Matts Pinard - Vice President, Investor Relations Benjamin Butcher - Chairman, President and Chief Executive Officer William Crooker - Chief Financial Officer, Executive Vice President and Treasurer Stephen Mecke - Chief Operating Officer and Executive Vice President.

Gaurav Mehta - Cantor Fitzgerald Sheila McGrath - Evercore ISI Joshua Dennerlein - Bank of America Merrill Lynch Michael Carroll - RBC Capital Markets LLC Barry Oxford - D.A. Davidson Mitch Germain - JMP Securities Michael Mueller - JPMorgan Tom Lesnick - Capital One Securities.

Greetings and welcome to the STAG Industrial Fourth 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 pleasure to introduce your host Matts Pinard, Vice President of Investor Relations. Thank you, Mr. Pinard. You may begin..

Thank you. Welcome to STAG Industrial’s conference call covering the fourth 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 related 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, Friday, February 17, 2017. 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 fourth quarter earnings call for STAG Industrial. We’re pleased to have you join us and look forward to telling you about the fourth quarter results.

Presenting today in addition to myself will be, Bill Crooker, our Chief Financial Officer, who will be discussing 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. The macro events of the fourth quarter dominated the headlines and significantly impacted the REIT market. Following the presidential election, the broad equity markets rallied and the 10-year treasury rate spiked to a two-year high of 2.6%.

This key interest rate has settled back and its future course remains to some degree unknown. However, we are not overly concerned about a potential rise in interest rates for several reasons. First, we have a long duration, well-laddered, and almost entirely fixed rate balance sheet.

Second, a rise in interest rates is likely the result of continued economic growth, good for both rents and occupancy of our buildings. Third, our acquisitions remain accretive with a moderate rise in interest rates. Fourth, our principal competition, which is local private buyers to acquire buildings are more dependent on leverage than we are.

Interest rate increases will impact them more adversely than us. The Trump Presidency has also brought a lot of speculation around potential policy changes that may impact trade. As an owner of industrial assets that serve U.S. consumer demand, we believe the marginal changes in trade will not significantly impact the demand for our buildings. The U.S.

economy is very insular and the U.S. consumer will still demand goods regardless of where they are produced. The fourth quarter capped off a very strong year for STAG. In addition to 2016 being the largest acquisition year for STAG, we also sold our first significant portfolio as a public company.

As we expected, this portfolio sale demonstrated the value creation inherent in the execution of our investment thesis, aggregating in individual industrial assets with binary risk cash flows into a diversified portfolio.

This portfolio disposition consisted of six assets that were representative of the overall STAG portfolio of more than 300 assets, consistent on parameters such as building size, age, lease term, and credit quality. The portfolio closed at a 6.9% cap rate, which compares to the going-in acquisition cap rate for these assets of 9.2%.

In the last 12 months, we have individually acquired four assets in the same geographic location with similar building and tenant characteristics for an average cap rate of 8.4%. We continue to see attractive opportunities for acquisitions, as we look broadly across U.S. industrial landscape.

Our pipeline sits at $1.8 billion and consists primarily of single tenant industrial buildings with the same general parameters of the buildings we’ve been acquiring over the past year. Because of this persisting opportunity, we expect to acquire between $500 million and $600 million of these accretive transactions in 2017.

On the operation side of the business, STAG continues to benefit from the strong industrial fundamentals. As we have discussed in previous quarters, the growth of e-commerce continues to be an incremental demand driver for our space.

We are seeing strong tenant demand for our buildings, declining vacancy, and rising rents across the markets we operate in. Historically, supply has not been an issue in our markets. We’re seeing limited new supply in our markets and that supply tends to be build-to-suite activity as opposed to speculative development.

With these tailwinds, we have delivered another great quarter on the operational side. Our principal focus continues to be on the bottom line and we are happy to report both our quarterly and annual FFO per share growth. With that, I’ll turn it over to Bill to walk through our fourth quarter results..

Thank you, Ben. Good morning, everyone. The fourth quarter results demonstrate our focus on execution and the strength of the industrial market. The acquisition volume closed this quarter was the largest in the company’s history. The previously messaged portfolio disposition has closed, and our operational results display the strength of the portfolio.

During the quarter, we acquired 24 buildings for a purchase price of $220 million with a weighted average cap rate of 7.7%. For the year, we acquired 47 buildings for $472 million representing a 7.9% cap rate. These acquisitions are consistent with our prior acquisitions in terms of tenant and asset quality, as well as deal parameters.

As Ben noted, we expect to close between $500 million and $600 million in 2017 with stabilized cap rates ranging between 7.5% and 8%. During the fourth quarter, we disposed of 10 buildings for a $103 million, including the six-building portfolio Ben discussed.

We expect to have non-core and opportunistic dispositions of between $40 million and $80 million in 2017. At quarter end, we owned 314 buildings with a total of 61 million square feet. Occupancy for the operating portfolio stands at 95.7% with an average lease term of 4.2 years.

The quarter’s operating portfolio, cash, and GAAP rent change for signed leases were up 6% and 10%, respectively. We had a retention rate of 69.1% on the 1.8 million square feet expiring in the fourth quarter. The operating portfolio’s cash and GAAP rent change for the retained tenants were both up 2% and 11%, respectively.

We expect retention for the full-year 2017 to be approximately 70%. From an operation standpoint, cash NOI for the quarter grew by 13% from the prior year. Same-store cash NOI grew by approximately 2.8% over the prior year fourth quarter and grew 2.6% for the year. We expect same-store cash NOI to be flat to slightly negative in 2017.

This is in large part due to the – due to acquiring 100% occupied buildings, which stabilized an occupancy rate of less than 100%. Core FFO grew by 17% compared to the fourth quarter of 2015. On a per share basis, Core FFO was $0.42 per share, an increase of approximately 5% compared to last year.

This quarter represent our highest per share quarter in the company’s history. On an annual basis, core FFO per share increased 6%. The growth in our per share metrics remains a focus for our company. We finished the year at $30.3 million in G&A, excluding the one-time severance charge of $3.1 million.

We anticipate G&A will range between $33 million and $34 million for 2017. This 10% increase of year-over-year is primarily related to three items. First, 2% of this increase is related to the incremental G&A associated with projected acquisitions in overall growth in the portfolio.

Second, 4% of the increase is related to cost of living and other public company expenses. And lastly, 4% of the increase is related to seasoning of the company’s non-cash compensation awards. This will be the last year of outsized additions to G&A related to these non-cash compensation awards. Moving to the balance sheet.

Our balance sheet continues to be quite strong and in line with our BBB investment grade rating. On November 2, we fully repaid our series A preferred that had a coupon of 9% and a notional balance of $69 million.

At quarter end, our immediately available liquidity was $431 million, our net debt to run rate EBITDA was 5.1 times, and our fixed charge coverage ratio was 3.3 times. At quarter end, we had approximately $1 billion of debt outstanding with a weighted average maturity of 5.6 years and a weighted average interest rate of 3.75%.

All of our debt is either fixed rate or has been swapped to a fixed rate with the exception of our revolver. During the fourth quarter, we sold 7.9 million shares under our ATM program with gross proceeds of $182 million and a weighted average share price of $23.07.

Subsequent to quarter end, we sold an additional 1.7 million shares with gross proceeds of $39 million. I will now turn it back over to Ben..

Thanks, Bill. STAG had a very successful 2016 not only with our annual results, but also with the challenges we met and overcame. Early in the year, we were challenged by difficult pricing for our common equity and resulting need to identify and execute alternative equity capital sources.

We met this challenge with our successful preferred offering and accretive portfolio sale. We were very disciplined throughout the year in raising common equity. At year end, our balance sheet is as strong as ever positioning us to capitalize on opportunities we see available to us in 2017.

We continued to demonstrate our focus on the bottom line delivering another solid year for our investors. As Bill noted, our core FFO per share grew by 5% in the fourth quarter and grew by 6% for the year.

This continued focus of demonstrating capital discipline combined with the attractive industrial fundamentals and the abundance of accretive acquisition opportunities makes 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. Ladies and gentlemen at this question we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of David Rodgers with Robert W. Baird. Please proceed with your question..

Hey, good morning, guys. This is Dick here with Dave. Quick question on the acquisitions.

What’s your projected IRR of your four Q investments? And how does that compare, would you say to 12 months ago?.

Well, I mean, we – that’s – IRR is an important metric for us as we look at the long-term benefit to our shareholders. We also look at things like average cash on cash, FFO per share over five years, et cetera. But the IRR is consistent with what we bought throughout the year.

Cap rates, which obviously, are reported in our headline reports are point in time measures and so variability around the cap rates from quarter-to-quarter are probably less indicative of the returns we expect from those transactions.

They’re are pretty consistent throughout the – throughout from quarter-to-quarter and through the year in terms of what we’re expecting.

Did we message an IRR for the fourth quarter acquisition?.

We did not, but….

Okay..

But the expectation is those will be on a ten-year levered IRB greater than 10%..

Well, okay, great.

In the acquisition pipeline, are you guys seeing more portfolios out there? And as the change in the administration, or the change in interest rates that you guys talked about to start changing the opinions of sellers out there?.

I don’t think that we’ve seen much change in seller expectations due to the Trump presidency. I think there’s a lot of uncertainty. But I don’t think it’s been reflected yet in any change in seller behavior or any demonstrable change in seller. And also we don’t see any real change in seller behavior because of interest rate changes.

I think things are pretty, pretty static. I mean, you certainly could surmise that the potential changes in the tax code could have an impact on sellers and their desire to operate under, perhaps a different tax regime with lower cap gains rates in the future. But we really haven’t seen any change thus far..

Okay, great.

And a quick modeling question, are you guys expecting any major leases in 2017 with downtime?.

Yes, I mean, we’re – our business is – we’re not buying zero risk transactions. We have – we’re baking cake and we have got to break some eggs. So we’re expecting $0.70 [ph] tenant retention. I think, our downtime expectations are – remain a little shorter than long-term.

I think long-term their average is around 12 months, or probably closer to nine months today because of the health of – general health of the markets, but our underwriting is reflective of current market conditions..

Awesome. Thanks, guys. Great quarter..

Thank you..

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

Yes, great. Thanks. Good morning.

Following up on your comments on impact of high rates on your competitors more than your company, I was wondering if you have seen any changes in who you’re competing with in your acquisition pipeline? Are you seeing smaller buyers not being able to buy as much as they were buying before their rates went up?.

Yes, I don’t think we’re really seeing that much change in the – we obviously operate across a great variety of markets.

And so, in the primary markets, we’re still seeing the same kind of competitors there, certainly larger funds and probably a little bit more passive equity as we move through the secondary markets, I think, which is where most of the opportunity we find is, we’re seeing the same kind of buyer. I don’t think there’s much change in the buyer make up.

Steve, do you?.

Yes, we haven’t really the – as Ben mentioned, the increase in interest rates while they’ve been dramatically, they haven’t really impacted the smaller buyers quite yet. So we’re still seeing roughly the same number of bidders on each deal that we’re bidding on..

Okay.

And I guess as you think about your own guidance for 2017, $500 million to $600 million, what brings you on the lower-end and upper-end of the guidance? Does it depend on availability of capital or availability of the product?.

Well, we believe that since we post such wonderful quarters continuously that our access to capital will be undiminished as we’ve got through the year. So I would say that and we also – our pipeline at a $1.8 billion is rich and full of opportunity. I didn’t really answer fully the question before.

We – make up of our pipeline remains primarily granular individual transactions, 80% of the pipeline something like that is individual granular transaction. So we’re still seeing the same kind of opportunity that we have seen.

I think the development of our and the maturation of our staff and our position in the marketplace is getting us more transactions to look at, if you will, better transactions to look at or a better chance at acquiring those transactions..

Okay.

And then, I guess, lastly, I was wondering if you could comment on what you’re hearing from your tenants and are you seeing any pushback on rent increases from any of your tenants?.

The tenant from our times continues to be very positive. I would say that they’re more decisive and perhaps, as you’ve seen in our lease term, willing to go longer-term. There’s always negotiation surrounding rate, but it’s not really changed markedly..

Gaurav, to that point too, we’ve also historically seen 1% to 2% bumps in leases we’re signing. And over the past several months, we’re signing leases with 2% to 3% bumps embedded in those..

Okay. Thank you..

Thank you..

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

Good morning. Ben you mentioned $40 million….

Good morning, Sheila..

Good morning.

You mentioned $40 million to $80 million of dispositions, can you talk about your expectations for cap rates on those, and what are the criteria for selecting those specific buildings for sale?.

So we have – we generally have one single criteria for disposing of buildings. And that is the building is worth more to somebody else than it is to us. And there’s sort of two buckets that that falls into.

In the fourth quarter, obviously, we did a portfolio sale, which was a more of an establishment of value and sourcing of equity capital to continue our acquisitions. But the other two buckets, we don’t expect to be doing that in 2017.

The other two buckets would be opportunistic, where we have a building that’s vacant or not vacant, where tenants wants to buy it or there’s an alternate use for the land or something else, where the building is demonstrably somebody who want to pay more than we think it’s worth to us on a long-term whole as a leased building.

And we expect to have a number of those. We have some of those under – we’re in process right now. The other is buildings – this – the deal is primarily with our flex office portfolio that are simply not part of the – our long-term strategy and we’re opportunistically selling those.

And as we’ve discussed before, we expect to exit that portion of the portfolio over time. It’s still in the very low single digits in both ABR and square footage..

And as part of the dispositions in Q4, Sheila, we had three opportunistic dispositions absent the portfolio sale, which all achieved 10% or greater unlevered IRRs..

Okay, great. And then you don’t have much debt maturing this year, but you have some early next year Connecticut General Life and pretty high coupon.

Is that – are you able to prepay that this year, and could you just give us that?.

Yes. Well, they open for a free prepayment in the summer. And so we will be looking to using our capital structure to repay those loans. It is a big opportunity for us in terms of cash flow generation. They are 6%-plus coupons, yes..

And if you refinance those now, where do you think you could execute like if you don’t…?.

Yes, if you execute it, we can go by five-year, seven-year, 10-year, we’re still looking into that. But a five-year unsecured term loan, we think would be between right around 3.5% – 3.25% to 3.5% and then on a seven-year term 3.75% to 4%..

Okay, great. Thank you..

Yes, thank you..

Our next question comes from the line of Joshua Dennerlein from Bank of America Merrill Lynch. Please proceed with your question..

Hey, good morning, guys. Two questions. One I was just curious on maybe where you’re expiring rents in 2017 are versus maybe the the current market rent. And then I also saw that you bought an asset in Kansas City, looks like it is vacant for $23 million.

What’s the back story on that acquisition? And did you backfill the space already?.

So, all right. One of the features of operating primarily in the secondary markets is lower volatility with regard to rent. So we think our overall portfolio is fairly close is –fairly close to market. So our expectations for 2017 indeed for the years beyond are that our rents – rolling rents are not very far off from market.

The building that we bought in outside Kansas City is a – was a transaction of sort of a super Class A branded facility that a seller was not interested in going to the lease up. We were able to buy at a transaction cost to us that will deliver to us the returns that we’re trying to deliver to our shareholders.

So although, vacant asset, we’re still expecting to achieve the 9% to 10% 10-year levered IRR. And the answer is, we have some prospects, but we have not signed a lease for that building..

Okay, great. Thank you..

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

Yes, thanks. Can you guys provide a little bit more color on the interest you’re receiving from buyers in your asset sales, I guess, the ones that you’ve completed this quarter and the planned sales going forward.

Are these more owner operator type buyers, or is there a institutional interest in some of these assets?.

No, the institutional interest would be if we signed a very long-term lease with investment grade credit, might be – the asset might be worth more. I think most of the opportunistic transactions that we’re looking to sell are more of the user interest. We have a transaction in central New Jersey.

We bought and made sense to us buying low $50 a square foot. And there’s a user shown up a significantly higher per square foot number, because it’s – they want to control their space as just how they operate, et cetera..

Yes. And would you….

But we saw some institutional interest in the portfolio disposition, Mike..

Okay And then would you be willing to put another portfolio together to sell to the marketplace, or they just kind of one-time thing?.

It is a arrow in the quiver of equity capital sourcing. It is not our favorite, because there we are – the sale of the portfolio is, we believe is dilutive to us in the short-term until we redeploy that capital. Our favorite choice for sourcing equity capital is the issuance of common equity.

And we’re very comfortable issuing common equity at current pricing..

Okay.

And then is a good way to think about it is, how many dispositions annually is that kind of the goal you have this year? Is that a good run rate going forward?.

I think it’s going to be dependent on what assets are coming up that year and who wants to buy them. I think, we have a message certainly that we are actively working to reduce our flex office portfolio down to eventually zero. So I think that that will continue.

But the opportunistic are simply that opportunistic, I don’t think it’s a bad number to think that sort of in a mid to – somewhere between zero and $100 million a year is not a bad number, somewhere in the midpoint of that is probably not a bad number..

Okay, great. Thank you..

Our next question comes from the line of Barry Oxford with D.A. Davidson. Please proceed with your question..

Great, thanks, guys. Two questions.

When you look at the acquisition pipeline, you guys indicated that you found either more opportunity or more attractive yields in the secondary market, which MSAs might we see you guys adding to in 2017, as you look at that pipeline?.

The ones where the best skills are. So we’re, as I – one of my favorite term is agnosticity. We continue to demonstrate our agnosticity as the market. We’re looking broadly across certainly the top 60, maybe 70 markets to find transactions that will produce the best cash flow returns for our shareholders.

It really is a transaction by transaction within the context of the market and the submarket, et cetera, exercise. We have a very broad coverage of those markets and are looking for those assets. And they maybe in Ontario, California and they maybe in Dayton, Ohio.

But we’re – we don’t consider Ontario a good market and Dayton a bad market, they’re just different. And you can find a transaction in Dayton. They will produce really strong cash flows for you over the next 20 years, and you maybe able to find that asset in Ontario, California.

The problem is, obviously, what other people are willing to pay for cash flow that happens to be coming from the building in Ontario versus the building coming in Dayton. We’re agnostic as to where the cash flow is coming from. We’re only interested in the cash flow, again, over a very long period of time..

Right.

Is there more product for sale in any particular MSA, or look it’s kind of robust in all of them, no one second-tier MSA has substantially more product for sale?.

Yes, one of the things that we mentioned in the past is, the U.S. industrial market is circa trillion dollars of fund – sort of fungible assets. And those – that trillion dollars is owned by a very large number of people. ProLogis had maybe 2.5% of that total is the largest owner. So you have a lot of very small sellers.

And the feature of these small sellers is that, they have uncorrelated reasons to sell. They’re not all looking at 10-year treasury curves, and potential tax law changes, and making their determination of whether they buy or hold.

They have and I know facetiously talking about, they want to buy a boat, or they want send their kid to college, or they don’t want their partner. The reasons why they sell that are relatively uncorrelated two of the other sellers or to macro conditions. So they tend to pop up all the time in all across the markets..

Okay. Last question. If we – if you were to look at your same-store NOI for 2017 and said, it would have to be on the portfolio that you guys have held for two years or greater. Would that still be relatively flat, or would you be looking for more same-store NOI out of that….

So the occupancy normalization, if you will, that occurs when you buy a 100% occupied building, we say we bought 100 buildings. And at some point in the future, that is only 94 of them were occupied, or 95 of them. So we – on a portfolio basis, we’ve gone from a 100% occupancy to 94%, 95% occupancy.

The period over which that occurs by our estimation is somewhere around four or five years. And so – and but obviously depends on the nature of the cohorts that bought four or five years is whether or not that actually occurs. But the – the impact on same-store is going to take longer than two years.

So portfolio of the same-store is two years old already has had some occupancy normalization occurred probably not very much. But it certainly doesn’t have as much of their occupancy normalization as a portfolio that you bought yesterday, because there are some leases that will have rolled in that first two years.

But we would still expect a fair amount of this headwind that occurs in occupancy normalization to be there. Our ability to show same-store NOI growth is a feature of rental rate increases or rent increases outpacing this occupancy normalization obviously reflective of a very strong markets that we’re operating in.

We’re not – as we’ve discussed before, a lot of our competitors have shown strong same-store NOI numbers on occupancy gains. Obviously, the offset is true for us, because we normally buy 100% occupied buildings..

Great. Thanks for the color, guys..

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

Good morning, guys. So, Ben, a couple of years ago I know you increased the size of the acquisition team.

And one of the premises was really to kind of move Western and noticing more recent deals not really being in that area, is it just a function of price inventory some commentary I would appreciate it?.

Yes, just because JMPs had – headquarter on the West Coast, doesn’t mean we don’t like the West Coast. We’re very anxious to find transactions across all markets. And we have, as our staff has matured in place, our ability to identify transactions in West of the Mississippi is getting better.

We’re actually – we are reordering our acquisition assignments a little bit by state to have some more presence out there. But you’re right. I mean. a lot of the issues are the population West of the Mississippi largely lies on the West Coast and the West Coast is a – Washington, Oregon in California are very tightly priced markets.

And we’re happy to buy in those markets, but only if we can develop the cash flow returns that we’re looking for our shareholders. If other people are willing to pay more for cash flow simply because it originates from one of those states.

We’re going to look to places where you can buy cash flow more cheaply and deliver more cash flow to our shareholders..

Got you. And then just a quick question on the capital plan.

Do you guys have any notes that you guys – that you have commitments on right now that you just haven’t placed yet, or was that any incremental borrowing will be announced in the future?.

Yes, we – I’m sorry..

Yes, any incremental borrowing would be announced in the future. We did draw on that term loan C. in the fourth quarter, which we had fully swapped out for 2.69% five-year note, but any future borrowings will be new borrowings..

Great. Thank you..

[Operator Instructions] Our next question comes from the line of Michael Mueller from JPMorgan. Please proceed with your question..

Hi, great, thanks, and I apologize if I missed this.

But if you’re doing based on guidance call it $500 million of net acquisition, I mean how are you thinking about equity as you look out through 2017 ATM usage like one-off offering to what level and how are you thinking about that?.

So we’re – as you know, we’re very proud of and adherent to keeping a very healthy balance sheet. We – I think our debt to – the run rate debt to EBITDA is 5.1. We have – in the past year I think been very clear that we prefer to use ATM issuance. We obviously prefer common equity and we prefer to use ATM issuance.

We’ve been very successful in issuing through the ATM. We kind of think about debt and equity the margin is sort of 60% equity, 40% debt. That will keep us out or around that number that we’ve talked about the debt to EBITDA in the 5 to 5.5. The range is 5 to 6. We operate most of the time between 5 and 5.5.

So I think you will see us continue to be active in the ATM, or continue to use the ATM as our principal source of our equity capital..

Got it, okay. And then switching gears for a second going to CapEx, two questions here.

Number one, anything as you look at trends for 2015 to 2016, anything that you expect to be different in terms of the magnitude of CapEx in 2017? And then just for clarification, what exactly falls into the acquisition Cap Ex bucket?.

Yes. So, Mike, the trends for CapEx will probably be pretty consistent and we generally average $0.25 to $0.30 on a per square foot basis. So as the portfolio grows, that CapEx number will grow as well, but be consistent on our per square foot basis. And the acquisition CapEx is CapEx that that we anticipate to spend in the first year.

It’s really an item that’s identified at acquisition, which the seller can either spend the dollars on and we can pay more for the building, or we pay less for the building and then spend the dollars ourselves. We prefer the second option, because we can oversee the capital work and make sure it’s done correctly.

But that acquisition CapEx is reflected in our cap rates reflectively – effectively reducing our cap rates..

Got it. Okay, that’s it. Thank you..

Thank you, Mike..

Thanks, Mike..

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

Hey, guys, good morning..

Good morning..

I guess, first, looking at your acquisitions for 4Q, and I know you guys talk a lot about structural vacancy drag on your same-store metrics in the past buying 100% leased assets and whatnot. But the fourth quarter looks like your percentage lease on that pool was 89%.

So how you guys are thinking about buying vacancy going forward and how should we expect potentially same-store to trend off of that?.

Well, obviously that’s one cohort within a continuum of cohorts going back, as we said, it takes us five years or so for that occupancy normalization to occur. So we have one cohort at 89%. As we look forward, we’re not planning on running our acquisitions at 89%, so we can have perhaps occupancy gains, so we can show better same-store numbers.

Our focus in not our principal focus and to some extent our only focus is in delivering cash flow returns to our shareholder, again, whether that’s in – on average FFO per share, on average cash on – cash on cash, on an average IRR something some metric, the variety of metrics we look at it to demonstrate that.

Again I – we’re not going to go out consistently look to buy vacancy in order to have better same-store numbers. We’re going to look to maximize cash flow over time to our shareholders..

Got it. I appreciate that color. And then it seems like there has been one or two comparable portfolio sales recently that are national and of size.

Just wonder if you could comment at all on your observations of those and what do you think about pricing?.

Yes, I mean one of the ones that we get – we hear about frequently is the DRA portfolio. That it was a $1 billion portfolio. It was advertised I think by some people of the e-commerce portfolio, because they had a number of in-fill locations. That portfolio was far less homogeneous in our portfolio.

And I think it range from 15,000 square feet to a 1 million square feet, 500 tenants and 200 buildings, so much more multi tenant. There’s certainly a tremendous amount of assets within that portfolio. We would be very happy to own at the right price. I think that the – I believe that asset – that portfolio traded around at 6.5 cap.

Again, there’s probably a number of assets in that portfolio, we would be happy to own at 6.5 cap, but probably not that many. But the portfolio was – it’s just broader or less homogenous and again one multi-tenant. So I think the cap rate is – for that portfolio was probably appropriate.

So we’re not, I would say, we’re not surprised that it traded at a 6.5 cap. The unmanaged collection of assets as opposed to an operating company like ourselves, where our portfolio was a managed collection of assets, which will – we’ll produce more income than just a collection of assets..

Got it. That’s very helpful. Nice quarters, guys..

Thank you very much..

This does conclude our Q&A section for today. I’d like to hand it over back to management for closing comments..

Thank you for your questions. We’ll continue to execute on our business plan to capitalize on a persisting investment opportunity in single tenant industrial real estate and the ongoing strength of our portfolio. Our goal is and will continue to be delivering best-in-class risk-adjusted returns to our shareholders.

We appreciate your time this morning and your continued support of STAGG..

This does conclude our teleconference for today. You may disconnect your line at this time and have a wonderful day..