Matts Pinard - VP, IR Ben Butcher - CEO Bill Crooker - CFO Steve Mecke - COO Dave King - Director, Real Estate Operations.

Sheila McGrath - Evercore Gaurav Mehta - Cantor Fitzgerald Juan Sanabria - Bank of America Dave Rodgers - Robert W Baird Blaine Heck - Wells Fargo Michael Carroll - RBC Capital Markets Tom Lesnick - Capital One Dan Donlan - Ladenburg Thalmann Mitch Germain - JMP Securities Michael Mueller - JPMorgan.

Greetings and welcome to the STAG Industrial First Quarter 2016 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.

It is now my pleasure to introduce your host, Matts Pinard, Vice President of Investor Relations. Thank you. You may begin..

Thank you. Welcome to STAG Industrial's conference call covering the first quarter 2016 results. In addition to the press release distributed yesterday, we've posted an unaudited quarterly supplemental information 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 volume, 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, Wednesday, May 04, 2016. STAG Industrial will strive to keep its stockholders as current as possible on company matters, but assumes no obligation to update any forward-looking statements in the future.

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 the first quarter results.

Presenting today in addition to myself will be Bill Crooker, our Chief Financial Officer, who'll discuss the bulk of the financial and operational data. Also with me today are Steve Mecke, our Chief Operating Officer and Dave King, our Director of Real Estate Operations. They will be available to answer questions specific to their areas of focus.

Industrial real estate fundamentals remain very strong. New supply concerns continue to moderate and in most of the markets we operate in, new supply was never really an issue. The combination of continued moderate growth and the relevant insularity of the consumer driven U.S.

economy should provide an advantageous operating conditions in the coming years. We continue to see strong tenant demand for our buildings declining vacancy and rising rents across the bottom array of markets we operate in.

It is important to note again that this tenant demand comes not only from eCommerce, which is itself a broad geographic demand generator, but also from a variety of other industries benefitting from the health and confidence of the U.S. consumers who are responsible for approximately 70% of GDP.

A few thoughts and observations of the topic of industrial real estate eCommerce. It is without question a driver of incremental industrial demand as square footage shifts from retail real estate into warehouses. eCommerce activity exists all over the country in all types and sizes of buildings and in a variety of markets.

Many buildings that have all traditional retail and supply chain channels as well as eCommerce initiatives, next day delivery can be accomplished from anywhere a FedEx of UPS officer exists. The issue with eCommerce is how the last mile delivery is accomplished.

How the package gets to the typical consumer of today? The solution to the last mile question is likely to be a couple of providers very intensively using their relatively small amount of physical real estate. In our view last mile is not likely to have a large impact on general industrial demand and usage.

The first quarter was a solid operational quarter for STAG. This was readily apparent in the continuation of our robust leasing activity, acquisition and disposition volumes, resulting portfolio improvement and most importantly, continued strong earnings growth.

We continue to see wide spread opportunities for accretive acquisitions, our current pipeline contains over $1.7 billion of transactions that have passed an initial triage and have been underwritten. External growth through accretive acquisitions remains a big part of the STAG story.

There are three principle drivers of accretion on our identified acquisitions, relative value purchases, operating leverage and financial leverage. We feel that the middle of these drivers, operating leverage differentiates us as to how for least understood and appreciated.

We've built the STAG machine to efficiently identify and acquire single tenant industrial assets at good relative value. We believe that we derive significant advantage by selectively acquiring assets granularly versus acquiring already at related portfolios.

As we add these selective granular acquisition assets to our aggregated portfolio, our incremental G&A related to the growth in the portfolio will be de minimis, only 1%, 2% of incremental NOI. This is a fraction of the fully constant STAG G&A.

Approximately 16% of NOI in 2015 and support significant marginal per share accretion in the range of current equity pricing, operating leverage and debt cost. The existence of very attractive financial leverage only adds to the accretion story. As I stated previously, strong accretive growth will be the feature of the STAG store for years to come.

With that, I’ll turn it over to Bill to walk through our first quarter results..

Thank you, Ben and good morning, everyone. The first quarter represents a great start to 2016. We increased our disposition activity, produced strong operational results and continue to identify good relative value acquisitions. We acquired five buildings for a purchase price of $28 million and a weighted average cap rate of 8.5%.

The first quarter is typically slower on the acquisition front to the seasonality of the industrial real estate sales market. However, we continue to expect to acquire between $300 million and $400 million in 2016 with Cap rates averaging at a low to mid 8s.

We currently have 11 buildings for $113 million that closed subsequent to quarter end are under LOI or under contract. As we discussed previously, we continue to execute on our disposition plan. During the first quarter, we disposed the four buildings for $33 million.

This level of dispositions is roughly equal to the disposition activity for 2014 and 2015 combined. These dispositions were a combination of individual opportunistic transactions and the disposition of non-core assets.

In 2016 we continue to forecast $100 million to $200 million of dispositions, including an accretive portfolio of disposition expected to close in the second half of the year. At quarter end we owned 292 buildings with a total of 54 million square feet. Occupancy stands at 98.4% for the portfolio with a weighted average lease term of 4.1 years.

The quarter’s cash and GAAP rent change was approximately flat and up 4% respectively. As Ben mentioned, we're seeing strong real estate fundamentals in our markets. Given this environment we've been able to sign longer term leases. On average, our renewal leases are three to five years in term and new leases are approximately five years in term.

This quarter we averaged 5.5 years of term on renewals and seven years of term of new leases. On the retention front, we have retention rate of 42.4% on the $1.3 million square feet expiring in the first quarter. This lower retention rate was driven by one nonrenewal of 376,000 square feet, which was re-lent with no downtime for the same use.

As this square footage was included, the retention number would have been 72.4%. The cash and GAAP rent change for the retained tenants was 3% and 6% respectively. We expect retention for the full year of 2016 to be in the 70% range. From an operation standpoint cash NOI for the quarter grew by 19% from the prior year.

Same-store cash NOI grew by approximately 1% over the same period. Core FFO grew by 17% compared to the first quarter of 2015. On a per share basis, core FFO was $0.39 per share, up 11.4% compared to the last year. Including core FFO was G&A of $8 million.

G&A was seasonally high in the first quarter, but we continue to expect $31 million in G&A for 2016, exclusive of the onetime severance cost of $3.1 million incurred during the quarter. Our balance sheet continues to be strong and in line with our BBB investment grade rating.

At quarter end, our debt to run rate EBITDA was 5.3 times and our fixed charge coverage ratio was 3.0 times. We continue to operate in our promulgated leverage ranges of 5 times to 6 times debt to run rate EBITDA and greater than 2.5 times on our fixed charge coverage ratio.

During the quarter we executed $75 million preferred equity issuance with a keep on our $6 million and $7 million A. This pricing was in line with our expectation and significantly below our $6 million to $9 million outstanding Series A 9% preferred, which is callable in November of this year.

As of the first quarter, we had $6 million outstanding on our revolver, $476 million of immediately available liquidity which includes cash on hand of $15 million and the non-funded $150 million five-year term loan. This un-funded term loan is fully swapped out for 2.69% and will be drawn by September 2016.

At quarter end we had approximately $920 million of debt outstanding with the weighted average maturity of 6.4 years and a weighted average interest rate of 4.2%. All this debt is either fixed rate or has been swapped to fixed rate with the exception of our revolver.

As discussed last quarter, we've enhanced our disclosure on capital expenditures and leasing costs. This can be found on Page 16 of our supplemental reporting package. From a capital standpoint, the variety of capital sources we plan on using to execute on our relative value acquisitions strategy.

The preferred issuance and the strong disposition activity during the quarter will assist us in executing on that strategy. I will now turn it back over to Ben..

Thanks Bill. While we're pleased with the recent recovery of our stock price, we continue to make progress on the plan we put forth last summer. First we're showing G&A discipline. Our company is fully staffed to take advantage of the continuing opportunities we see in the market.

Any additions to headcount in the near to immediate term will be related to portfolio growth and will be de minimis. This will allows us to demonstrate, the significant power of operating leverage. Second, as prudent and rational allocators of capital we are both conscious of and open to the various potential sources and uses of our capital.

The big three uses of our capital by assets, reduced at buyback stock will all be considered and capital applied as appropriate at that time. We continue to allocate our available capital to highest current shareholder return accretive acquisitions. Third, we've shown continued earnings growth. Core FFO per share increased 11.4% over 1Q 2015.

Fourth, we're establishing alternative equity capital sources. Two elements of the sourcing were demonstrated in Q1, our recent issuance of preferred equity and our $30 plus million in disposition. Additional dispositions of $70 million to $170 million are on the horizon for 2016 and these dispositions will extend our acquisition capacity.

As we move through 2016, we will continue to focus our efforts around the strength of both our investment thesis in the company. The continued abundance of acquisition opportunities and the very accretive nature of these acquisitions make for a very bright future for our company.

We thank you for your time this morning and for your continued support of our company. I’ll now turn it back to the operator to open the floor for questions. Thank you..

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

Yes, good morning.

Ben, I wanted to know on the disposition program, how are you identifying the assets to sell and also you mentioned a portfolio for sale, just wondering how the pricing of the portfolio might compare, are you getting a premium versus selling those assets individually?.

Yeah, thanks Sheila. Good morning. So as Bill described, there are three types of acquisitions and the portfolio acquisition, which you touched on last is -- we definitely believe there is a premium. These are assets that we're going to sell in a portfolio.

We expect for 100 basis points plus inside of where we bought them on an individual cap rate basis. So we're definitely looking at demonstrating some accretion there. The other two types of dispositions that Bill described are the opportunistic dispositions on a one-off basis where the assets were worth more to somebody than it is to us.

And in our portfolio, we accomplished two of those in the first quarter and unlevered IRRs in excess of 20%. So very accretive, very opportunistic.

The last and least attractive is the dispositions of assets that we feel are non-core and no longer belong in the portfolio, that was a relatively small amount of dollars and these are assets that simply for instance like call centers that we no long want to own, it was simply decided to dispose of..

Okay.

And then on those dispositions did you disclose the Cap rate that you sold the assets at?.

We did not. We're really -- as we described through the course of these calls over the years, we're really not a Cap rate buyer or seller. I think the Cap rate just falls out. As I said these were very, very accretive transactions with again unlevered IRRs and north of 20 on the opportunistic dispositions..

Okay. And last one on the dispositions, since you're doing wholly owned asset sales, is this strategy take the place of entertaining a joint venture..

I think we have as described the alternate sources of capital that allows us to continue our very accretive acquisitions. We've lifted out those source or I think the most obviously the non-alternate source common equity is still our most desired form of equity capital.

I think in descending order of attractiveness to us I think dispositions is next and I think the JV when then preferred equity probably falls in their somewhere, we've already done that.

The JV has always been to us the least attractive form of alternate capital because of the confusion of the balance sheet potentially other cooks in the kitchen with regard to the asset mix that we have acquire etcetera.

So it's always been the lowest I think with our common equity current pricing and hopefully perhaps some continued improvement in that pricing, the joint venture becomes a much dimmer option for us going forward..

Okay. Great, thanks..

Our next question comes from line of Gaurav Mehta with Cantor Fitzgerald. Please proceed with your question. .

Yeah, thanks.

So Ben, going back to your comments on common equity being the most desired form of capital, so when you look at your common equity, do you look at your NAV per share or you look at your pricing and how do you decide when is it attractive for you to issue equity versus alternative forms of capital?.

Well I would say, we're not -- we're certainly not knowing about the NAV discussion but we're really focused on the accretive nature of our acquisitions.

We certainly don't want to irritate or whatever the people that are focused on NAV, but we're quite confident that at actually pricing so much where we are today that we would be quite accretive if we issued equity a day. Having said that, we have virtually no revolver balance. We have cash on hand.

We have our builder strides some other sources of liquidity. We're running at the lower end of our promulgated leverage range. So we don't have any immediate need for capital, equity capital. So the discussion of where -- and as we've indicated where we have done some dispositions and we've dispositions on the way which extend that capacity etcetera.

So we're not in a position where we have to make that decision as to which source of capital we're going to access next. It’s not a current decision..

Okay.

And second question I was wondering if you could provide some update on what you're seeing in acquisition market today versus early this year?.

Yeah I think we mentioned our pipeline is $1.7 billion, which is I think cyclically it goes up and down, but $1.7 billion is approaching some of the highest levels we've seen. Again that pipeline is assets that have been through an initial triage.

So they're assets we've identified that make sense to us on at least a cursory basis that have been underwritten on at least on a cursory basis. So we have some degree of confidence that these are assets that we would like to acquire.

We're fully cognizant of the fact that in order to maintain our pricing discipline etcetera, we're not going to be able to buy all these assets and certainly our history has been not. But we're finding the market, we’re pleased with opportunity.

Again our ability to look broadly across the 60, 75 investable industrial markets in the United States give us a huge advantage in terms of finding assets to acquire and acquiring them. We're simply not competing with as much organized capital say in markets 25 through 75 as we would be if we focused on market say 0 to 25..

I just think if there is $113 million of acquisitions under ROI contract and as I said on my prepared remarks, we expect Cap rates to be in the low to mid-eight for this year?.

Okay. Great. Thank you for taking my question..

Our next question comes from the line of Juan Sanabria with Bank of America. Please proceed with your question..

Hi, good morning.

Just on the disposition front, I know you don't want to talk to first quarter Cap rates, but could you give us a range for expectations for the full year in terms of the numbers you've talked about as part of guidance?.

Sure. I think as I just described we expect the bulk of those dispositions going forward to be in this portfolio dispositions.

And those we expect to be on the order of 100 and 100 plus basis points inside of where we acquire them, the math would then tell you there seems to have acquired in the last couple of years 8 and 8.5, but these are going to be probably be in the 7 to 7.5 range as a portfolio..

Great. And then just on the distribution….

One thing I might say there is there's a lot of talk in the market as we listen to other people's calls and talk to other market participants about the disposition market maybe getting a little bit weak because of the CMBS dislocation. We have been in the market with these assets and we do know the nature of the buyers and the likely buyers.

And they're not by and large users of CMBS debt. They're more likely to use regional bank relationships for their debt. So we're not -- we don't have a great deal of concern about the robustness or of the buyer market for what we're trying to sell..

Thanks for the additional color. And switching gears just on the distribution vis-à-vis AFFO after adjusted for CapEx, thank you for that incremental CapEx disclosure.

How do you guys think about the dividend within all-in CapEx accounting for that nonrecurring from my understanding that roofing related CapEx and where you'd like that payout ratio to go adjusting for that all-in CapEx?.

Yeah it's certainly a metric that we will pay attention to as we as we go forward. We're projecting I think obviously we've given you all the pieces you and another analysts and other investors can make their determination as to what metric they want to look at relative to dividends.

We know that certainly there is more dollars being allocated to these non-recurring expenses and simply the recurring CapEx. These are long term benefit assets if you will, the roofs etcetera. I think we've estimated our average roof life is 22 years. So these are not things that are really operating expenses. They're long term capital expenses.

But having said that, we think that even under the most onerous definition of whether it's cash funds whatever available, that our ratios will continue to climb in the coming years and decline significantly as we will continue to grow our FFO per share..

Okay. And one last quick question from me, how should we think about you financing the repayment presumably in November this year of 9% preferred? What kind of….

I like to think of it -- we're using the 2.69 swapped out five-year term loans because that means we have a 600-plus basis point in accretion. The reality is it will be financed generally our of our capital structure. So we think about our long term as financing partially with equity and partially with debt..

Yes, and we'll maintain our promulgated leverage spans of five to six times and greater than 2.5 times on a fixed charge coverage. So whether the proceeds come from asset dispositions or the five year term loan, we’ll make sure we're within our promulgated leverage spans..

Thank you..

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

Yeah. Morning guys, maybe Ben for you or Dave can chip in on this too, but just want to talk about your leasing activity the tenant decision making process. Are you having more discussions about tenant seeking growth? Is there any risk you'll lose more tenant and do you talk about more rationalization of space out there and….

Yes Dave, this is Dave King. We are seeing a lot more positive attitudes amongst our tenants and more interest in expanding spaces and expanding buildings we've got one underway right now and another four in discussion. So I think the attitude amongst our tenants is very positive.

You can see that in the extended leasing terms from this quarter we've addressed about a third of our role this year from this day forward. So decisions are coming faster and people are deciding to stay longer term..

Yeah, one thing I might add is in terms of tenant retention, we're forecasting 70% or so for the year. That's including the 42% for this quarter, which was really was by our definition of retention was a non retention. But the people and the products and the building didn't change.

It's just the lessee changed as an operator took back over the operation of a warehouse from a third party logistics provider. So we're expecting for the remainder of the year in order to add up at 70%, we’re expecting retention to be above 70% for the remainder of the year..

Okay. And I guess with regard then to the demand for more space or growth discussions and an overall positive attitude, do you feel that rents are going to continue to firms.

We expect spread to get a little bit better or is that pretty much where we're going to be for the rest of cycle do you think?.

Well there's no question that we’ve talked about some of the dynamics in less glamorous markets like we've been told by the brokerage community that for instance Cleveland, which is a Circa 300 million square foot market, that there is basically zero availability of fungible modern warehouse space.

There is availability, but it's low clear adequate cyclical systems, not enough docs etcetera, but if you want adequately docked 24-foot clearer or higher with the ESFR sprinklers basically zero availability over 100,000 square feet.

So those type of dynamics, which maybe not quite as traffic as zero availability but those type dynamics exist across most of the middle size or secondary markets where supply is really not an issue in terms of bringing in release of that. So you're going to see rent growth across those markets.

Now having said that, one of the things that we do, well not one of the things, really the only thing we do in trying to put together our portfolio is to maximize the cash flow derived from owning those asset per dollar of equity invested.

We're not building portfolios to have the highest rent growth of the highest same-store NOI or any of these other metrics, that I think are interesting metrics, but may be not as descriptive of what the ultimate goal is to maximize cash flow..

Great, that’s helpful and then may be just last one for me, in terms of the acquisition pipeline, you talked about may be reduced competition I think in a previous answer.

Can you just expand on your answer about competition that you’re seeing for the acquisitions you're looking for and how that may be impacting time to close?.

I don’t know that it's affecting time to close so much. We're expecting that the CMBS dislocation, introduction of risk retention later in the year etcetera may have an impact on debt availability, the amount of debt and the cost of the debt. Our competitors are people that in the secondary markets are largely that use CMBS or bank relationships.

We think that our capital advantage will I think increase through the year and allow us to be more comparative on more transactions.

It's all marginal analysis as to whether price elasticity of supply etcetera as to whether or not that eventually any change in the amount of acquisitions, but I don’t think we're seeing much difference in the change of time to close. Steve, do you want to..

No, no and I think in terms of the number of competitors on each deal, it really hasn’t been dramatically less. We're still seeing the same people, the same type of groups in each market that we are in competing with our deal and then definitely time to close hasn’t really extended at all..

All right. Great. Thanks guys..

Our next question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question..

Thanks. Ben, following up on acquisitions, last call you talked about Cap rate being stable from your perspective, but there was the possibility for Cap rate expansion.

I think given I guess the small decrease in competitors, have you seen any evidence of that yet and I guess what’s your view on where and when that might take place in the future?.

Well, I think we continue to say we don’t think Cap rates have moved. What I was alluding to earlier was an expectation that maybe that this would be finally the year when Cap rates start to move up, but like a lot of other prognosticators have said that in prior years, other prognosticators usually saying about interest rates.

So I don’t know that we've really seen much although I will say the very small sample a fourth quarter average Cap rate was 8.7. First quarter average cap rate was 8.5, clearly higher numbers, but we don’t think that’s necessarily indicative of any long term trend at this point..

Okay. That’s helpful.

Then Bill thanks again for the new disclosure related to CapEx, it looked as if the acquisition CapEx was high during the quarter, I think it was about as high as it was all last year, does that have to be with the redevelopment spend on the Portland building you acquired?.

The acquisition CapEx in this slide is related to acquisitions we've acquired over the past 12 months and the actual spent hitting our books. So, it wasn’t necessarily all related to the redevelopment this quarter.

It was some of it related to that, but I do want to point out too as we calculate Cap rates if there is any acquisition CapEx in there that is included in our Cap rate calculation as well..

Okay.

And it just looked like the $1.2 million in the three months ended March 31, versus the $1.4 million spend all year last year was a little bit off so that has to do with acquisitions like you had in prior years as well is that correct?.

We’ll adjust it within the last 12 months. So as we define in acquisition CapEx as CapEx related that we underwrite the spend in the first 12 months. So as we spend that CapEx it will impact this disclosure..

Okay. That helps.

And then just one more staying with you Bill, we've talked about your targeted leverage being five to six times on a debt-to-basis, but do you guys have a target for debt plus preferred to EBITDA? I think you're around 6.5 times now?.

Well it’s -- we look at debt to EBITDA as our primary leverage metric, but we also look at fixed charge coverage as that factors in the preferred. There is the 9% Series A that is coming due in November.

So we're going to look hard at potentially calling that in November, but really we focus on debt to EBITDA and fixed charge coverage ratio which we feel captures the preferred..

Alright. Great. Thanks guys. .

Thank you..

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

Thanks. Ben, can you talk a little bit more about your earlier JV comments.

I know this is not an option you want to pursue, but how long are you willing to wait for the equity markets now and what point will you decide to pursue the Tech transaction?.

Well, again as I said earlier, I think that we would be and again we don’t need issuing equity at this point, but I think we would be comfortable somewhere in the vicinity of where we're trading today that issuing equity would be very accretive to our financial metrics and very beneficial to our shareholders.

So, that plus the fact that we're having success in the disposition area, we were successful in the preferred offering. All of those combined to push JVs as an option back. So I wouldn’t say it's off the table, but just its moved down, its under the table right now. Now it's just moved down in the order of hierarchy.

At this point, again we think that the negatives associated with the joint venture, the confusion of the balance sheet, another cook in the kitchen and a variety of other things, outweigh the potential advantages of it as compared to other sources of capital..

And if we need to -- we can continue to dispose of smaller to medium sized portfolios going forward and breach the areas above and beyond the $102 million, $100 million to $200 million of dispositions this year..

Okay. Is that a way -- I'll just say maybe that you could maybe talk a little bit about your disposition activity, you have $100 million to $200 million this year and Bill I think you mentioned you can continue to do something towards that level.

Is that a good way to think about that you have some type of small ongoing disposition activity going forward?.

I think I was actually getting ready to answer that, the disposition activity that we're undertaking, the portfolio is even not assets that we don’t think are good assets in our portfolio. We're demonstrating a value creation by selling these. We're extending our ability to acquire assets, but we're very much committed to being a net acquirer.

So again the assets that we're selling in the portfolios are not -- they're neither the cream or the bottom.

They're representative of our portfolio and therefore we would be perfectly happy holding these assets, but we've decided that and listening to interest of other people etcetera that it makes sense for us to demonstrate this value creation as well as to extend our capacity to acquire this year through dispositions.

I don’t know that you would see us necessarily be a continued disposer of assets going forward. There certainly will be some level, but I don’t think it's going to be as programmatic as perhaps this year..

Great. Thank you..

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

Hey guys, good morning. Just a couple quick ones for me. First I guess regarding the regarding the preferred issuance this quarter, obviously the other issue is it redeemable until the fall and you have other lower cost sources of capital in the interim.

Did you guys see some sort of dislocation in the preferred market that you wanted to take advantage of pricing wise or could you just walk through why you did the preferred issuance so early in the year?.

I think preferred is it's called preferred equity and it is equity because you never have to pay it back. So we certainly view it as leveraging our common equity. So we're very comfortable with issuance of preferred equity up to some level our capital. So I think in the past we've suggested maybe as much as 10% or 15%.

We're right now I think around 10%. Having said that, it's certainly expensive relative to debt and we view it though it as way of extending our acquisition capacity. It was very accretive as a form of equity and then leveraging our common equity. So we're comfortable with issuing it. Now we did not issue a tremendous amount of it.

We issued an amount that is near to the amount of the callable preferred in the fall and amount that we felt we're comfortable that between it and our dispositions activity would provide us all the capital that we needed this year should we stay out of the common equity market..

Got it.

Appreciate it and then one last one for me, it looks like the intangible lease amortization burned off a little bit sequentially, I guess possibly we would be thinking about that trending throughout the year?.

You can probably run rate that number maybe increase it a little bit. It all depends on the type of leases we acquire and where those are marked day one from a GAAP perspective. So you could model it run rate this quarter maybe increase it a little bit as we continue through the year..

All right. Great. Thanks. Appreciate it..

You're welcome..

[Operator Instructions] Our next question comes from line Dan Donlan with Ladenburg Thalmann. Please proceed with your question..

Thank you and good morning.

Just wanted to talk about the lease role going forward, are there any [audio gap] notable move outs that you guys are projecting over the next three quarters?.

Well as we said earlier, there is going to be for the year 70% retention with 49% in Q1 and a sizable lease role in Q1, that retention rate for the rest of the year will be north of 70%.

And it would, given the size of our portfolio and the granularity of it, there's nothing in the portfolio or certainly nothing rolling that we know about that we deem significant with regard to the operational portfolio..

Okay. That's helpful.

And then as we look at your occupancy Ben, been down 94.8%, but down about 95.4%, last year around this time, are we getting close to market level occupancy you think to your portfolio or do you think we need close to maybe 50 or to 100 basis points lower occupancy before you're kind of at that market level, just your thoughts there?.

Our portfolio has consistently operated at occupancies above the general markets and markets in which we operate in. As the national occupancy rate continues to creep up, I think we think generally that we will continue to outperform the national market.

So there's a bunch of different statistics out there, but I don't think that the level that we're at today is necessarily or is probably the best indicator of where we'll be going forward.

We've always said the 94% to 96%, I think we've always said that as a raise we operate in and so we view the current levels of occupancy as is not unusual for the portfolio..

But you've been in the high 90s before and I think that's eaten a little bit away the same stores.

But I guess it sounds like you feel like should be -- that's been a tailwind for you guys or excuse me haven’t for you guys and maybe it's going come less in future I guess is what I am asking?.

Well I think the same-store NOI dynamic, where we're acquiring largely 100% occupied buildings there has been -- we've certainly acquired some degree of vacancy on the last few months anyway last quarters.

But we're still focused on buying primarily 100% occupied buildings, so that same-store dynamic whether the occupancy normalization will continue to occur where you have rent growth and rent rolls to market fighting against the occupancy normalization.

So our Circa 1% same-store NOI growth this month is pretty strong actually when you consider the fact that we're normalizing occupancy on those cohorts that have been recently acquired..

Okay. Makes sense and then as far as your comments on online retailers, given that your portfolios….

Supply chain for a factory right next door, I think a lot of buildings end up being utilized for both eCommerce and for more normal supply chain activity.

I don’t think there is -- I think the market would like there to be if you drive up and go over there is an eCommerce building, but the fact of the matter is what goes on inside the building may differentiate what type -- or does differentiate what type of building it is and what -- and the nature of things that go in terms of material handling equipment, voice activated checking and RFID and things like that.

All those things are changing inside the building, but the buildings themselves again that 1975 build or whatever is probably going to be sufficient for most people.

At the bleeding edge you have the Amazon’s of the world who are building very special or much more special purpose expensive building to do something specific, but I don’t think that's necessary.

If you remember the trends for years ago, where everybody was trying to build million square footers and now everyone is talking about building 100,000 square foot as near City Centers.

So as these ways the bleeding there sort of wash back and forth, the 200,000 to 350,000 footers, which make up the bulk of our asset continue to be in the middle as to way washes back and forth around the peripheral. These types of buildings have been used and will be used.

The other thing I would say about the portfolio's age is for better, for worse with the exception of I think Duke was a relevant modern portfolio compared to the rest of the world. Most of the industrial reach average ages in the 20s. So it's not like there is any great rush out there.

These are highly occupied buildings again across all the public REITs and they have -- again most of these buildings are average ages in the mid 20 because they're still functional..

Okay. That's very helpful. Last question on the non-recurring CapEx, I think that mostly roof replacement we're just curious how that is going to trend over time. If I look back at Page 16 which appreciate the new disclosure there, it's gone up every year.

It looks like I’m sure the secondary run rate in the first quarter, but it's is going to come in below -- our run rate is going to come in below 15. So how do you think that trends over time? Could it be really, really lumpy or basically be, go ahead..

There is certainly going to be some lumpiness. These are non-recurring items. It's trended up primarily due to the size of the portfolio, but as we said before on a per square foot basis, total CapEx has run, we underwrite $0.25 on total CapEx and that is run below that every year since we went public.

There could be spikes where some years it runs north of $0.25 and some years as we've seen in 2015 and prior to that it's run below that. So it's certainly going to increase-decrease depending on the type of activity or age of some of the rooms we have..

But as Bill points out as the portfolio increases in size on a portfolio basis, these expenditures will smooth out and become probably less spiky as the portfolio grows..

Okay. And when you say total CapEx are you including in terms of $0.25, are you including the acquisition and building expenses in that too or is that….

Just recurring and non-recurring. The building expansion is really development and the acquisition we touched on earlier it's really you get a one for one purchase price deduct for that..

Sure, sure. Got you. Thanks guys. Appreciate it..

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

Hi good morning.

Just a quick one, did you guys give the characteristics of the portfolio you’re putting on the market for sale?.

Yes. We've always before we decided what we're going to try and sell, we spent some time talking to the big brokerage houses that are active in the industrial markets and the sweet spot today for the buyer pool again it's probably related to availability financing is in the $30 million to $80 million.

So things could be financed with regional bank etcetera and since it's going to be focused to regional lenders, it probably makes sense for ease of purchase and for what we think people are looking for to be geographically product.

So we put together four or five cities of collection of assets that could be driven in a day etcetera and look at those assets, those collections of assets and decided to put high 81, high 85 portfolio corridor portfolio on the market and the Carolina and Georgia. And so that’s the -- that’s the original focus.

If we as Bill suggested we might bring other portfolios to the market they will have the same characteristics geographic proximity. One of the duties of having 300 assets is we do have collections of assets in geographic proximity. So it's not a huge stress for us to put together those portfolios..

I would just add that these are representative of the rest of the portfolio in terms of quality if I think..

And these are warehouse assets right, not flex or….

That’s right..

Thank you..

Your next question comes from the line of Michael Mueller with JPMorgan. Please proceed with your question..

Yeah, hi going back to equity for a second, I know you're not planning on raising any equity outside of sales and stuff over the near term, but do you see yourselves given the pipeline using the ATM at all or anything like that in Calendar 2016 even if it’s third, fourth quarter?.

Mike, it's an excellent question, Obviously we're seeing lots of opportunity out there. We do have a lot of liquidity and available capital. We're operating the lower ends of our leverage ranges, but certainly as we develop opportunity and look at our sources and uses we're not opposed to issuing equity.

I think its reasonably likely that our first equity issuance would be in a follow on as opposed to an ATM but that’s decision that hasn’t been made but having I think the first and foremost is at this point, we don’t -- if we raised a $1 of equity today, we would put it on our balance sheet as cash.

We don’t have -- unlike a lot of REITs we've not built up a significant amount of revolver balance a little of cool area that 1.4% debt since we're operating without our revolver balance when we -- if and we’re looking for additional sources of capital it would be to fund acquisitions..

Okay, but if the pipeline is moving along, do you see anything in 2016 or no?.

We see lots of accretive acquisitions..

As Ben said in his prepared remarks we're going to be prudent allocators of capital and look at all sources and uses. So we're certainly happy with the share price appreciation over the last couple of months, but we're going to look at equity, look at preferred, look at asset dispositions as all sources of equity for the various uses..

Okay. Thanks..

Our next question is a follow-up question from Sheila McGrath from Evercore. Please proceed with your question..

Ben, year-over-year FFO was pretty strong the last two quarters, I’m just wondering how we should think about dividend growth? Any thoughts in picking up the dividend growth?.

Obviously it's a little bit of a legacy from our IPO. We’ve always been a very high dividend payer, dramatically higher than the other industrial REITs and have had not always, but have a relatively high payout ratio today.

The capital that we would provide for acquisition activity by retaining earnings is obviously the cheapest form of capital that we can derive. So combination of things, the safety of the dividend by lowering the payout ratio and maybe being able to use a little of that internally generated capital are attractive things to us.

So what we've said in the past and will continue to say is we're moderating the growth of our dividend in order to again retain a little bit more capital, lower that payout ratio a little bit. I think we're committed to being a dividend increase, but at a very much moderate rate for the foreseeable future..

And is there a target payout ratio that you have in mind? Just over time are you trying to get to a certain level or a percent of AFFO?.

I think we would like to see it under 80, but I don’t know that we have a promulgated number at this point..

Okay. Great. Thank you..

Thank you Sheila..

[Operator Instructions] Thank you. We've reached the end of the question-and-answer session. Mr. Butcher, I would now like to turn the floor back over to you for closing comments..

Thank you for your questions today. We enjoyed the give and take. The STAG machine is fully built out and ready to perform.

Resulting in operating leverage we now enjoy, combined with our ability to acquire assets that have been relative to us and the continued availability of attractively priced debt, should provide for compelling growth this year and going forward. We continue to have strong conviction in the breadth and strength of the opportunities that lie ahead.

We appreciate your time this morning and your continued support of STAG. Thank you..

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