Good morning and thank you for standing by. Welcome to STAG Industrial Inc. Third Quarter 2020 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] Please note this conference is being recorded. I would now like to turn the conference over to your host Matts Pinard, Senior Vice President Investor Relations for STAG Industrial. Thank you. You may begin.

Thank you. Welcome to STAG Industrial's conference call covering the third quarter 2020 results. In addition to the press release distributed yesterday, we have posted an unaudited quarterly supplemental information presentation to 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 forecast of core FFO, same-store NOI, G&A, acquisition and disposition volumes, retention rates, and other guidance, leasing prospects, rent collections, industry and economic trends, and other matters. We encourage 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. 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.

Thank you, Matts. Good morning everybody and welcome to the third quarter earnings call for STAG Industrial. We're pleased to have you join us and look forward to telling you about our third 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 questions specific to their areas of focus. A phrase that I've heard frequently over the past few months has been it's good to be in industrial and that is certainly true. Industrial management of a few favorite assets classes in commercial real estate fundamentals are strong. Tenant leasing demand slowed only briefly at the outside of the pandemic. It resumed quickly and has continued to be strong throughout the quarter. This resilience has been seen across virtually all markets with e-commerce supply chain build out leaving the way. Supply remains a concern but most markets are at or near equilibrium and/or operating at occupancy levels where the levels of incremental supply are not unwelcome. Capital is readily available and acquisition opportunities abound. Not surprisingly our portfolio continues to perform well despite somewhat uncertain economic conditions. The demand for our space is broad-based. The 5.6 million square feet leased in the third quarter represents the largest total square footage leased during a single quarter in STAG's history. Our occupancy level remains high 96.3% at quarter end a reflection of solid retention and shorter downtime experience. Included in this quarter's leasing activity was the successful backfill of our one million square-foot building located in Hampstead Maryland. One of the two million square foot facilities with tenant…

Thank you, Ben. Good morning everyone. Core FFO was $0.46 for the quarter and leverage remains at the low-end of our guidance range. Net debt to run rate adjusted EBITDA was 4.4 times prior to factoring in the outstanding forward equity proceeds related to our January equity offering and 4.0 times when those proceeds are included. Acquisition volume for the third quarter totaled $64.7 million with stabilized cash and straight-line cap rates of 6.3% and 6.8% respectively. Subsequent to quarter end, we've acquired an additional nine buildings for $258 million. This brings 2020 closed acquisition volume to $454 million through today. Additionally, we have acquisitions totaling $216 million currently under contract or subject to a letter of intent scheduled to close by year-end bringing 2020 total acquisition volume to $670 million as of today. For the quarter 5.6 million square feet of leases messed with cash and straight-line releasing spreads of 1.3% and 4.7% respectively. New leasing spreads were negative 4.7% this quarter, which was driven by two leases. The new lease related to the one million square foot asset located in Hinton Maryland as discussed by Ben resulted in a roll down of 2.2%. Note that this lease was an as-is transaction and required minimal tenant improvement or other capital work. The second lease reflects the phased negotiation of a long-term lease with the tenant initially agreeing to a one year lease at below market rent, while simultaneously negotiating market rate long-term lease. Excluding these two leases, new leasing spreads increased to 12.4% on a cash basis and 21.5% on a straight-line basis for the quarter. Additionally, we leased 82,000 square feet of value-add buildings during the quarter. Retention was 72.1% for the quarter and is 81.4% for the year both of which include the impact of the one…

Thanks, Bill. These remain challenging times as we head towards the end of an unprecedented year, challenging but not unworkable. After a pause for most of the second quarter, the industrial acquisition market has found firmer footing. Tenant demand for industrial space is broadly healthy and appears to have substantial legs. We are bullish on the opportunity for STAG that lie ahead. As a reminder, we will provide granular 2021 guidance during our fourth quarter call. In closing, let me mention that as part of our continuing focus on various ESG initiatives. We have recently set up the STAG Industrial Charitable Actions Fund. The fund is a way to formalize and channel our corporate given. This was done in recognition of and in concert with our augmented commitment to providing substantial financial support to causes and organizations we believe in. Thank you for your time this morning. I'll now turn it back to the operator for questions.

Thank you. [Operator Instructions] Our first question is from Danny [ph] Korchman with Citi.

Hey, guys. Good morning.

Good morning, Manny.

Maybe just moving back to your disposition plans. Have you changed the composition of what you might sell or where you might sell given sort of the way that the market has shifted?

I think -- and I'll acknowledge that it's Manny not Danny. I'll -- I think maintain our general philosophy we'll sell assets when somebody else thinks they're worth more than we do as a part of our portfolio. That having been said, we are getting opportunistically people reaching out to us to acquire individual asset. We do not have plans for a portfolio sale. We -- certainly when we sign new leases on buildings that extend the term and they may become more attractive to the people that are looking for that kind of asset. We may look at selling things. Certainly the GSA asset is an asset that we're looking at -- at all times on a buy or sell because of its relative attractiveness and the number of people who are interested in that asset. We're also interested in that asset and we'll do what's best for our shareholders.

Hey, Manny, it's Bill. We also increased our disposition guidance going into the fourth quarter primarily related to an asset that we had to reverse inquiry on. And we expect strong results from that transaction.

And just could you give us an idea what you think the spread difference might be in cap rates between what you're selling and what you're buying?

I think it varies. But I will say it varies obviously on the asset the market, et cetera. What I will say is on these arbiting investments we have experienced double-digit IRR to unlevered IRR returns. And so that doesn't mean it's necessarily a -- so we tend to compare the return on the assets where we're redeploying the equity. But having said that the asset that Bill was just talking about is a -- we will be able to redeploy those proceeds accretively.

And just a reminder the assets that we sold in the first quarter were also a sub five cap. So those proceeds were redeployed accretively as well.

Right. And then thinking about your acquisition pipeline that increased meaningfully in the quarter. Have you changed anything there in terms of the types of assets in the markets you're looking at and sort of maybe widened the target a little?

No. It's really -- we've talked about this before and it certainly met our expectations is that one of the impacts of a downturn like the dramatic downturn we had with the onset of COVID is people are reluctant to bring assets to market till they have a better understanding of where the market might clear. So you had a big pullback from sellers and brokers advising sellers during the second quarter. The expectation was again we're hearing anecdotally from brokers and to some extent sellers that towards the end of the summer going into the fall, you would have that pent-up supply of assets to be traded come to market. Indeed that has happened. And from talking to the brochure community will continue to happen. There was perhaps dissipated a little now. Some belief that assets need to be sold before year-end coming tax law changes perhaps that's dissipated a little with the results to-date on the election. But we're -- again the pipeline is reflective of the same kind of filters we've always used for what gets onto the pipeline. It's just expanded because of more assets in the market.

Right. Thanks everyone.

Thank you, Manny.

Thanks, Manny.

Our next question is from Sheila McGrath with Evercore.

Yes. Good morning. Ben, the new acquisition guidance implies a very active fourth quarter. Maybe even a record for STAG. Can you give us some insights? Do you have additional assets under contract right now? And then also you guided on the cap rate a little lower. And I'm wondering if that's cap rate compression in the market, or is that the mix of assets you're acquiring?

So as Bill alluded to during our prepared remarks, we have 200-plus million other contractor LOI, and we're still evaluating assets that might close this year reflective of the increased pipeline number of assets can to market, et cetera. So we're -- we indeed are looking at a fourth quarter that is -- could be the same as last year's fourth quarter even larger. It depends on how assets shake out in terms of whether things close not have any other contract always closes. Certainly, a letter of intent don't always close, but we have a high degree of probability that we'll get into those kinds of volumes. The cap rates have moved south a little bit. But they move south because of mix change longer leases less CapEx, in particular when we buy build-to-suit transactions. These are very clean from a capital required perspective, the longer lease terms, et cetera. So the one thing I will say is that, we've maintained our goal on buying accretive transactions and indeed these transactions are mostly accretive on both core FFO and a CAD basis.

Okay. And sorry if I missed this, but you did increase your disposition guidance what kind of assets are you selling? And what's the motivation for increasing sales right now?

I'm going to let Bill handle this.

Hey, Sheila. Yeah, there's -- the increase in disposition guidance relates to one asset that we were not expecting to sell, but we got a reverse inquiry on. And that asset will be an accretive redeployment of proceeds once we sell that and redeploy it. So it's an attractive return for us and that's the primary reason why we increased disposition proceeds for the fourth quarter.

Yeah. Sheila, as you know, we have three reasons to sell assets. One is opportunistically, which this is Bill is just referring to is reflective of. Two is sort of the color of the herd our ongoing sale of a relatively de minimis office flex portfolio. I don't believe we have any assets that will be in the remainder of 2020 will fall into that bucket. And the last bucket is, when we aren't happy with our cost of capital from regular common or preferred equity issuance, we would sell assets. None of that is planned. Obviously, capital is attractive. The other sources of capital are attractive today.

Okay. Great. Thank you.

Thank you, Sheila.

Our next question is from James Feldman with Bank of America.

Hi. Good morning. This is Elvis Rodriguez on for Jamie. Just as we think about funding the acquisition pipeline and some of the equity forward you have, your stock today is trading about $1 above where you did the deal in January. How are you thinking about pulling down that equity this year versus potentially doing another equity deal to fund the $2.8 billion pipeline that you have laid out for us?

Yeah. Elvis, obviously, the pipeline historically we've bought something relatively small portion of what's on that pipeline actually gets closed. The pipeline is dynamic. So assets come on and off at all the time. But we're certainly not expecting to close anything like that large number. The -- I'm sorry I just lost my way.

Yeah. Hey, Elvis it's Bill. And in terms of where we are from a leverage standpoint as I noted with our forward equity proceeds we're at four times leveraged so sufficient runway there to get to our 5.25% leverage range this year. As we noted in our investor presentation, our long-term leverage range is 4.75 to six times. So if you were to look at where we are today including subsequent acquisitions and the forward equity, we could acquire $850 million with all debt to get to the upper end of that long-term leverage range. So we have sufficient capacity here.

And in regards to taking down the forward equity component, we have until I think mid-January to do that. Obviously given the amount of acquisitions et cetera it would be -- you could surmise that we will be using that equity.

That's right.

Okay. Well, my question was, would you do another deal in lieu of that deal given your stock is $1 higher today?

I don't think that – yeah, Elvis I'm sorry if we didn't answer that question. I think they're not necessarily related. We have capital, we have attractive capital available to us and we have capital needs that we can deploy accretively, so it's not either/or. I think -- as I said it's highly likely we would exercise take down that equity, but that doesn't mean that we won't have additional equity needs that we will approach the market on.

Appreciate that. And then just one more question. 2021 expirations you have about nine million square feet of leases expiring next year. Any chance you can share what the mark-to-market on those leases are?

I think that we -- what we've said before is that we believe our assets are at/or slightly below market. I think as we've looked granularly at 2021. We believe that to be the case for 2021 also. For those assets in particularly, the other thing I would say is there's nothing very bulky in 2021. The two million square footage we had rolled this year, we don't have anything like that in 2021.

Okay. That’s very helpful. Thanks guys. Great quarter.

Thanks, Elvis.

Our next question is from Brendan Finn with Wells Fargo.

Hey guys, good morning.

Good morning.

The term on new leasing this quarter was only like 10 at years, which looked like it was the lowest since 2017. Was that impacted by the same leases you guys mentioned in the prepared remarks that had an impact on the spreads, or are you guys seeing shorter lease term just across the board?

Well, I'm going to give this to Bill to answer. But I mean generally speaking lease renewals tend to be three to five years. So in the long run trends that's not an unusual number, but I'll turn it to Bill.

Yeah. Hey, Brendan, that was driven by really one lease and that was one of the leases that rolled down. This was a lease that we signed for a little over one year with the expectation that we can negotiate with the tenant for a longer term lease. And the first year lease was call it a teaser rate, it rolled down 18% but we expect markets to roll back up about 12% in a year. So it's a little nuance with the way it gets accounted for, but it was a little over a one year lease, which drove the weighted average lease term on new leases down a bit.

And I'll get -- Brendan I get to use one of my favorite terms a small sample anomaly.

Sounds good guys. And then I just wanted to clarify your comments on your plan for the GSA facility. So are you planning to lease that first and then sell it, or would you be open to selling it before signing a lease there? And then similarly, are you looking to potentially sell the 48 adjacent land once you get the entitlements for development there, or are you only going to sell the building and then just continue with developing on those adjacent parcels?

I think the answer is that we're moving forward on all fronts. We're moving forward to permit the development. We continue to talk to people who are interested in portions or all of the building. And at the same time we're talking to people that are interested in buying any, or all in any mix as we move forward. Dave, do you have anything?

No. That's accurate.

Thanks guys.

It's just -- it's an attractive collection of opportunities, between the existing building and development potential. There's even people who are looking at buying, the existing buildings, scraping it and building a new building. We think you could put, close to 1.5 million square feet, I think on there in a brand-new building. And although, we bought an existing structure, the value of the land and that very attractive submarket has gotten to the point where the land value maybe as much as the existing building and the development potential. So, it's a collection of very attractive opportunities.

[Operator Instructions] Our next question is from John Massocca with Ladenburg Thalmann.

Good morning.

Good morning.

So if we look at the transactions that closed kind of subsequent to quarter end, they seem to me, if you kind of just divide the gross numbers, by the amount of assets you closed on. I think a little bit larger in both, in terms of square footage and then kind of cost per asset. I mean is there some larger assets in there that are maybe skewing that, or is it just slightly larger assets all around, as you're buying in October and in November?

Yeah, John I'm going to give that to Bill to answer. The answer is yes, larger assets but Bill will give you some detail.

Yeah, that's right. I mean, John, its simple math there. But there's a mix. And these are assets that, meet our long-term investment thresholds. As with every year there's smaller assets and larger assets that we acquire. I mean even looking at, this quarter we acquired a small asset 50,000 square feet and as large as 276,000. But subsequent to quarter end, there certainly are some larger assets in there.

I mean, I guess, it's kind of an arbitrary number. But I guess there's one million square footers that are kind of skewing that, those numbers in there?

Not one million square footers, but big buildings.

Okay. Understood, and then, maybe as we think about, kind of the deferrals and the kind of non-cash payments. That 1.5% how is that maybe broken out between people, we're just having either a negotiation or haven't been able to have a negotiation in tenants, that are currently in default -- not in default but in bankruptcy.

Yes tenants that have been impacted by the pandemic. I mean, they're not in bankruptcy. But we're having discussions with them. Some of them were having discussions about potentially a deferment or payment schedule. Others they were just working with them, to understand their situation. So it's just -- it's a mix of assets. I will say, and as we said before, all of this is reflected in our credit loss guidance for the year. So I think when you take a step back, that's the area we focus on is what's in our same store, what's our credit loss guidance? What's our FFO guidance, all factored into that? And given call it six, seven weeks left in the year, we feel really confident with our guidance we put forth.

I know, I'm asking a bit for kind of early 2021 guidance, but do you think that kind of credit loss outlook flows into next year, or do you think you can get some recovery on those smaller amounts?

Yes. As Ben said, we'll give our guidance in February for 2021. I will say the stimulus has been probably the biggest thing we struggle to estimate and how that impacts our tenants. And thus far it's been outperforming our estimates in terms of the recovery. As you can see with the guidance this year, our credit loss guidance has continued to come down as we move through the year.

Okay. Understood. And then on the investment front, how do you think maybe a potential kind of surge here in pandemic could impact the ability to close deals either in 4Q or maybe even 1Q 2021, just given what happened earlier in the year in terms of deal volume with kind of the first phase of the pandemic?

So the impact on deal volume earlier was not maybe for a very short period of time was reflective of the fact that we couldn't get people out to see buildings or people weren't working or anything. The closing process was impacted by that. We have been able to utilizing of the third parties, some level of travel, Google maps, whatever else and third party consultants, obviously to get a closing process that is I believe is pretty resilient to whatever happens with the pandemic. Sort of a total lockdown, which I don't think anybody really expects at this point. So we're feeling very good about our ability to transact. Again people have gotten used to operate – and particularly we have been used to operate in this environment. So we're feeling pretty good about our ability to transact going forward. And the sellers are the initial drawback from offering assets to the market certainly has it disappeared completely.

Understood. That’s it for me. Thank you all very much.

Thank you, John.

Thanks, John.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to Ben Butcher for closing remarks.

Thank you all for joining us this morning. The word unprecedented gets used a lot. But certainly we are unprecedented times, generally. I think that the – as I just stated, our ability to operate here has been demonstrated. The opportunity is abound. The short-term malaise that may affect the country as we work through the end of this election, I believe it will be just that short-term. We don't expect that to have any long-term impact on our business and hopefully no long-term impact on our country. Again, we thank you for your time this morning and look forward to continuing to provide good results for our shareholders.

This concludes today's conference of STAG International [ph]. Thank you for your participation. You may disconnect your lines at this time.