Greetings, and welcome to the STAG Industrial Inc. First 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] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Matts Pinard, Senior Vice President of Investor Relations. Thank you. You may begin.

Thank you. Welcome to STAG Industrial's conference call covering the first quarter 2020 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 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 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 first quarter earnings call for STAG Industrial. We're pleased to have you join us and look forward to telling you about our first quarter results. Presenting today in addition to myself will be Bill Crooker, our Chief Financial Officer, who will be discussing the bulk of our 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. First and foremost, I hope and trust you and your families are all staying safe and healthy during these unprecedented times. I'm happy to report that despite the ongoing pandemic, STAG and its employees remain safe and healthy. We spent a considerable amount of time and energy over the past few years creating a strong culture of bright, talented, and engaged employees. Our team has been working remotely for some time, and the company continues to function at a high level. The investments made over the years in processes improvement, data collection, storage, and analytics are all paying dividends as we continue to navigate the current environment. The near-term impact on the industrial real estate sector due to the novel COVID-19 virus continues to be fluid. Virtually, all GDP growth projections for Q2 are decidedly negative. The disruptions in both the domestic and global economy will continue to dampen consumption to the current shutdowns are likely beyond. This is putting considerable strain on a broad spectrum of tenants and industries. The government has responded with large and varied policy initiatives intended to inject liquidity into the economy. The size and pace of these initiatives is unprecedented. The long-term impact of these government actions is yet to…

Thank you, Ben and good morning everyone. Core FFO was $0.47 for the quarter an increase of 4.4% compared to the first quarter of 2019. Leverage’s below the loan of our guidance as a result of our January equity offering, and reduced acquisition activity in response to current pandemic. Net debt to run rate adjusted EBITDA is 4.4 times prior to factoring in the outstanding forward equity proceeds, and 4.0 times then those proceeds are included. Acquisition borrowing for the first quarter totaled a $119 million, the stabilized cash and straight line cap rate of 6.7% and 7.2% respectively. Our last acquisition closed on March 9, with no acquisition activity since then. Disposition volume for the first quarter totaled a $102 million, which includes both the previously discussed Camarillo, California disposition and additional distribution at the end of March. Portfolio operating results was strong for the quarter. Same-store cash NOI grew 2.5% for the first quarter. Same-store cash NOI growth was driven by a retention rate of 87.5% and cash releasing spread 2.3%. Straight line releasing spreads continue to be strong coming in their 11.2% for the quarter. As of April 30, we have collected 90% of our April base rental billing. An additional 2% of April base rent billings we have receive at least to four investment grade tenants we expect to payments in the next week or two, bringing the total oppression to 92%. The timing of these expected payments is consistent with past practices. Providing a further breakdown of the remaining 8% of uncollected base rental billings for April, 5% of those are associated with well capitalized tenants and tenants working through logistical issues related to payment. The remaining 3% currently outstanding is associated with smaller tenants that have been impacted by the pandemic. We're evaluating the…

Thanks, Bill. In summary, I just want to reiterate that we as a company and as a team are in a good place as we endure the effects of the crisis and look forward to what may lie beyond. I hope and trust that you and your families are all staying safe and healthy during these unprecedented times. We thank you for your time this morning and for your continued support of our company. I will now turn it over to the operator and open up the call for questions.

Thank you. We will now be conducting a question and answer session. [Operator Instructions] Our first question comes from the line of Manny Korchman from Citi. Please proceed with your question.

Good morning. This is Katy McConnell on for Manny. Wondering if you could provide a little more color on the increase in acquisition cap rate guidance for your underwriting for deals now? And how you're thinking about your cost of capital and underwriting risk in general differently today?

So, the higher cap rates are a reflection obviously of the cap rates that we have – experience we’ve had in the first quarter of 6, 7, as well as our expectations from the information we received anecdotally in the market of lower prices, higher cap rates coming out of the crisis. Our cost of capital, as we tend to think of sort of on an instant basis, we're looking at our current equity pricing for the equity component of cost of capital. And as we look at getting back into the market, we will likely use slightly higher return requirements as we feel our way into what the new pricing regimen may be.

And then could you also provide an update on the large top tenant move-outs that you're expecting from GSA and Solo Cup, and to address those, obviously what are the prospects there?

Obviously those, I'm sorry. I should let you finish. Please finish the question.

Go ahead. I was just going to say whether you’re consulting about re-tenanting or marketing the assets?

Yes. So obviously, those 2 million square foot vacancies are foremost in our mind as we think about leasing, and we're happy to report that there's lots of activity around -- or fair amount of activity around both. We have a number of -- we have at least two full billion [ph] users interested in Solo Cup negotiating currently. And the asset, the GSA asset at Burlington, New Jersey, we still think has many options that would be positive for the company, including ongoing inquiries about from potential buyers, about buying the sort of the basket of opportunities that’s there, not like the existing buildings, but the development component that's there. That market remains very strong. And so, we feel, I would say moderately better about those opportunities and those situations.

Our next question comes from the line of Sheila McGrath from Evercore ISI. Please proceed with your question.

I was wondering Ben, if you could provide an update on your development project in New Jersey? Any leasing activity at this point on that building?

Good morning, Sheila. I hope that we'll all be on the golf course soon. But until then, I'm going to let the guy who is responsible for that project, Dave King respond with our successes there. Dave?

Hi, Sheila. We are currently trading some lease documentation and hope to have some positive news to report to you on that, some final news reports to on that fairly soon. That's a full building -- we have a full building user in lease negotiation for that building, an e-commerce tenant.

Okay, great. And the yield on that project will be significantly higher than your acquisition yields, I'm assuming?

Yes.

Okay. And just on your same-store NOI guidance, you mentioned a higher credit loss as a factor in lowering that. I'm just wondering if that's like a big picture macro observation or did you experience credit loss in first quarter or your watchlist kind of what's driving that?

So where -- it's not from recent default experience, it is more our underwriting on a granular basis looking at all of our tenants and trying to understand that. And I'll turn it over to Bill to give you some more color.

Hey, Sheila. We did not experience any credit loss in Q1. And the change in our same-store guidance was primarily driven by the increased anticipated credit loss due to the pandemic of 100 basis points to 150 basis points.

Okay, great. One last quick one. On that recent debt deal that you did, if you could give us some insight on how the pricing compared to what you would have expected kind of pre-COVID. Because I think, you said price in that --.

Sure. Bill, why don't you take that too.

So pre-COVID, that deal probably would have looked like a five-year term loan with 100 basis point spread and no LIBOR floor. This one was a 1 1 1, which effectively is a three-year term loan. We have the option to extend each year with the payment of fees. And the spread on that was 150 basis points on the LIBOR floor of 25 bps. With that being said, the swap rate was a lot lower. So all in, we were 178 for three-year paper. We would have been a little north of that for five-year paper, call it 2%. So net-net, not too dissimilar except we just have to extend each year for the next couple of years.

Our next question comes from the line of Jamie Feldman with Bank of America. Please proceed with your question.

Good morning, gentlemen. This is Elvis Rodriguez here on for Jamie. Can you give us an update sort of on your exposure to the auto sector, specialty, retail, and apparel tenants. which is about 15% of your portfolio? How are they performing today? Are those assets open and operating? And, how are you thinking about those tenants going forward?

Well, I mean, obviously, those are some of the industries that are affected. Our exposure to retail is about 5%, and our exposure to auto is little more than 10%. I think that the breakdown of auto, Bill, do you have the breakdown auto exposure?

As we said before, it's widely diversified. There's certainly some plant closures that have happened. The big 3, it looks like they're opening up here in the next few weeks. But all of that is the various industries, both in positive industries and negative industries are incorporated in our guidance of 100 basis points of 150 basis points of credit loss for the year. So, we try to take all of that into consideration obviously.

So some of those tenants are like supplies along the chain, and given sort of the disruption in the stay and home mandates from the government. Like how those times has been affected, but those the ones that are asking for relief. I'm just trying to get a better understanding of what's happening with those tenants.

[Indiscernible] Go ahead Bill.

There's a fair bit of tenants that have asked for relief to other tenants that have asked for relief. We're anticipating grants relief. We're anticipating granting about 40 bps of relief which will be in generally one to three months of relief. Because our portfolio consists of a lot of large tenants. Those tenants, they spend some opportunistic with us. And a lot of our auto tenants in particular are high rated tenants. And so even if their facilities are shutdown or providing materials to a plant that shutdown, the credit ratings are still very strong.

The other thing I would say obviously is that none of the shutdowns that have occurred have been mandated. Logistics is seems almost everywhere I believe everywhere as an essential business. So the shutdowns have been corporate decisions generally related to either planned shutdowns or in instances where it was elsewhere it will be worker safety issue really not a feature of our portfolio that's mandated shutdowns.

Now that's helpful. Thank you. And then just one more big picture. Ben, as you think about sort of what's going on and your business. Has your strategy changed at all? Or have you thought about changing your strategy going forward, given what's going on with it?

Yes. So in our strategy has always been to seek to acquire and to manage buildings, where we can get, we can identify relative value where basically we can buy the building for less than we think it's worth based on its ability to just cash flow going forward. That strategy, that approach to the business is not going to change if we believe it's the correct strategy is the way to maximize value for our shareholders. What we don't know today is how much this location will be in the market. This is not a situation we've really been through before with these stimulus and the banking system being in relatively good shape, you're not going to have the normal sort of recession or credit crisis impact from lenders forcing distress on borrowers and therefore sellers. So it's a different situation than we might normally see. But our strategy we’ll stand itself in good stead through this crisis, and almost any other economic conditions that we encounter.

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

I want to dive into the rent collection trends I guess that's your highlight real quick. And I believe that you're highlighting that there's about 3% to 3%, I mean, should we expect more referrals from that bucket?

Yes, thanks for the question, Mike, good to talk to you. And I'll give this to Bill.

Thanks, Ben. I would say the majority of our deferrals will come out of that bucket. Those are tenants that are being impacted by the pandemic, I would say the biggest struggle we have with forecasting credit loss for the year is the stimulus and how that impacts our tenants. Early on, when this pandemic first hit, we have a couple tenants come to us reliantly and subsequently few weeks later contacted us and say there and indicate they are able to receive some stimulus and they no longer needed rent relief. So, we're evaluating that bucket, we're evaluating all of our tenants that have requested rent relief and going through that process. And as I mentioned on the prepared remarks, we expect about 40 bips to grant rent relief, and that should be one to three months and paid back within the next 12 months.

I'm not sure if you said this or if I missed this Bill, but did you give us a number of how many tenants in the portfolio, I actually as for a rent release date?

There was 64 tenants who requested rent release. But that, as of today we’re expecting not released your approximately a tenant.

And make sense out of 400 plus tenant portfolio.

Okay, great. And then just real quick on the GSA property. I know that you kind of highlighted this and then the Q&A a little bit already. But how should we think about that? I mean, it seems like it's taking right now if you're able to give tours tends to make decisions, but it also seems like a much more complex decision given all the options that you have at a potential site. So is that activity could we expect that to get resolved sooner rather than later in the beginning of 2021, or is it just too tough to say given all the options that could occur.

And it’s bit of actually is vacant but we're still getting rent on it. The GSA lease runs through July. So it's still a part of our income stream. It's a little early to tell how quickly the -- I'm sorry for the end of December, I guess a million square foot is mixed up. So it's really not a 2020 issue in terms of income stream. We need the crisis to settle out a little bit for the sort of full return of the interest development component event. It is a very, very strong market. There continues to be development interest in and around that market. So to exit day of the Jersey turn pipe which is a very much a focal point for e-commerce activity in the eastern seaboard. So we feel very good about that. Our expectations for the years will continue to collect rent. Should we have tenants that are interested in the building today? Those tenants, if they're required occupancy before the end of the year, we can negotiate a buyout with a current tenant and get occupancy before then. So we have lots of flexibility. We have consistent income stream through the year. And the options remain really positive for us. It's just a little unclear as to less -- I should say less clear as to the timing of when we will execute on those options.

Okay. And then lastly for me on the two full building users interested in the on the Solo Cup space. Mean is that how close are those leasing transactions? And if one of those users want that space, when could they occupy it? Would this be something that could occur towards the end of this year? Or when it would be longer than that?

Well, we would be hopeful that it would be this year. It depends on how much work has to be done to prepare the building for the specific tenant needs. But, I mean, we're very encouraged by the fact that the two full building users have an interest in that property. And a strong interest if the level of beginning to pass some paper around in terms of defining the requirement and the documentation. So, we're very encouraged about the level of interest on that building. And it's something that things always move slower during this time. And I think it's highly likely that you would have a resolution of that building by year-end.

Our next question comes from the line of Mike Muller with JPMorgan. Please proceed with your question.

Hi, in terms of 2020 guidance. I was wondering, can you walkthrough for your same-store NOI portfolio occupancy at 962 at quarter-end. Where you anticipating that ending the year?

It really depends on -- I'm going to pass this to Dave in a second. But it really depends on what our default experiences. I think most of the variability and expected occupancy at this point is on unexpected vacancy due to defaults. We have a pretty good visibility as to renewals. Dave, would you like to add to that.

I would say the spaces rolling in 2020 that we expect to renew. We're close to 90% through that documentation. So there's not a lot of mystery there. We expect positive results on the remainder. The question is really on new leasing and the activity on new leasing market remains strong. The logistics of showing space and getting things documented tends to -- it's going to be a hindrance and moving on quickly. So we're really the uncertainty is around the timing of new leasing. So, I would expect to factor this into a little bit but not tremendously.

So if you're looking at the low end of the range, I mean do you have something in there, which you say, 100 basis points, 200 basis points at the low end or that's sort of magnitude or not that extreme?

I think our base case that is not far us where we are now and then we've got some scenario analysis around that, but that doesn't get you very far off.

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

Hey, guys, it's Nick on for Dave. The conversations you've had on leasing to start first quarter, what is the tone on there and like what industries been driving those? And then like, kind of where did those stand today?

So, I missed actually the first part of the question, my Internet buzz at the wrong point. Could you repeat the question please?

So the conversations you guys have had on the leasing front and like first quarter, what kind has been the tone there? Like what industries are driving those discussions? And like, what are the status of those leases today or discussions?

Yes, so I mean, we've already mentioned some of the areas in the script. Some of the areas we're seeing strength in pharmaceutical, e-commerce, et cetera. There's sort of the poster children for who's going to do well and during this period. The demand though, is pretty widespread. Dave, do you want to add something to that?

I think the demand probably tends higher with a high proportion of e-commerce tenants today then we might see on a regular day. But it is pretty widespread, we've got some staples pharmaceuticals, et cetera. And even some auto uses. So there is a wide range of demand.

Okay, thanks. And then for the cap rates on the year-to-date sales, I don't know if you guys gave one but can you update me on that? And then kind of further timing and cap rates for the remaining assets. Now you guys kind of assuming maybe the sale that GSA building potentially in that?

So the cap rates on acquisition -- dispositions, yes. So the proponents of the dispositions were made up of the two buildings in Camarillo that we sold. Those were 4.9 cap rate on market rents. Those are making the time we sold them but that would be a 4.9 cap rate on market rents. GSA is not currently in our disposition guidance for the year. Obviously we have rents through the remainder of the year and a lot of options. So that takes some time to figure it out. The high end of our range 250 million probably would encompass a sale of one of those, either GSA or Solo Cup. But at this point, we don't think those are likely to happen.

Thanks. And then the last one for me. You guys talked to last quarter about scaling G&A this year, but due to the current circumstances around what portion of a cut backs you guys made and updated guidance, would you say was cutting back on that scaling?

I think that's I mean, we gave -- Bill gave some of the components of the cut back was I think, the scaling of staff is certainly a big part of it, as well as reduction in corporate travel. The staff will probably almost certainly probably come back as the markets come back. I think most people believe the corporate travel may be diminished for a more significant period of time. But those are the two big components.

Okay, so you'd see maybe more of like a step up again in 2021 versus --

Yes, they may get back to our normal business. So the more travels we get more actively involved in acquisitions.

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

Good morning, guys. A couple of questions. What percent of your occupied properties are not open? I know we touched on the subject but I just wanted to get a percentage.

Bill, I'm surprised they didn't start [Indiscernible] about Brady and bronces. I'll let you slide on that. It’s at – at least we alluded to before. The buildings that are closed because of the auto plant shutdowns and then some a couple buildings because of worker safety concerns. So I believe it's 18 buildings in total out of our 425.

And what percentage of your rent abatement requests are represented by those 18 builders.

Dave, can you get some?

There's actually not a very high correlation between the two. Obviously, if you've got a -- we've got some smaller tenants, which was a retail components. Those are often shut as well as looking for relief. But in general, the ones related to auto is the biggest factor. There just kind of work through plans to change operations to ensure worker safety. So there are large organizations that aren't particularly speaking rent relief.

And then final for me. Ben a lot of people are talking about how this event COVID-19 will pace on the move to e-commerce. And I'm just wondering how does that play into your thoughts on what assets you might divest? Additional headwinds on buying assets where the tenants might be old line economy tenants? How does it change your perception on a portfolio management basis?

Yes, so I would say, we're looking to call from the portfolio assets that we believe do not operate in the current environment. And the biggest example of that has been in buildings we brought10 plus years ago prior to being a public company in the call center area, which is that's certainly not an area. But most of our buildings are no fungible. The grant vast componentry builds a fungible distribution buildings located around population centers. We think of those buildings will remain an active part of the supply chain and indeed will be advantaged by the fact that the supply chains are fattening over redundancy being established in those supply chain. So I don't think that necessarily there's a change in strategy and sort of what new normal may look like. Having said that, as the new normal plays out, our markets team will be assessing the potential for rental rate increases specific in the markets and sub markets and building that were the aspects of the buildings we're looking at. So I think that our not in our strategy, but our execution style allows us to adapt to the new normal and be fluid and finding opportunity as we move forward.

Our next question comes to the line of Chris Lucas with Capital One Securities. Please proceed with your question

Hi good morning, guys. Couple of quick questions for you. On the tenant retention guidance decline, is there anything specifically programmed or was it more of a service general field?

And I'll turn that over to Dave. I think it's a small sample variance.

Well this is the, I think a major move there is we're now not projecting to sell the handset asset. So that's a million feet that could have been sold would have dropped out of the retention statistic. And now we are going to enjoy the non-retention event there, though, we were pretty pleased with the activity today.

Okay. And then for the operating expenses, just the current environment change your outlook for any of the non-reimbursed operating expenses or cleaning costs utilities whatever?

Yes, obviously that's specific to our vacancy. For the most, we're triple net basis. So, we're not impacted directly except on our vacancy. Dave do you have anything to add to that?

Our exposure to the operating costs are fairly low. As Ben mentioned, 95% of our properties are occupied and 96. They don't really have much exposure at all.

And then the last question, Ben, just bigger picture, kind of where we sit today. Has your acquisition buy changed at all in terms of either the line of business exposure, geography, lease duration or credit quality?

I think that, first it's a great question. I think the, what we're looking for and have always looked for is trying to find the places where we can get the – an embedding parlance, we can get the most open overlay. So we get paid the most for whatever risk we're taking. We're obviously not buying 50 at leases to the federal government. We're buying some combination of tenant credit at lease location building, quality building conditions. And we're trying to get make sure that we by analyzing that we get overpaid for the risks we're taking. So, if the entire market rents rushes back in and says we only want to buy 15 year leases to investment grade credits, in five or six markets, pretty clearly, we're not going to be buying those assets, because they're going to, we believe they'll be mispriced to the high side. So we remain fluid. Now, if the opposite is true, and people progress back and then say the secondary markets and shorter term leases where we need to be, you'll see a pricing dislocation to the upside there and maybe we'll be operating in the longer term basis. So, we just have to remain again fluid in response to the opportunity and continue to have a very broad level of inquiry as to where that opportunity might eventually.

[Operator Instructions] Our next question comes from the line of Brendan Finn with Wells Fargo. Please proceed with your question.

I guess when you guys are able to just start back up with your acquisition activities? I guess which changes are you expecting to see from the seller pool? So like, would you expect to see more mom-and-pop type sellers as opposed to institutional sellers that may have been forced to sell some assets as a result of the crisis?

Well, I mean I alluded to this a little bit earlier. It's not 100% certain, as it would have been during the credit crisis or some other professions where the distress is going to come from. So, for selling or heightened attempts to sell, it's not as clear where that's coming from, or where the opportunities might be. I do think that the more likely among smaller sellers either the ability to wait or the predilections to wait. Their desire to wait will be smaller there. So our normal activity, which is largely focused on small sellers will likely continue that way.

And then I apologize if I missed this. But in the press release you talked about tenants, small portion of tenants that are working through with difficult payment issues. Could you just clarify what those issues are? And if you anticipate they'll be resolved for May payments?

Yes, let me turn that over to Bill.

Yes, thanks Ben. They're just issues are twofold. Some of them are just companies getting in and sending out cheques. The other one was, we implemented a new payments software. Interesting enough, we implement it going live with April rents and express to pay. And so that has created some logistical payment issues with some of our well capitalized tenants that we would have otherwise expected rent payments. So we're working through those issues. And as of today, we're expecting to collect those rents in May. But those are the two types of logistical issues that we're getting from our tenants.

There are no further questions in the queue. I'd like to hand it back to Ben Butcher for closing remarks.

Thank you very much, operator. And thank you all for joining us today. This is goes without saying, but it's been said many times. We're in very much unprecedented times. STAG is extremely well positioned to survive and perhaps thrive following this times as we get back into whatever type of recovery we have. Obviously, things remain fluid. But we have a very strong tenant base and a very strong team to manage it. So we're very encouraged as for the potential for the company going forward. And we thank you for your time this morning and we look forward to conversing with you in the coming months. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. And have a wonderful day.