put on the wall some places that we got to beat this number. We've always acquired assets that we deem were sufficiently accretive. And it is turned out in most years that number was 25% or higher. Looking to 2016, as we've talked about $300 million to $400 million which obviously would be below the 25% number. I think that number is reflective of -- what we expect or what we saw sort of the end of the year is a little bit competitive market that might impede our ability to get pass the $400 million. But I say that and I look at our pipeline, I talked to our acquisition people, there is a lot of opportunity out there. So we've been a little concern in our estimates perhaps for this year but we know we can fund that $300 million to $400 million through the initiatives the non common equity initiative that we have on -- we mentioned in the call.

Got it. Thanks. And then with regards to the potential asset sale. I know you mentioned that it would be a mix of potential opportunistic sales then some non core flex office space. Can you give us a sense as to kind of the ratable force you are expecting those two categories represent of your asset sales.

It will be largely tilted towards the opportunistic accretive sales.

Probably in the $100 million to $150 million range of opportunistic, small to medium size portfolios which should be weighted in middle back half of the year.

Got it. Thanks. And then with regards to potential JV partners and equity, what kind of partners are you in talks with? Can you give us any kind of color as to the types of partners you are talking to?

Well, we've engaged an advisor and we are looking at in array of potential counter parties that include near sovereigns to the household name private equity firms. I think that the our ability to deploy capital and produce high current returns or proponents of total return coming from comp return is potentially very attractive to the entire array of capital sources. And as opposed to a lot of potential JV sponsors. We are in the process of doing exactly what the joint venture would do. So it's not a big stretch for one of the counter parties considering doing business with us, to see us being able to deploy capital which is -- a lot of time you see joint venture announced and then nothing happen. I think that our ability to make our counter party comfortable with our ability to play capital is not a big hurdle. And therefore one of the reasons why the list of potential counter parties is so long.

Got it. I really appreciate the insight. And then Bill one final one for you. Just wondering where do you see pricing on preferred in today's environment and what kind of your thought with the upcoming potentially redeemable issues that are here in the next year or so?

Sure. I think pricing on preferred are probably be in the range of our last preferred a Series B, maybe a tick hard that price that 6 and 5, in terms of taking out the Series A 9% in November that something that we will call -- likely we will call that with the mix of asset sales or potentially refine and saying it with another preferred.

Thank you. Our next question is coming from Mitch Germain from JMP Securities. Please proceed with your question.

Good morning. Any -- have you guys seen any changes in within the dynamics for the new investment sales market. Smaller pool of investors, longer deal term -- length I mean.

Yes. Mitch I think that the -- certainly the buyers' side of the investment market is ever changing. Two years ago I would have told you that the sweet spot was $250 million and above and that was probably because of acquisition activity by certain large private equity firms. I think today what we are hearing from the market is sort of $30 million to $50 million or $60 million size portfolio is a more of interest i.e. financeable generally by private parties and financeable by either CMBS or local bank. Obviously, the short-term dislocation in CMBS markets could quell some of that activity but the -- I think those parties are just as likely to be using local bank financing as they are CMBS.

Thank you. Our next question is coming from Dave Rodgers from Robert W Baird. Please proceed with your question.

Hey, good morning, guys. These are better bill. I guess when you look at your acquisition plan, disposition plan and the funding for the year. Absent the redemption of the preferred in November or ahead of that, do you really even feel the need to go do some other form of equity this year. You seemed to have the capacity and the balance sheet to just kind of lever up as the year goes on. I am wondering if asset that redemption you couldn't just kind of stay through the rest of the year.

Well, Dave I think that the ability skate through and move up towards our, the upper end of our range I think is probably a stand that will avoid if we can, I mean flexibility on the balance sheet is something that we've always thought was important. So I think we will be accessing other forms of capital in advance and hitting that upper number. But you right there is flexibility in funding today and there would be through a number of quarters.

Okay. And I guess maybe with regard to the joint ventures, where do you think the cost of capital differential is today? But the going that route versus going to the public equity market I realized that it maybe easier or maybe there is a greater demand there today, just wondering how you view the difference when the cost of doing that.

Yes. I think that the -- that's a very -- the answer to that question is not simple. The difference in the perception of raising private equity versus the perception of raising common equity is large in terms of the other common equity view of what are you doing and how it impact their world. The other thing is although we would certainly be careful on a consolidated basis about leverage; the joint venture could obviously or not obviously but typically would operate at slightly higher leverage. And so there is no question at some of the -- some of the counter parties sources would have a higher return threshold. But that return threshold can be met we think by combination of the accretion that occurs from building portfolios with an eye towards low correlation et cetera as well as their relative value by they are always able to do. So meeting the return threshold of higher return and counter parties, we don't think if that great a stretch provided the counter party understands -- appreciate its impact.

Okay. Your $31 million, thanks for that by the way, and your $31 million normalized G&A run rate exit severance cost in 2016. Does that consider an increasing headcount at all? I don't if there is an offset in the CFO compensation there that you are going to be add more people or you stabilize at the number of people you have.

We are pretty stabilized at this point.

And JV would change that?

I would say it's fair to say we are at scale from a G&A perspective.

Okay. And last question maybe in the asset sale to fund the acquisitions. Is that kind of viewed as neutral dilutive accretive and any meaningful impact one way or the other from --?

So our expectation is I don’t know, some of our materials we've talked about how individual assets are priced and then sort of interim portfolios sort of moderate size portfolio or products -- and enterprise to be priced, and if you think about the individual assets being priced at -- at last year we averaged 8.4% and then think about sort of the intermediate portfolio, so a collection of those assets 10, 20 of those assets being priced maybe around 7 or 7 plus so maybe a 100 basis points inside of that. We've been reluctant over time to sell those intermediate portfolios because we believe sort of the enterprise the bottom chart from our material is another 100 basis points inside of that. We are a large diversified not kind of 20 assets but several hundred or more asset would price. When we can point to some of the large portfolio of trades that occurred last year like the in core trade, actually that would be -- actually that was late 2014, but we get point to some of those and so in the past we've been reluctant to sell small portfolio of assets because we think that we are giving up some eventual value for our shareholders. We are -- I shouldn't say more but we are now have should shifted our I think a little bit and accept the fact that buying the A pluses and sign them at seven pluses is in of itself accretive although not as accretive potentially as some long term hold to some enterprise value but certainly accretive. And it's actually in of itself a decent business. You buy -- have relatively strong cash flow the interim and sell 100 bases what's inside; you can simply do that as a business. Now we think our business is demonstrably more accretive and profitable, long-term profitable than that. But that business is an acceptable level of accretion. So our opportunistic disposition will, we believe will be of that nature. The dispositions that we do in terms of moving out of the flex and office assets, we think of those in slightly different manner, and may include selling vacant assets and things like that. So the proponent of our sale, the opportunistic sales would be, expected to be accretive.

Thank you. Our next question today is coming from Michael Mueller from JPMorgan. Please proceed with your question.

Hi. Going back to asset sale first. So $100 million to $200 million dispositions but if we are trying to think about what the base case for effective asset sales could be this year and you look at the if your layer on JVs, I mean so if you are selling a stake in a pool of assets would that effectively be another $100 million on top, $100 million to $200 million, would it be bigger or smaller.

Yes, Mike, I think our explanation or our belief of the likely structure of a joint venture would be a de novo joint venture. So simply buying assets not contributing assets. We would be low to contribute assets at the pricey bottom end because again we think that the move from single asset pricing to portfolio pricing is at least 100 basis points is probably kind of a tough way to start a negotiation and or counter party relationship by a discussion about an increase in value on a portfolio of asset. And so we think it's highly likely it would be de novo JVs so they would not be asset contributions.

Got it, okay. And then --

Mike I think the reason why we said that and have some confidence in our ability to enter into such JV is what I alluded before is our pipeline and our demonstrated ability to deploy capital will make the counter parties comfortable that the JV won't simply sit there as a pile of paper with no execution underneath it.

Got it, okay. And then going back to CapEx for a second. What is the difference, the definitional difference between recurring and non-recurring? And I guess it's non-recurring is consistently bigger than the recurring, isn't it essentially recurring?

Yes. Our definition of non-recurring since the IPO has been roof in structure is non-recurring something that occurs at an asset every 20 years. We are going to revisit our disclosure in Q1 on CapEx as and we continue to get more and more questions on it. But that is been our definition and recurring is -- for example some recurring items are HVAC some more complicated, more bigger roof or payers those type of items.

Got it, okay. And will you give us the history going back as well when you change it around?

Sure. And part of the non-recurring as well is items we identify at acquisition that we underwrite acquisition that will incur over the next two years is non-recurring as well because it's effectively baked into our purchase price.

Thank you. Our next question today is coming from Michael Carroll from RBC Capital Markets. Please proceed with your question.

Hey, guys. It's actually George on with Mike. I was just wondering if investments were to slowdown should we expect same store metric to improve.

I think that the -- as we've discussed over time our same store metrics are result of -- I should say the fact that our same store metrics are somewhat muted in performance as a result of us acquiring 100% occupied buildings that will -- its occupancy will normalize over time down to say 94% -95% where the rest of portfolio is. And so that doesn't occur overnight. So if we stop our -- we stop acquiring it would take a while for those cohort to 2015 to 2014 cohort to normalize it. At the same time when they are normalizing we are operating in an environment with very strong rent growth. So that occupancy normalization is being offset but would continue to be muted by -- so the same store NOI growth will continue to be muted by that occupancy normalization but over the course of three or four years you would see that normalization occur and then after that point you would think -- you would probably look to us have same store NOI numbers very similar to our peers.

All right. And then could you give us some color on some of the upcoming expirations you have this year? Do you expect any major move outs or have you made some sort of significant progress?

Yes. Our viewpoint for the year is that the 70% retention is the number that we are pretty comfortable will hit again.

All right. And then are there any significant strategy changes with Geoff coming down and Bill taking his place?

No. From a balance sheet perspective we maintain our view of -- maintaining a conservative and flexible balance sheet. Debt to EBITDA levels are 5x to 6x fixed charged coverage ratio north to 2.5x but that is operated in the low 3s, high 2s area. So that's not going to change. We talked about our strategy and dispositions and sources and uses of capital and being prudent allocators of capital and that's our view going forward.

Thank you. Our next question is coming from Dan Donlan from Ladenburg Thalmann. Please proceed with your question.

Thank you and good morning. Welcome to the party, Bill. Just wanted to kind of touch on page 19, it looks like 44% of your NOI is part of the 2013, 2014 vintage so I was just kind of curious if you look at kind of 2012 vintage and going backward do you feel like you are kind of at market occupancy with those vintages, just kind of curios if you could think you could see further occupancy loss there that kind of [Technical Difficulty]

Yes. It feels from an occupancy standpoint we are close to market in those vintages. I will say if you look at the square feet in those vintages they are small. So you are going to see some volatility in those numbers as tenants rolled in and out. This is a slide that put in it's really just demonstrate the same store dynamic. But you are going to see some volatility. The post IPO portfolios $3.5 million the STAG 2 is 4.2, 2012 it was 8.3, they are just smaller cohorts. So you are going to see some volatility but to your specific question to 2012, because we have market maybe little bit above at 95.6, it's close.

Okay. I appreciate your thought. And then as far as the lease term, whether you have lease term in a quarter, 9.5 year is pretty lengthy. Or is -- several quarter but is there effort on your part to try push that out longer kind of given where we are in the cycle or is it always just a case by case basis on your end.

Dan, I maybe haven't used the word is frequently in the last quarter or two but I might favorite word I get to use again agnostic and actually the agnosticity and my even more favorite word, we are not really looking for particular lease term, we are looking for maximizing cash flow over time on IRR discounted cash flow basis. And so the fact we've bought longer term deals in that particular quarter is more of reflection what was available to us and the pricing of those deal versus other deals. So maybe it was possibly just thinking of loud you could have, the non traded maybe not being as active allowed -- provided for less competition for some of those deals. Not really sure why that is but again we haven't change, we are agnostic as to a lease term, we are agnostic to everything except basically cash flow we believe in cash flow and we think our shareholders deserve it for us to go and find the best, again either discounted IRR basis, the best cash flow returns we can find per dollar of equity invested.

Okay. Yes, I was talking about the leasing activity but I imagine use the word agnostic there too --

I am sorry. I was answering, as been a politician I was answering a question I want to answer rather than what you asked perhaps. It was not because I was being duplicitous; it was I misunderstood the question.

Sure. Again it's fine anyways. And then just looking at the temporary leases there, how temporary are they? I mean is there past the word it making those longer term?

The temporary leases that we disclose are typically less than one year. So those sometimes we sign up those leases and sometimes those turn into long-term leases and sometimes they don't. They are not included in our retention numbers. But they obviously continue to generate cash flow for us.

Okay. And then just last question on the joint ventures which you said are de novo. As you are having the discussion is potentially just selling the entire company on the table, just kind of curious to hear your point there.

We are not actively seeking transaction for the company. Obviously sometimes those things happen outside of our goal or outside of our actions. We think we have varied differentiated investment pieces that it's worth continuing to execute under. We are going to go out and find capital to continue to make accretive acquisitions for the benefit of our shareholders. And we think that the existence of STAG as a public company is something that is worthwhile for shareholders to continue to support.

Thank you. We reached end of our question-and-answer session. I would like to turn the floor back over to management for any further or closing comments.

Thank you and thank you for your help. Thank you again for joining us this morning and for your insightful questions. We've made significant progress on executing on our five point plan. A plan designed to restore investor confidence in our company. As STAG is exist today is an improved version of the STAG that is existed in the entirety of its public life. Over these five years, we've continuously work to improve our execution of our relative value investment pieces and our capital allocation models. We continue to have strong conviction that opportunities that lie ahead for our company. We appreciate your time and your continued support to STAG. Thank you.

Thank you. It does conclude today's teleconference. You may disconnect your line at this time. And have a wonderful day. We thank you for your participation today.