Greetings, and welcome to the STAG Industrial Incorporated Third Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brad Shepherd, VP of Investor Relations. Thank you. Mr. Shepherd, you may begin.

Thank you. Welcome to STAG Industrial's conference call, covering the third quarter 2012 results. In addition to the press release distributed yesterday, we filed our third quarter report on Form 10-Q with the SEC, and we have posted an unaudited quarterly supplemental information presentation on the company's website, at www.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 those related to STAG Industrial's revenues and operating income, financial guidance, as well as non-GAAP financial measures such as trends from operations, core FFO and EBITDA. We encourage all of our listeners to review the more detailed discussions 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 supplemental information package available on the company's website. As a reminder, forward-looking statements represent management's estimates as of today, Thursday, November 8, 2012. STAG Industrial will strive to keep its stockholders as current as possible on the company matters but assumes no obligation to update any forward-looking statements in the future. On today's call, we'll hear from Ben Butcher, our Chief Executive Officer; and Greg Sullivan, our Chief Financial Officer. I will now turn this call over to Ben.

Thank you, Brad. Good morning, everybody, and welcome to the third quarter earnings call for STAG Industrial. We are pleased to have you join us and look forward to telling you about our third quarter results and some significant subsequent events. STAG is now well into its second year as a public company. We continue to be proud of the progress made to date. Presenting today, in addition to myself, will be Greg Sullivan, our CFO, who will review our third quarter financial and operating results. Also with me today are Steve Mecke, our COO; Dave King, our Director of Real Estate Operations; and Bill Crooker, our Chief Accounting Officer. They will be available to answer questions specific to their areas of focus. At the end of the third quarter 2012, the company owned 134 industrial properties, totaling 23.5 million square feet. The 13 properties acquired by the company during the quarter represented an approximately 15% increase in the company's real estate assets over the previous quarter. As you undoubtedly know, our primary investment strategy focuses on what we perceive to be market inefficiencies in the pricing of our target properties. We continue to be able to source accretive acquisitions and significant volume. Our third quarter operational results provide continued valuation of our investment pieces with significant leasing and acquisition activity by the company. Leasing. Let me first mention highlights from the company's leasing activity during the third quarter of 2012. Tenant retention for leases scheduled to expire through the third quarter of 2012 was 88%, slightly above our long-term expectations of circa 80% to 85% for single-tenant industrial assets. In the third quarter, the company renewed leases for 654,154 square feet. In the quarter, we also leased 73,881 square feet on existing vacant space. The rental rates on renewed…

Thanks, Ben, and good morning, everyone. As Ben mentioned, we had another solid quarter from an acquisition and leasing standpoint. This is the first quarter that we have year-over-year results, and they are quite respectable. Our Cash NOI was up 33% over Q3 2011, and our AFFO was up 88%. This growth was driven primarily by our strong acquisition activity. Our core FFO increased by 66% over Q3 2011. We did a large equity offering in August, which represented 37% of our float. These proceeds were raised in advance of our intended purchase of the large portfolio that we closed on in the fourth quarter, so there was some meaningful earnings drag from the timing difference. As a result, our core FFO per diluted share was only up about 4% from Q3 2011, reflecting the much higher shares outstanding in this quarter. It is important to note that despite this earnings drag, our liquidity increased from $42 million to $236 million from Q3 2011 to Q3 2012. Our AFFO for the quarter was $11 million. As I mentioned before, an 88% increase over the third quarter of 2011, and 28% over last quarter. We view this as one of our key metrics and is a reflection of the nature of our portfolio. Because the single-tenant focus of our business, our renewal leasing and recurring CapEx cost continue to be quite modest. They were only 1% of Cash NOI in the third quarter. Once again, we had a number of acquisitions closed towards the end of the quarter. In fact, of the $100 million that we closed in the third quarter, $70 million was closed in the last month. As a result, the run rate growth rates are even better than the ones that I had mentioned. Our G&A increased over…

Thank you, Greg. It was a very solid quarter for the company that provided the base for what already has been a very active fourth quarter. STAG continues to benefit from a combination of factors that provide a significant volume of quality and accretive acquisition opportunities for acquisition, both on a relative value and spread investing basis. No matter what the impact of this week's election, the company believes that the ongoing improvement in the general economy, combined with the recent strength in the manufacturing sector, will continue to positively impact our own portfolio in terms of occupancy level and rental rates, with continued relative lack of speculative development generally across the country and specifically in our market, will enhance our performance in these important metrics. Thus, we continue to be optimistic about the future for our company, for our own assets and for our investment pieces. We believe that our business plan to aggregate and operate a large portfolio of granular and diversified industrial assets will produce strong and predictable returns for our shareholders. Our third quarter operational results provide continued validation for this contention. We thank you for your continued support. And we now turn it over to questions.

[Operator Instructions] Our first question comes from the line of Sheila McGrath with Evercore.

You've mentioned maintaining an investment grade level stats for leverage. I was wondering if you could be a bit more specific? And with that in mind, how much acquisition volume could you do before you would need additional equity?

Sheila, it's Greg. Let me give you a little color on that. We have previously articulated that we expect to run the company between 5x to 7x debt to EBITDA. And I think, given the outlook in the world today, we are going to stay at the lower end of that range. And just to give you a little more color on it, in the press release, we talked about our pro forma debt-to-EBITDA, assuming that all the acquisitions closed on the first day of that quarter, would be at about 3.4x. If you look at what's happened since then, obviously, with the large acquisitions, the portfolio transaction, we're currently at about 4.6x. And the math for everybody on the phone is if you do $130 million of acquisitions and they're 100% debt financed, that adds about one click, if you will, to the debt-to-EBITDA ratio. So sort of stepping back, I think, we view the world as an uncertain place. We have a huge positive investment spread in our business and a very sound business model. And we feel that in the long run, investors will be well-served by a strong balance sheet and the broad access to capital that will come from all of that. And so that's our strategy going forward.

Okay. That's helpful. On the Fuller Brush, could you give us a little bit more detail on the timing of that and pricing?

Sheila, this is David King. The Fuller Brush sale is due to take place by the end of this month, November. Pricing is just north of $4 million for the building and we expect that to close along with the sale of the business by the end of this month.

Okay. Great. And last question. Same-store NOI was really strong this quarter, especially compared to last quarter, at 9%, was that mostly just the occupancy pick-up year-over-year? Or was there some positive mark-to-market on rents? What were the main drivers there?

Well, there were a couple of stats. There was actually 9.2% on a year-over-year basis. So I think it was 3.6% on a quarter-over-quarter. The 9% was largely due to the occupancy pick up. I think the same-store occupancy was up on a pretty meaningful level and what happens is you not only get incremental pickup in revenue but you also have expenses on what would've otherwise been vacant buildings absorbed by the tenants? So in both those cases, there was a -- it was all from occupancy. There weren't any termination fees or any other nonrecurring items in those numbers. Those were the straight numbers and they were pretty attractive.

Our next question comes from the line of David Toti with Cantor Fitzgerald.

Quick question for you on the strategy. What do you guys need to see in the market, the transaction market in particular? Or within respective fundamentals that would cause you to potentially pull back on your capital deployment and maybe ease up on the expansion rate? And what to look for?

The first thing is that the very fragmented nature of the ownership of the industrial assets in the United States leaves there to be almost consistent in -- not almost but definitely consistent supply of assets that are available for acquisition that meet our investment criteria, and our experience has been that it continues to be at rates -- cap rates that are attractive to us and long-term return rates are attractive to us. So we don't see -- and this is from experience looking at this market for over the past 10 years or so, we don't see anything on the horizon that will provide any meaningful stop sign, if you will, to deploying capital. We expect interest rates remain attractive and we have a very large spread obviously between CapEx and interest rates without moving significant amount so we won't have any real clouding effect on our activity.

Okay. And then what about on the transaction side? Have you ever -- on the pricing side, if you started to see some compression in cap rates, at what point would you find that spread between your cost of capital and pricing unattractive?

I would say, again, we've been watching this market for a significant amount of time and stability of the assets, the class that we're focused on, not only in terms of occupancy but also in cap rates. They just don't move that much. And we, again, we're seeing a consistent durable supply. So having said that, we have room to maintain to have returns with some diminution in cap rates, so we're not just seeing that.

Okay. And relative to -- I know you're primarily focused on the secondary market, are there certain sectors or tenant types that you tend to avoid in those markets when you're looking at the actual...

Well, I mean, it's not that we focus on secondary markets. I think, it'd be more accurate to say that maybe we focus on the best relative returns for our shareholders. We happen to find those in secondary markets more frequently than with primary markets because of competition. We try to be as agnostic as we can with regard to industry classifications, locations, et cetera, in order to minimize correlated return across the portfolio. And so that's our focus is finding good individual assets and keeping a close eye on the parameters of the portfolio that might introduce correlated risk.

Okay. And then, my last question just has to do with next year and I was wondering if there's any way to potentially indicate your expectations for sort of pace and potentially volume in the context of not being much changed in pricing? Or interest across the capital expectation, can we assumed next year might look a little bit like this year?

Well, I think, what we said consistently is our expectations are something on the order of 25% asset growth going forward, which could be up for circa $1 billion of asset today would be something in the order to $250 million for next year. I don't think we're going to get much more detail than that. But I think those are sort of long-term expectations.

Our next question comes from the line of Michael Mueller with JPMorgan.

Two quick ones. Going back to Fuller Brush for a second, you gave us the price on it. What's the quarterly NOI that goes away?

The quarterly NOI would be above $400,000. We had underwritten a 2013 drop in that rack.

Okay. And then -- great, you talked about staffing, staffing for the growth. Can you talk a little bit about as we move closer to 2013, what do you think is a decent range or so for G&A?

Yes, we really don't give guidance on G&A. I guess, the only indication I could give you was that in the third quarter, obviously, there were couple of things that were happening, one was we had some incremental staffing as we went well past our expectations in terms of acquisitions. And we do have some performance-based bonuses that as you start to get the kind of year-to-date returns that we've experienced, they start to get in the money. So you saw us have diluted shares for the first time. Now we expect G&A to be a little higher in the fourth quarter as a result of that as well. And probably look at something, again, as we continue to grow the business at a 25% asset -- at the asset level, that kind of growth rate, you would expect to see some modest increases in G&A over time.

Okay. So it sounds like if we're -- Q4 a little higher than Q3, and that's kind of the base case for going forward, minus additional growth?

Right.

Our next question comes from the line of Mitch Germain with JMP Securities.

Just curious, the size of the acquisition pipeline, one of your competitors said that they hadn't seen the growth in the back half of the year that they typically have seen other years, curious as to what you guys are seeing right now?

Well, I think, that normally, you expect the fourth quarter to be the largest quarter in terms of supply of deals coming to market to be sold. And we, our expectations this year have been for perhaps an even greater fourth quarter surge because of the pending tax law changes. I think we can say that it has been a more normal quarter, fourth quarter, than sort of that anticipation might have predicted. So we're seeing normal increased fourth quarter activity but not out of sort of normal experience from prior years.

And then, any markets that, in particular, that you possibly would look to avoid right now? Or is it really just assets specifically when you go in and do your underwriting?

I don't think there's any markets that we would avoid other than the fact we have developed some meaningful concentration within the portfolio. So if you look at our -- some of our supplemental materials, I mean, we have a fairly large concentration in North Carolina. That's split into multiple SMSAs so that, that provides us some comfort with regard to correlated risks. But North Carolina is getting up to a point where we certainly have to look closely at increasing that concentration going forward. As we grow, obviously, the ability to go back into North Carolina gets -- increases. But sort of on a rolling basis, we look at those parameters. There's no markets per se that, at this point, that we would not be comfortable looking at.

Our next question comes from the line of Michael Salinsky with RBC Capital Markets.

Talk a little bit about asset pricing. Were there any noticeable changes in the fourth quarter in terms of compression? We've seen some compression on the currencies, just wondering if you've seen anything in your markets?

If there is compression, it's in 10 basis point kind of range. Nothing meaningful. I would say nothing meaningful with regard to compression, 10 to 25 basis points could occur but every deal has its own parameters, so it's sort of an apples-to-apples comparison, if you're -- if the mix in the quarter you're looking at has slightly longer lease -- average lease terms, you have to figure that in the mix, obviously, location, tenant credit quality, all those things, going to the next building, building characteristics and building quality all go into the mix. So the mix adjustment is sometimes a little hard to get at but sort of my gut feel would tell you that there hasn't been anything meaningful.

That's helpful. Second question. Just in light of the 25% growth you expect for your organization. How should we think about scalability if you're going to be adding growth? I'm not asking for a guidance on G&A but just trying to get a better understanding of it.

Yes, I mean, there's a couple of types of growth. There's sort of -- or staffing, there's sort of fixed cost staffing, which is increasing capabilities around being a public company, sort of we needed to drop some bodies into chairs that aren't really related to the size of our portfolio than were related to our ability to report and sort of fully start being a compliant company. And then there's the what I would call the variable staffing, which is directly related to the size of our portfolio. That is more muted than sort of the staffing increases that we've had today. So there's a mix between the 2. But we're -- at the kind of growth rates we're talking about, we're talking about adding all this variable staffing types sort of 1 to 2 a year probably, given the kind of volume that we're talking about increasing. So 1 to 2 body count a year kind of feels like a variable piece of that.

Mike, it's Greg. The other thing to keep in mind is one of the advantages of our business model is the property manager is your tenant and they do it for free, if you will, and so they're obviously highly vested in the condition and functionality of the property perhaps more so than some third-party property manager. And as a result of that, we can expand the business pretty sizably without having a bunch of people with feet on the ground. And so the ability to acquire assets at markets where we may not necessarily have a presence and continue to manage assets in our various geographic markets, we can do that without the kind of incremental infrastructure that you need when you do have multi-tenant properties needing feet on the ground in those markets.

Fair enough. Third question. I know you guys aren't investment grade yet but you have investment-grade metrics. Have you guys been out to talk to the rating agencies at all? I'm just curious as to kind of what you're hearing in terms of pricing?

We've had some preliminary discussions. I think that many of the credit metrics that we currently have are very attractive, whether it's our debt-to-EBITDA stats, our debt service coverage, our manageable lease expiration schedule rolling pretty much at market or our very extended debt maturity schedule. I'd say the 2 that are probably the ones that won't dissolve over time are our size and our tenure as a public company. And so I think that obviously the advantage of having an investment-grade rating are that you have much more reliable access to capital over time. I think we probably got the benefit of investment-grade pricing on our revolver. We did a 5-year term loan all swapped in at 2.42%, which is pretty attractive. But I think, on a longer duration debt strategy, I think, the investment-grade rating, which will come in time hopefully, will be important for the shareholders in terms of the stability of the company and its ability to access all kinds of debt and other markets over time.

And finally, just a bookkeeping question. The assets you mentioned in the press release sort of contract, do you expect those to close before yearend?

Yes.

Our next question comes from the line of Jamie Feldman with Bank of America Merrill Lynch.

This is actually Ji Zhang, I'm here with Jamie. Just a quick question. I know you guys are industry agnostic in your acquisitions, but within your portfolio, are you seeing any benefit from the housing recovery? And if so, are you able to quantify that in any way in terms of occupancy or rent growth you're seeing?

I'm going to -- this is Ben. I'm going to ask David if he has any color on that.

No real anecdotal evidence of an uptick.

Our next question is from Sheila McGrath with Evercore.

Just a quick question on the expirations in the quarter, 120,000 square feet expired without renewal. I just wondered if you could give us a little more detail on those expirations?

Sure. Those 2 tenants, one was 35,000 feet, which is found in the Baltimore Metro area, did a consolidation of several locations that were built to suit. And the second was in the Milwaukee market and they have -- they're a manufacturer, they have outsourced the production process to a third-party, apparently was located outside the market. So there's no continued need for the space.

So do you have any sense in terms of leasing prospects? How long it might take to release those spaces?

They're both well-located. They're both in great shape. The tenants that left did a good job of cleaning up the spaces. We would expect to lease them in under a year, I would say. And consistent with competitive property in the market.

Okay. And then, just one last question. Greg, on the performance awards you mentioned, is that all reflected in additional share count or were there additional dollars actually in G&A also?

No, it was really just in the share count. We had put in place a little while ago an outperformance plan that was sort of way out of the money, if you will. And because our total shareholder return this year has been, as I said, over 50%, that started to creep into the numbers. Bill, do you want to comment a little bit on it too?

Yes, that's what's reflected in the earnings release, it's what's Greg's spoke to well. But also there's a slight uptick in the G&A for performance-based bonuses this year as well.

[Operator Instructions] It appears there are no further questions at this time. I'd like to turn the floor back over to management for any closing comments.

Well, thank you, all, for participating. We continue to -- as mentioned in the call and I'll reiterate here, success in executing our investment pieces, the environment remains very positive for us. The interest rate environment has been very positive for us. We look forward to continue to deliver good results going forward. Again, thank you for your support and participation.

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