Greetings, ladies and gentlemen. And welcome to STAG Industrial Incorporated Fourth Quarter 2019 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] It is now my pleasure to introduce your host, Matts Pinard. Thank you sir, you may begin.

Thank you. Welcome to STAG Industrial's conference call covering the fourth quarter 2019 results. In addition to the press release distributed yesterday, we posted an unaudited quarterly supplemental informational 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.

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 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 will be available to answer questions specific to their areas of focus. The fourth quarter concludes an historic year for STAG Industrial. We successfully executed our 2019 business plan with all of our guidance achieved or exceeded. The company is very well positioned for a great 2020. The U.S. industrial market continues to perform well. In 2019 rents were up almost 4% in the aggregate, according to our friends at CBRE. Completions of 63 million square feet modestly edged out net absorption of 56 million square feet for the fourth quarter. For the year the markets saw 224 million square feet of completions compared to 183 million square feet of net absorption. As a result vacancy rose 20 basis points year-over-year to 4.4%, but still remains significantly below long term averages. Construction activity remains robust with a pipeline of 309 million square feet of announced development. While most markets remain quite strong there are a few submarkets with oversupply concerns, the Houston, Atlanta, Chicago and Dallas markets are larger metros with robust construction activity and we’re watching certain submarkets in those metros for the effects of oversupply. These submarkets include the north and Northwest corridors of Houston, South Atlanta, South Dallas and the Southwest I85 - excuse me, I55, I80 corridor of Chicago. Our only lease maturity exposures to these…

Thank you, Ben. Good morning, everyone. Core FFO was $0.47 for the quarter and a $1.84 for the year, an increase of 2.2% compared to 2018. Leverage remains near the low end of our guidance with net debt to run rate adjusted EBITDA of 4.8 times. Our 2019 acquisition volume was $1.2 billion with stabilized cash and straight line cap rates of 6.4% and 6.9% respectively. Subsequent to quarter end, we have acquired an additional seven buildings totaling $103 million dollars. Our portfolio continues to benefit from the strength of the industrial sector as seen by a robust portfolio operating results. Retention for the quarter was 87.4% and 76.7% for the year. Cash and straight line leasing spreads were 6.4% and 13.2% for the quarter and 10% and 18.2% for the year respectively. Same-store cash NOI grew 2.4% during 2019 exceeding the high end of our revised guidance. Same-store cash NOI growth was driven by our retention rate of 76.7% and cash releasing spreads of 10%. This was partially offset by a decline in average occupancy in the same store pool. Note that our annual same store pool accounted for 68.2% of the total portfolio at year end. Moving to capital market activity. On December 26 we fully settled the forward equity component of our September 2019 equity transaction. STAG issued 7.15 million shares and received $202 million in net proceeds. Those proceeds were used to fund fourth quarter 2019 acquisitions. During the quarter we raised an additional $82 million net proceeds through our ATM program and funded $100 million of the $200 million delayed draw Term Loan F. Subsequent to quarter end on January 13 we completed an equity offering at $31.40 per share, which resulted in net proceeds of approximately $311 million with a portion of those proceeds…

Thank you, Bill. STAG enters 2020 with significant momentum across all aspects of our business. We continue to see attractive investment opportunities nationwide and our investments in data and technology improvements have visibly increased the efficiency of our acquisition platform. The tenancy across our portfolio is vibrant and confident in their lines of business. This is reflected in our impressive operating metrics for the year. With our low leverage and ample liquidity, or balance sheet is positioned to support the numerous opportunities we see today and expect to see in the future. We are proud of our historic 2019 performance and are excited to continue to execute our business plan in 2020. We thank you for the time this morning and for your continued support of our company. With that, I'll turn it over to the operator for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Sheila McGrath with Evercore. Please proceed with your question.

Yes, good morning. Amazon jumped into the top tenant position. Did you acquire another Amazon property during the quarter?

We did acquire a building or at least a building, excuse me, to Amazon during the quarter that had been - another tenant had vacated. It's also one of the reasons why our TI and BI expenditures are large for the quarter because we're repairing that building for Amazon.

You had to reset it specifically for their uses?

Yes.

Yes, Sheila, it was a great transaction, we had a tenant that was expected to vacate the building. We agreed to a termination penalty for that tenant, so they gave us termination income. There was no downtime. We signed Amazon up for a 10 year lease with 2.5% contractual rental escalators.

And was the in-place rent of Amazon higher than the expiring previous tenant?

Yes. The face rate was about 10% higher. And then there's some amortization of the above standards TIs in there. So that combined with a 10 year term which makes your commission larger, drives that larger than average transaction costs.

Okay, great. And I don't know if I missed this, if you mentioned it, but could you give us an update on the New Jersey development house leasing progress going there. And what's your expectation on the stabilized yield on costs that might be?

We have just completed the building. We are encouraged by the traffic we've seen to date. Our pro forma rents from a year ago are probably low relative to market currently and we expect to be on time with leasing and other deal terms as we go forward.

So we had said that we thought that the pro forma return cost would be somewhere in the eights. So we're now expecting to certainly achieve that if not do better.

And so would that come online this year do you think?

Very much expected to come online this year, yeah.

Okay, great. And just one last one on dispositions in your guidance of $200 million, that was certainly higher than we had in our model. I'm just wondering you know, are these non-core assets or just talk about what's driving the volume…?

Well, the big piece of that was the move of the Camarillo asset from the fourth quarter to the first quarter, so $88 million was shifted from one year to the next. So that's a big piece. I don't think Dave?

Sheila, when we get a vacancy, we market it for sale or for lease and we have seen some pretty good activity in the user buyer market. So as you see Solo and other larger vacancies come in we are marketing those for sale or lease. So we have some probability that we will sell those assets.

And that's true of the Camarillo asset as well that was marketed for sale or lease and there was quite a lot of leasing activity, we just had somebody show up and pay us basically more than we thought it was going to be worth to us on a lease basis.

Okay, great. Thank you.

Thank you. Our next question comes from line of Brendan Finn with Wells Fargo. Please proceed with your question.

Hey, guys. Good morning. In terms of acquisitions for 2020 are you guys going to be targeting I guess, assets in the Southeast markets, just given that you recently opened up the Dallas office?

I think that you know, our investment focus is to identify individual assets within the 60 or so markets we look at, but defined assets that will deliver the shareholder returns that we're looking to deliver to our shareholders. And so I don't think that the - the opening of the Dallas office is a specific targeting towards any particular markets. It undoubtedly will produce more opportunity for us in the markets in and around Dallas. So there is a potential for us to be more active those markets, yes, but it's not particular that we're targeting those markets because we remain very much a bottom up investor, we're looking for the transactions that make sense not the markets where we want to try to necessarily try and find transactions. Having said that, we also have - we also have our radar stack radar system where we do evaluate markets in terms of resource allocation where were - the markets where are most likely to find those individual transactions that meet our return requirements.

And just to clarify that the Dallas office will be covering the Southwest, not the southeast.

Okay. Got it. That's helpful. And then I guess congrats on the strong rent spreads that you guys had in 2019. What are you guys anticipating in terms of a cash rent spreads for 2020?

Mid single digits.

Okay. And then last one for me. You guys talked about the 50 basis point impact to same store NOI growth in 2020 from credit loss. Is that represent any situations that you're currently monitoring or is that more of a placeholder?

That's a placeholder right now, it's similar credit loss that we guided to last year. I'd say the one difference between last year and this year is last year we had a tenant or two on our watchlist. We don't have any tenants on our watch list today. But given where we are in the calendar and mid-February we felt 50 basis points was a good estimate for the year.

Cool. Sound, good, yes. Thanks.

Thank you.

Thank you.

Thank you. Our next question comes from the line of Dave Rodgers with Baird. Please proceed with your question.

Good morning. Just one follow up Bill on that last question. What was your actual credit loss in 2019 versus the 50 that you'd guided to?

It was right around 50 basis points, right on top of it.

Thanks for that. On the term income you mentioned related to that Amazon deal. I mean was that sizable in the fourth quarter? And where was that?

It was about 500,000. That's included in core FFO excluded from same store.

And now you've ran that through revenue, okay. On the asset sales it sounds like the range contemplates the potential sale of both Solo as well as the GSA building. And it sounds like that would be you know get you into that range pretty comfortably. If you don't end up selling those if you're able to re-lease those how should we think about that disposition guidance? One, are there other assets you would put in there and then two, I think your presentation also mentioned that it excluded portfolio sales. How likely do you think you are to take more to the market and eat that number this year?

So we always are opportunistic. You know as David mentioned earlier, we take buildings to the market for lease or sale and that we've seen quite a lot of activity from the user market. And so that part of the - that guidance is reflective of the fact that we are in a environment where those sales are occurring. And so yeah, we do not plan any portfolio sales at this time.

So I mean, I guess you'll get to that guidance one way or the other or I mean the 88…

Dave, the disposition guidance once you back out the Camarillo sales, its pretty consistent with prior year. So it'll be a mix of non-core opportunistic dispositions depending on the opportunistic dispositions and what we see during the year, it could be the upper end of the guidance or a lower end of the guidance. We will update you guys as the year progresses, but seeing we already locked in $88 million of disposition proceeds that's why you see an elevated disposition guidance for the year.

Okay. And then maybe just last on the G&A, .you gave a lot of detail in the prepared comments, but 17% or 18% increase at the midpoint, the Dallas office and the technology investment. How far does that gets you kind of after this year in terms of kind of a big increase this year. You know, how - what's the capacity additions. How do you think about that in terms of kind of then in the future scale of the business Ben?

We give guidance for one year, one year out, Dave. I think G&A it's not linear, so as we’ve mentioned in the prepared remarks we had CAGR about 3% over the past 3 years. We came in below the low end of our guidance last year, so some of those efficiencies that we put in place during 2019 delayed - postpone some of the headcount additions that are coming online in 2020. We'll give guidance, G&A guidance for 2021 at a later time, but we did put in our investor presentation in November that we were going to trend down to 10% of NOI over time.

Thank you.

Thank you. Our next question comes from the line of Bill Crow with Raymond James. Please proceed with your question.

Good morning, guys. What are the expiring rents on Solo Cup compared to market?

David?

They're right at market, so we expect that to role somewhat sideways, if not a little bit up.

Got you. And then I think you bought that for about forty $44 per square foot. What do you think the market is for that sort of building?

Difficult to tell. If we find a user who's interested in buying, its probably at that number or an access as if it's a redevelopment opportunity it's likely to be below that.

The extended term you've been reporting on your acquisitions is that - is that largely driven by that the weighting of the big lease in the fourth quarter, the Amazon lease?

And some build-to-suit acquisitions, which are longer-term as well. Again, we're not targeting longer lease term its just the mix, you know for that quarter ended up having those longer lease terms. But it is Amazon for sure.

Yeah, Bill, we didn't acquired Amazon in the fourth quarter. That was a new lease we signed and there was - if you look at the acquisition activity in the fourth quarter I mean, there's a number of acquisitions that had greater than 10 years a lease time. So it's just - it's just a mix of assets as we acquired and we've acquired this year value-add acquisitions with - that were vacant up through leases that have 15 years lease term. So it's a large range of acquisitions.

Just one final question for me. Your new slide deck talked about healthier same-store NOI growth, kind of 2% to 3%. I'm just wondering as you look into 2021 any known move-out that would kind of get in the way of that number?

The GSA building that we've mentioned Burlington looks like that's going to be a known move-out and that will be in December. Again there's a lot of options with that building. As we discussed in the prepared remarks, we'll update the street as we go through. And 2% to 3% in the investor presentation is something that we think is a good short to medium term number for us that was impacted by the credit loss we discussed as well as the Solo Cup vacancy this year.

If you're a credit loss was 50 basis points last quarter - last year or two and again another 50. Wouldn't that have been baked into your expectations in that slide deck?

Some of it was, yeah. But when you layer that back in with a Solo Cup, you're at low 2s.

Got you. All right. Appreciate it. Thank you.

Thanks, Bill.

Thank you. Our next question comes from the line of Sara Tan [ph] with JPMorgan. Please proceed with your question.

Hi, good morning. This is Sara one for Mike Mueller. I see you posted accelerating same-store NOI results from you know over the past years. Could you talk a bit about how you're pushing rents and how you can expect that trend through the year?

So I think as Bill just said our short to medium term expectations for same store and NOI are 2% to 3%. The fourth quarter, you know slowdown versus the year is just an anomaly of the quarter. You know our expectations for the year and for the medium term are in that 2% to 3% range.

Okay.

Thank you. Our next question comes from the line of Michael Carroll with RBC Capital Markets. Please proceed with your question.

Yeah, thanks. Ben can you provide some color on the type of investments STAG has made to improve your overall platform that has driven your acquisition rate higher. And do you think that improvement in the hit rate is sustainable going forward?

Well the improvements have been both human and machine, so human in that we've added acquisition people that are in the field so and the people that we have in the field are had been in the field longer. So reflective of the – the wonderful place to work is STAG as we are able to retain our employees for long periods of time and they get more mature in the markets that they're operating in. But internally we are – its basically manipulation of data and systems to more efficiently underwrite, as well as use the data that we have to more efficiently target our human capital as they move out and around in the market. All those things have come together to help us to continue to identify and acquire those assets.

Okay. Can you quantify how that has improved your overall hit rate on type of deals in 2019 versus prior years?

Yeah. One of things I would say is that the - that our guidance for this year and you know our hit rate in 2019 was above our recent trends. And so we think is reflective of the improvements we've made. But the guidance that we've put out is - is almost 20% hit rate, the guidance that we put out for acquisitions for 2020 is reflective of some moderation of that head rate. You know maybe back closer to the 2018 numbers at 15%. So although we hope and expect that the improvements that we've undertaken will continue to produce that better target it will allow us to have the higher hit rate where we are not baking that into our guidance at this point.

Okay. And then just last question for me related to the GSA expiration at the end of 2020. I know that you have talked about either re-leasing that space and potentially selling the building. I mean how are those discussions going right now. And what's the factors that will make you choose re-leasing versus selling or vice versa?

I mean as with every transaction we look at how we're looking at the long term returns for our shareholders what best delivers those returns. This is - this is a building has a site that has a lot of demand. This is very close to where we're doing the Burlington ground up development a mile or so and I guess couple of miles away. And it is a asset that has very strong leasing market, lots of demand and we are you know our confidence is buoyed by the fact that as mentioned in our prepared remarks we have people willing to pay us very, very healthy returns simply to acquire the asset and their developable land today. So we as with the other Burlington development we looked at selling the land versus developing the land then we'll make the same kind of analysis here as we look at this one obviously has the additional component of a building to be to be leased but we view this all as all the components here as plus. That's a very strong market.

Great. Thank you.

Thank you ladies and gentlemen this concludes today's. This concludes today's session. I would now like to turn the call back to them for closing comments. Thank you. Thank you for your questions this morning and for listening on our operational results. As I mentioned in our prepared remarks were very confident about the position of the company the quality and engagement of the team and our prospects for 2020. Thank you for your time and attention this morning. And we look forward to talking to you again next quarter.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. +