Brad Shepherd – VP, IR Ben Butcher – Chairman, President and CEO Geoff Jervis – EVP, CFO and Treasurer Dave King – EVP and Director, Real Estate Operations Steve Mecke – EVP and COO.

Blaine Heck – Wells Fargo Sheila McGrath – Evercore Partners Andrew Schaffer – Sandler O’Neill Dave Rodgers – Robert W. Baird Mitch Germain – JMP Securities Mitchell Germain – JMP Securities Tom Lesnick – Capital One Securities Neil Malkin – RBC Capital Markets.

Greetings, and welcome to the STAG Industrial Third Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Mr. Brad Shepherd, Vice President of Investor Relations for STAG Industrial. Thank you. You may begin..

Thank you. Welcome to STAG Industrial’s conference call covering the third quarter 2014 results. In addition to the press release distributed yesterday, 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 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 information of package available on the company’s website.

As a reminder, forward-looking statements represent management’s estimates as of today, Friday October 31, 2014. STAG Industrial will strive to keep its stockholders as current as possible on the company matters, but assumes no obligations to update any forward-looking statements in the future.

On today’s call, we will hear from Ben Butcher, our Chief Executive Officer; and Geoff Jervis, our Chief Financial Officer. I will now turn the 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.

Presenting today, in addition to myself, will be Geoff Jervis, our Chief Financial Officer, who’ll review our third quarter financial results and balance sheet metrics. Also with me today are Steve Mecke, our Chief Operating Officer; Dave King our Director of Real Estate Operations; and Bill Crooker our Chief Accountant Officer.

They will be available to answer questions specifics to their areas of focus. We are happy to report that the third quarter of 2014 was an outstanding period of achievements for the company.

Our record acquisition volumes, high tenant retention and strong leasing results are all testimony to the quality of the STAG team and the strength of our investment thesis. During the third quarter, the company acquired 18 buildings for combined all-in purchase price of approximately $174 million.

The 3.5 million square feet acquired in the quarter, increased the company’s portfolio square footage to 44.5 million square feet, a 26% increase in square footage from the end of the third quarter last year.

The 18 buildings acquired in the quarter are located in nine different states at a weighted average lease term remaining of 4.5 years, and represents diverse industries including air freight and logistics, industrial equipment, food and beverage and building materials.

With these third quarter acquisitions, the company has purchased a total of 31 buildings for a combined all-in purchase price of $293 million through September 30 of this year. Subsequent to the end of the quarter, the company closed on a 98,000 square foot property, for approximately $6 million.

In addition, the company has entered into contracts to acquire 12 additional industrial buildings for a combined purchase price of approximately $148 million.

Our pipeline of deals that meets our investment criteria continues to be robust with approximately $1.4 billion of potential acquisitions, including small portfolio deals being reviewed and considered by our acquisition teams, inclusive of contract executed but not yet closed.

The company has closed or committed to close, a total of over $425 million of acquisitions. This significantly exceeds the company’s full-year 2014 target of $325 million to $350 million of acquisitions. And now that represented approximately 25% growth in the company’s December 31, 2013 real estate cost basis.

The company produced strong leasing activity in the third quarter as well. It is well worth noting that our leasing activities for the first three quarters of 2014 exceeded any of the company’s previous full-year totals. In the quarter, the company has signed six lease renewals totaling approximately 470,000 square feet.

Two of the renewal leases were set to expire in 2014, while four are set to expire in 2015. In the quarter, we also executed new and expansion leases of approximately 74,000 square feet. Occupancy increased during the quarter from 94.5% to 94.8%. Our tenant retention in the quarter was 98.5%.

This number, like the 35% tenant retention in the second quarter, can be considered a small simple anomaly. We expect tenant retention for the fourth quarter to come in at approximately 70%, resulting in 70% retention rate for the year.

For the expired leases that didn’t renew in the quarter, we continue to see that the cyclically larger increases in rental rates. Cash flow over rent rate changes was a positive 3.5% for the five retained leases and 7.5% on a GAAP basis. The general outlook for industrial real estate leasing continues to be very positive.

The most important factor in this continues to be the general economic improvement in the U.S. The other positive factors that have been evidenced for the past years, such as growth in e-commerce, shortening and fattening of supply chains and the on-shoring of manufacturing will continue to drive demand for industrial space over the coming years.

This is reflected in national net absorption, which was in excess of 60 million square feet for the quarter, actually an increase from the already strong prior quarters. Supply remains largely a non-issue, especially across the broad range of markets in which we are most active.

This will lead to further reductions in availability and improving conditions for landlords to achieve rent growth and backfill vacancy and more profit when it occurs. We continue to expect to see cyclical rent growth above long-term norms for the next three to four years. This was evidenced again in this quarter’s rollover rent increases.

Yesterday, we announced that the Board of Directors had approved a 2.38% increase in the company’s annual common stock dividend from the current annual rate of $1.32 per share to $1.35 per share commencing with the January 2015 dividend.

The increase equates to a dividend of $0.1125 per common share per month and represents annual distribution rate of 6.5% based on quarter ending share price of $20.71. This is the third dividend increase since the beginning of 2014, evidence of our stated policy to review our dividend and payout ratio on a regular basis.

In an effort to continue its policy of sharing our growth to per share financial metrics with the company’s shareholders, the Board anticipates evaluating its dividend policy periodically..

We simultaneously announced the Jeffrey Sullivan will join the company this fall, and will assume the General Counsel role on January 1, 2014. Jeff is likely familiar to many of you following his long career as external counsel in the REIT industry, most recently at Hunton & Williams.

We are fortunate to have Jeff join STAG and have the opportunity to effect his seamless transition at the General Counsel position. I will now turn it over to Geoff Jervis, to review our third quarter financial results and provide some further detail on our balance sheet and liquidity..

Thank you, Ben, and good morning, everyone. As Ben mentioned, the third quarter continued our trend of progress on the operational, acquisition and capital raising fronts.

From an operational standpoint starting with property level cash flow, our portfolio-wide cash net operating income or cash NOI was $35.4 million for the quarter, representing growth of 5% from the second quarter and 21% when compared to the third quarter of last year.

Compared to Q2, cash NOI was impacted by portfolio acquisitions, as the $82 million of acquisitions from Q2, were owned for the full period, and the $174 million of Q3 acquisitions, contributed for a partial period. The impact of these acquisitions equated to a $1.5 million increase to cash NOI.

It is important to note that due the fact that our $174 million of acquisitions during the third quarter were heavily weighted to the end of the quarter, and more precisely, to the end of September, the full impact of these acquisitions to cash NOI in Q3 was muted.

Had all of the period’s acquisitions occurred on the first day of the quarter, the impact to cash NOI would have been approximately an additional $3 million.

On a corporate level Adjusted Funds from Operation or AFFO was $20.4 million for the quarter, a decrease of 1% from the second quarter, and an increase of 16% when compared to the third quarter of 2013. Adjustments from cash NOI to AFFO, our corporate level cash G&A, interest expense, recurring capital expenditures and renewal TIs and LCs.

Looking at the sequential quarter decrease in AFFO, it is important to note that the aforementioned acquisition timing had a similar impact to AFFO as it did to cash NOI.

Had the period’s acquisitions been on the first day of the quarter, AFFO would have grown by approximately $2.5 million, converting the reported 1% decline in sequential quarter AFFO to 11% increase.

On the dividend front, we paid monthly dividends of $0.11 per share during the quarter, and yesterday we raised the monthly dividend to 2.3% to $0.1125 per share commencing with the January 2015 dividend. From a coverage standpoint, our third quarter dividends represented 94% AFFO payout ratio, a level above our target of 90%.

We feel comfortable with this level, due to the fact that on a run rate basis, factoring our full quarter of cash NOI and AFFO contribution from our third quarter acquisitions, our AFFO payout ratio would have been below our stated target of 90%.

Looking at expenses, G&A was $5.7 million in the quarter, in line with last quarter when one-time items are adjusted for. We estimate that G&A will be similar in the fourth quarter, and will be approximately $28 million for 2015.

These levels will allow us to materially grow the platform to originate, underwrite and close increasing volumes of acquisitions, as well as to grow our leasing and asset management capabilities, as the function continues to grow in importance of STAG.

At the same time, these G&A levels continue our trend of reducing G&A as a percentage of cash NOI with the long-term goal of having G&A be approximately 10% of cash NOI.

Looking at the balance sheet, immediately available liquidity was $204 million at quarter end, comprised of $5 million of cash and $199 million of immediate availability on our unsecured credit facility and unsecured term loans. In addition, we had $45 million of additional capacity on our unsecured facilities for future acquisitions.

Furthermore, subsequent to quarter end, we raised $128 million of net proceeds from an overnight marketed equity offering and we funded our previously announced $50 million 10-year private placement, adding significant additional liquidity to our balance sheet.

As we stand today, we have liquidity in the form of cash and available credits, sufficient to fund our estimation of acquisitions for all of next year. As Ben mentioned, our acquisition and leasing activity were strong for the period.

We acquired $174 million of industrial properties during the quarter, bringing year-to-date acquisitions to $293 million. Overall, we expect to close in excess of $425 million of transactions in 2014.

As we look forward, we feel confident that given our $1.4 billion pipeline, we will be able to acquire at a pace to meet our 25% acquisition target in 2015, equating to $450 million to $475 million of calendar year acquisitions.

It is important to note that in the past, our acquisitions are typically heavily weighted to the second half of the calendar year, and the first quarter is generally a very slow quarter for us.

From the leasing standpoint, we signed 10 leases for 629,000 square feet during the third quarter, bringing year-to-date leasing activity to 3.2 million square feet. Our leasing efforts were aided by quarterly retention rates of 98.5%, bringing year-to-date retention levels to 69%.

We anticipate that our retention rates will be in the 70% range for the remainder of 2014 and calendar year 2015. We sustained our low leverage balance sheet in the quarter, with net debt to total real estate cost bases running at 40% and net debt to annualized adjusted EBITDA of 5.5x at quarter end.

Factoring on our post quarter-end equity raise and the full cash NOI impact of Q3 acquisitions, our leverage levels are even more conservative, with debt to real estate cost bases at 32% and net debt to annualized adjusted EBITDA of 4.1x.

We continue to strive for a defensive balance sheet and believe that we have achieved our goal today, as evidenced by Fitch’s October 2 affirmation of our investment grade rating and positive outlook assessment.

Looking at our liabilities at quarter end, we had approximately $678 million of debt outstanding, with a weighted average remaining term of 4.5 years, and a weighted average interest rate of 3.62%.

During the second quarter, we executed $100 million private placement of senior unsecured notes, consisting of $50 million 10-year notes and $50 million of 12-year notes. Borrowings under both tranches of notes bear interest at a fixed rate of 4.98%. The 12-year notes were issued on July 1 and the 10-year notes were issued on October 1.

As we look to manage our liabilities, we will strive to design a low-cost, efficient capital structure that matches asset duration, develops multiple credit relationships, minimizes any single calendar year maturity concentration and manages interest rate risk.

Currently the debt capital markets have a myriad of attractive opportunities for a growth company like STAG, and we would likely take advantage of some of those opportunities in the near-term.

On the equity front, the ATM program was again effective in the third quarter, as we issued 2 million shares of common stock at an average price of $22.32 per share, receiving net proceeds of approximately $44 million.

While these levels of ATM issuance are in line with our projections, due to the record volume of acquisitions in Q3 and the volume anticipated in Q4 and Q1 2015, we required equity in excess of what the ATM could reasonably provide. And on October 15, we executed an overnight marketed follow-on offering, raising $128 million of net proceeds.

Going forward, we expect to continue to primarily rely on the ATM for our equity needs, and if we require extraordinary equity, we would look to discrete equity offerings like the one we executed on the 15th. In summary, a very good quarter.

Success on the left hand side of the balance sheet with record acquisitions and strong retention and leasing activity, as well as success on the right hand side of the balance sheet, with opportunistic debt and equity capital raises. With that, I’ll turn it back over to Ben..

Thank you, Geoff. As I mentioned at the outset of this call, it was a very successful quarter for the company with excellent leasing results and record acquisition achievement. As we progressed through this in the fourth quarter, we’re highly confident that 2014 will be a record year for both, our leasing and acquisition activities.

This is continued testimony to the high quality and dedication of the STAG team. We believe that our investment thesis and proprietary model allows us to consistently identify assets across, both, secondary and primary markets, that can be acquired on advantageous relative values.

General market conditions remain favorable with relatively low and stable interest rates, continued strengthening in the leasing market and a relatively stable cap rate environment. Thus we continue to be optimistic about the future for our company, for our owned assets and for our investment thesis.

We believe that the low leverage 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 record third quarter operational results provide continued validation of our relative value investment thesis and broad market investment focus.

Going forward, we will maintain our investment discipline and focus on shareholder returns. We thank you for your continued support..

Thank you. At this time, we’ll be conducting a question-and-answer session. (Operator Instructions) Our first question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question..

Hi guys, good morning. Just wanted to talk about the CapEx on leases signed during the quarter, I was surprised to see the concessions increase so much on renewals.

Was there anything anomalous in the quarter that made TIs come up so much?.

Blaine thanks for the question. I’m going to turn it over to Dave. It’s actually a pretty simple explanation..

Yes, the rise in the quarter is due primarily almost entirely to one building in Minnesota, which is about 175,000 feet. We are extending the lease on that to 15-year lease and adding on about 25,000 square feet of new space, which is the cost you see reflected there..

Blaine, it is actually new construction, although it gets carried in the tenant improvement category because the way the lease is structured and actually it’s new square footage..

Okay, that makes sense. Then looking at your expirations in the fourth quarter and in 2015, the expiring rents seem lower relative to the average in your portfolio.

Do you think that’s an indication that we should be able to see some pretty good growth on rental spreads going forward?.

I think what we’ve talked is, generally speaking, underlying market conditions are pretty strong and projections remain strong. So I think we expect to see above long-term average rental achievement.

That’s probably a small mix reality, if you will, the low number, so – but because it’s a mixed issue, you are not going to see a huge jump up, you’re going to see kind of normalized jump ups I think. Dave, you have any other….

No, that’s accurate. We should see positive numbers, but just not quite sure how large they’ll be..

Okay. Fair enough..

But it’s mixed, Blaine..

Okay. You guys had some build-to-suit properties in the acquisition pipe.

Can you just talk about the process behind finding those opportunities, and whether there is any sort of any premium pricing for those assets versus your typical pipe?.

Yes, I think as we’ve explained over the past couple of quarters, when we discussed our interest in the built-to-suit takeout business, and again we’re operating here on a takeouts, so see above [ph] and a stop of the tenants. The building is done and the tenants are in place has accepted the building.

We’re not simply going out to say we want to buy a build-to-suits. We’re using the same risk assessment model that we use in identifying existing buildings to identify assets where we think we can buy good relative value.

Obviously this is a little different situation longer leases than our normal exercise, cleaner cash flow, obviously little or no CapEx expected in the near-term, but we’re buying the same combination of factors that might lead up an asset we believe to be best priced in the general market and the existing property market, the same sort of thing here whether it’s a slightly misunderstood credit, a secondary market where maybe some of the other build-to-suit takeout guys that want to operate.

Those kind of – same kind of factors lead to we think some mis-pricing which allows us to buy assets again at a good relative value. So we have three deals under contract and we like all the deals on a relative value basis..

Okay, great. And then Geoff, adjusting for the recent equity raise you said you are about 4.1x net-debt-to-adjusted EBITDA. I think that goes up to about 5.1x, and when including preferreds, and you’re at mid-30s debt-to-total assets, which probably goes up to mid-40s including preferreds.

You guys obviously have a great acquisition pipeline with $250 million under contract or LOI.

So my question is, what are your target ranges, or where are you comfortable with those debt metrics?.

I think that we are targeting debt-to-cost basis of around 40% on the long-term, and then with respect to debt-to-EBITDA somewhere in the 5.5 range, between 5 and 5.5..

Okay..

Blaine, I’ll remind you also that we have – for the year we’ve raised approximately $300 million of equity, which obviously at that 60/40 ratio would support $500 million of acquisitions. So we’ve slightly over equitized in advance of our fourth quarter acquisition activity..

Sure. All right, that’s helpful. Thanks guys..

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

Yes. Ben, third quarter was a very active acquisition quarter.

Should we assume that some of fourth quarter, kind of got pulled early, or is fourth quarter shaping up to be equally as active as third quarter?.

I hesitate to brag but I think fourth quarter likely will be more active, between we have our contract and other LOI in our pipeline we’re shaping up, as always for us, the fourth quarter is likely to be our most active quarter of the year.

I don’t think that there was necessarily anything that got pulled from the fourth quarter into the third quarter, but there may have been a couple of things that shifted from the second quarter into the third quarter.

But no, the pattern of acquisitions for us, which is building through the year with the big fourth quarter is likely to occur again, very likely to occur again this year. And I forgot to say, good morning, Sheila, nice to talk to you..

Good morning. Also on next year, you have about 10%, or I think it said 10.7% of leases rolling.

I am just wondering, if you have any visibility at this point of known move outs?.

I think I’m going to turn this over to Dave, but I think globally we’re looking at continuation of sort of 70% tenant retention and good leasing markets, but I’ll let Dave respond. So I’ll turn it over to Dave King..

Yes, Sheila, the leases we have clarity on the sort of known vacates that amounts to about million square feet. We got about 30% of those covered through LOIs, so we expect to resolve those situations pretty quickly. And the remainder are in marketing phase. We’ve gotten strong reactions to the two largest of those, which amounts to about 550,000 feet.

So we’re confident and optimistic..

Okay, great. Last question. I think, Geoff, you mentioned $28 million of G&A next year.

I was just wondering if that includes or anticipates additional hiring, and if so, are you hiring for the acquisitions, asset management, where is the new hiring?.

I’ll turn this over to Ben to get the details, but yes it absolutely does. It accounts for, not insignificant increase in the staffing levels here..

So we’re looking at a headcount increase next year over the course of the year, probably a little bit pre-weighted, it’s so early in the year, as much as 25% increase in headcount and circa 50 to mid-60s headcount. That is primarily – we’ve talked about this before.

We think about our business is having fixed cost components and variable cost components. The variable cost components are those that have to increase with portfolio.

So we’re seeing increases on the variable cost components as we grow our portfolio, but we’re also building out – continue to build out as we’ve indicated previously on what we call, the fixed cost components, primarily the acquisition and analysis teams that allow us to identify and acquire these ever increasing amounts of assets.

So we are increasing the size of the machine on that side of the table, if you will..

Do you add additional office space then?.

No, our move little less than a year ago was contemplated the growth that we are undertaking now. So we’re in good shape with office space here in Boston..

Okay, thank you..

Thank you. Our next question comes from the line of Andrew Schaffer with Sandler O’Neill. Please proceed with your question..

Thanks.

Given that you’re on pace to deliver consecutive quarters of record breaking acquisition volumes, I was wondering if you could talk about the controls in place in order to making sure that transition of these assets into your portfolio goes smoothly from a back-office, as well as operation standpoint?.

Well, I think – I’ll turn it over to Dave and he can talk a little bit deeper about the process, but one of the thing we’ve talked about frequently on these calls is STAG’s love of or adherence to people, systems and processes.

In order to do the kind of volume that we do in individual transactions, you can’t have sort of ad hoc reactions to new assets coming in, as we are highly systemized and process-oriented.

So I don’t know if you wanted to add there, Dave?.

Not really. Most of the organizations involve and aware of acquisitions prior to their closing. So we’re well prepared when we do take assets on and we do transition those assets amongst groups and we’ve – as Ben said, we’re highly systematized, so we don’t see it as an issue..

It really is, if you will, a machine. The assets are identified, acquired and then through that process, they are moving through the asset management lease administration process. So it’s a very smooth and orderly process..

So essentially you’re saying, you’re more preemptive in the hiring versus hiring retroactively?.

Yes, we’re hiring in advance with need. We are building our asset management function in response, not only to the existing portfolio, but the projected increases in portfolio size. I mean, we have made a commitment to grow as long as we can grow accretively and maintaining our pricing discipline 25% a year.

Obviously that means tenant count is going to increase in those variable cost component. We’ll reiterate the fact that the variable pieces of machine in order to scale the portfolio are relatively de minimus amount of increase in G&A.

So if we decided to hold steady our acquisition size, our acquisition team and supporting analytic teams, our G&A increases on an annual basis would be significantly lower than in the phase we are now, which is building the capacity of the machines we will acquire assets etcetera, which is we’ve been increasing our G&A on that side as well..

Okay.

Then finally, of the assets under contract, can you be a little more granular to tell us if any of those are West Coast or California based?.

We have assets under contract and under LOI in California. So we are expecting that if all the things are equal, we will be able to – we will announce at some point in the fourth quarter that we’ve acquired California asset. Obviously there are things in the contract that have to be satisfied.

So until that happens, that won’t happen, but we have hired an outward facing acquisitions person who is covering the Southwest and California, experienced in those markets. So the application of feet on the ground and face in the market is turning up opportunities in those markets..

Okay, great. That’s it for me. Thanks..

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

Hi, good morning. Obviously you talk about leasing as much. I think we talk a lot about renewals, but as you think about new leasing backfilling some of the vacancies, the challenges I guess in same-store NOI over the last six quarters have been lot of retention related, we’ve known that.

I guess as you move forward, how do you feel, either Dave or Ben, about what’s happening on the new leasing front to backfill this space, and then kind of what can happen with NOI going forward?.

I’ll turn it over to Dave, and we are starting at the very top on a macro basis. Occupancy is up 92% plus nationally. We feel very strongly that our portfolio is more attractive than the broad national portfolio. So we’ve feeling very good about the leasing market.

And Dave?.

Yes, I would say the prospects for warehouse and manufacturing facilities remains strong and continues to improve. The struggles we’ve had in the asset class we are no longer buying, sort of the flex call center assets are the ones where marketing vacancy is more difficult. So our occupancy in that sector of the portfolio is 79%.

So that’s where we’re having more difficulty. I would say that our main line of business, the warehouse and manufacturing buildings are quite strong..

And then we are systematically over time the flex call center portion of our portfolio will be eliminated through opportunistic pruning of the portfolio in that area. The other thing I would tell you is that, there is frequently a glib response that primary markets are better than secondary markets.

I think there has been a lot of recognition over the last couple of years that maybe that’s not always true, and actually if you look at the data on the long-term basis, it’s actually not true. But what’s going on today in supply side of the supply/demand equation is the primary markets are getting spec development than the secondary markets are.

So actually you might – that might suggest that the secondary markets will outperform over the coming years, because they have a little better supply/demand balance than the primary markets. So we’re very optimistic about our assets, which again are primarily in secondary markets..

Ben, as you think about reducing exposure to call centers or flex space and you’re growing in a much faster cliff now than we’ve seen.

How do you maintain – or maybe not how do you maintain, but do you see any risk to the risk parameters you’ve put in place around exposure to city, state, industry, etcetera, and any of those gets violated in a short period of time, and then could brought back into the check over time, or are those pretty firm guidelines.

And how do you see that in the near-term?.

I think of the guidelines that we’ve promulgated, the one that is the most challenged over time is trying to maintain low expirations for year, you know that 10% expirations for year that we’ve had recently.

I think the norm going forward is going to be more like 15% a year and that has been stated as our maximum but it’s going to be in the coming years that maybe challenged.

Our ability to continue and diversify geographically and by industry etcetera, our experience has been – we set these standards and it hasn’t been that difficult to maintain our discipline of diversification.

When we have success, success breeds success, so when we – for instance in North Carolina, we buy a bunch of assets, the other brokers in the market say, hey, STAG is buying a lot of stock, so that bring us more stock and builds on itself but we’ve been able to again by building our teams and by being a more active presence in across broad markets able to maintain a geographic and industrial diversification.

And as you may have noted on the tenant credit diversification, we continue to drive that down.

We’re now at sub 15% on our top 10 tenants, which is I think a pretty admirable distribution of credit risk versus almost anybody in the – any of our peers, certainly in the industrial market or I won’t even get into the net lease market, but there is a lot more concentration out there among other people..

Yes, I agree. Last question, maybe for Geoff, on the expenses at the property level in the quarter. It seemed like the NOI margin I guess, if you will, in the quarter was much higher driving a higher performance out of NOI.

Was there anything unusual from an expense standpoint, taxes or otherwise in the NOI line in this quarter we should think about going forward, or is that a pretty good rate?.

Yes, I think that that’s a – this quarter was pretty ordinary quarter and you can extrapolate safely from here..

All right. Thanks guys..

Thank you. Our next question comes from the line of Mitch Germain with JMP Securities. Please proceed with your question..

Good afternoon guys. I was just curious, Ben. I guess Geoff, and you referenced some investment in some deal personnel.

Is the increase in the deal pipeline this quarter, is that seasonality, or is that, just the efforts of adding some additional personnel to the team?.

I think it’s a combination of a few factors. Probably the most important of which is, 2.5, three years ago we had two outward facing people. We now have six outward facing people. So the people that are out on the street or on the phones with the brokers etcetera, has tripled over the last few years.

So we would expect the pipeline to be bigger because of that.

I also think that just our exposure in the market, we’ve now bought – Steve, how many assets have we bought since our inception, 300 or something?.

Yes..

Yes, we’ve deployed a lot of capital across a really broad market. And so brokers out there, that are touching these kinds of assets not only investment sales brokers but leasing brokers know that a way to earn a commission is to, you lease a 200,000 foot warehouse in the secondary market, you might want to ask STAG whether they want to buy it.

I think that we’re just better known in the market, our access to capital has been demonstrated, our transactional certainty has been validated over again this 300-plus transactions.

And that transaction certainly we’ve talked about a lot, but it is an important component in being selected by sellers and their brokers as who they want to transact with. I feel real estate transactions are very painful for small sellers and we have done I think a very good job of demonstrating that we will do what we say we’re going to do..

Great. And last question for me. You’ve got this goal of growing the asset base of about 25% a year in terms of how you guys approach the amount of the acquisition volumes.

How many more years do you have, where until you feel like, maybe you’re kind of – you’ve capped out in terms of how much you can grow [indiscernible]?.

Well, as you can look on a five-year basis and we recognize that the fifth year would be a big acquisition year, Steve, who runs our acquisition efforts shutters a little bit when we run those numbers out. I think it’s important to look at it on the basis of the potential pool of assets to buy.

I mean, we’re talking about potential asset pool of hundreds of billions of dollars, and even if we ran out those numbers to where Steve had to buy a billion dollars of assets in a year, the total assets in our portfolio were still relatively small amount of what we view as our potential target pool.

We’d certainly still be less than 10% of that pool. I think we can continue to maintain our relative value focus and buy assets opportunistically along the way, and grow in that kind of level for certainly at least five years, which is sort of where we’ve done our modeling thus far..

Great, that’s it for me. Thanks guys..

Our pipeline now is over $1.4 billion. The pipeline three years ago was probably $1 billion less than that..

Yes. It’s impressive. Thank you..

Thank you. Our next question comes from the line of Tom Lesnick with Capital One Securities. Please proceed with your question..

Hi, good morning, and thanks for taking my questions.

Sorry if I missed this earlier, but of the three build-to-suits on a dollar amount, how much of $147.7 million is that?.

It’s $31 million..

$31 million, okay.

And then, again sorry if I missed this, but in terms of timing of the stuff that’s under contract or LOI, should we expect acquisitions in 4Q to be heavily back-end weighted within the quarter, kind of similar to 3Q?.

Yes, it’s – traditionally in the fourth quarter, I think sort of ramp-up towards the end of the year as sellers decide that they want to try to get something in right at the end of the quarter before at the end of the year. So I would expect it would be a similar activity in the last month of the year.

We will start ramping up in November, but you’ll see it in December..

In many aspects of the world and in nature, if you a space of tenant that gets filled. As Steve said, mostly these transactions are supposed to be closed in the fourth quarter and people tend to take up the available time. So yes, lot of late in the year stuff.

The build-to-suits are, as you probably surmised or not, they have to be build, so they are not closed in this year, they’ll close in mostly in the second quarter next year..

Correct..

Great, thanks guys..

Thank you. (Operator Instructions) Our next question comes from the line of Neil Malkin with RBC Capital Markets. Please proceed with your question..

Hi gentlemen, good morning. You guys run a pretty sophisticated operating platform, similar to the Markowitz Portfolio Diversification Theory. I’m just wondering how you balance the low operating leverage with the low financial leverage.

I wonder how do you guys look at – are you too low-levered, and just given the fact that your operating platform has low-leverage and rent growth appears to be tracking better than expected, do you worry that maybe you’re diluting current owners and not rewarding the current owners with better-than-expected growth?.

We are – thank you, Neil. We actually think we are a very sophisticated and we have a very sophisticated model. And I’m not saying that facetiously, we guys spend a lot of time. This model was created back of an envelope in 2002, 2003, and it has been continuously refined and continuous to be refined over time.

We are definitely disciples of cash flow, so our model is – if we’re doing our very best to divine the cash flow when derived from owning an asset and buying the ones that we can buy in relative value in the marketplace. So the choices on leverage are choices that we think will optimize our cost of capital going forward.

Obviously, there is a balance between equity cost to capital, debt cost to capital, but it is our belief and upon advice from others external to us, but basically we have decided to make a firm analysis that we think the course that we are on is optimal in terms of long-term cost of capital to our platform, and ultimately the long-term return to our shareholders..

And Neil, I would just add to that that I think part of what is a bit frustrating to some who look at the company is that we really are a growth, and not only a growth, but a high growth company. And I think traditional REIT investors not necessarily used to seeing a trajectory or growth like this.

And so when we have, for example, forward spend on GA, we believe that we’re doing some next level thinking here with respect to the next 12 to 24 months of acquisitions and leasing needs.

And so we feel like we’re investing in the future, and so the comment about rewarding existing shareholders and we believe we’re actually doing the best we can to reward existing shareholders, and to make sure that we continue to reward those shareholders over the near, medium and long-term..

Okay, thanks a lot guys..

Thank you. Mr. Butcher, there are no further questions at this time. I’d like to turn the floor back to you for any closing and final remarks..

Thank you very much. And thank you everybody for joining us today on the call, while we have the opportunity to review what was a very successful quarter for the company. The company has a great momentum. The teams continues to improve and be refined, as well as the models refine.

We are very optimistic about the fourth quarter and beyond, and we appreciate your confidence in us, and those of you who own shares in us, your support of us. And we thank you for your participation..

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day..