Matts Pinard - Vice President of Investor Relations Benjamin Butcher - Chairman of the Board, President, Chief Executive Officer Bill Crooker - Chief Financial Officer, Executive Vice President, Treasurer Steve Mecke - Chief Operating Officer, Executive Vice President Dave King - Executive Vice President, Director of Real Estate Operations.

Sheila McGrath - Evercore Dave Rodgers - Baird Mitch Germain - JMP Securities Tom Lesnick - Capital One Blaine Heck - Wells Fargo Barry Oxford - D.A. Davidson Joshua Dennerlein - Bank of America Merrill Lynch Neil Malkin - RBC Michael Mueller - JPMorgan Bill Crow - Raymond James.

Greetings and welcome to the STAG Industrial first quarter 2017 financial results 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. Sir, you may begin..

Thank you. Welcome to STAG Industrial's conference call covering the first quarter 2017 results. In addition to the press release distributed yesterday, we have 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. STAG Industrial assumes no obligation to update any forward-looking statements. On today's call, you will hear from Ben Butcher, our Chief Executive Officer and Bill Crooker, our Chief Financial Officer. I will now turn the call over to Ben..

Thank you Matts. Good morning everybody and welcome to the first quarter earnings call for STAG Industrial. We are 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 will 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.

Let me start the call by saying that we had another great quarter. Our strategy and investment thesis and remained constant over our six years as a public company.

Our adherence to our strategy/thesis, the execution by our great team and the strong industrial fundamentals that exists in our markets have lead to our strong performance, performance that we expect will continue into the foreseeable future. On a macro level, the first quarter saw a degree of return to the patterns of recent times.

Gridlock in Washington and declining long-term interest rates, the ones that matter to the real estate industry. These patterns bode well for industrial real estate and REITs in general. The industrial sector, on an aggregate basis, continues to perform well, even though by some reports supply demand equilibrium was reached in Q1 2017.

The prior 27 straight quarters of excess demand has resulted in market conditions, i.e. low vacancy that remain very favorable to landlords. Thus supply concerns are more likely to be manifested as a moderation or perhaps cessation of future rent growth rather than some type of market collapse.

As we look forward, we are quite comfortable with our mix of market exposures. CBRE econometric advisors projections for national industrial market has a five-year rent growth at a 2% compounded annual growth rate. The primary markets at a 2.1% five-year CAGR and the six super primary markets at a 1.9% five-year CAGR.

Five-year rent growth for our markets that are covered by CBRE econometric advisors weighted by our exposure to each of these markets is projected at 2.5% CAGR. These projections are consistent with our expectations that the STAG portfolio mix of markets will outperform over portions of the business cycle.

Our buildings serve primary demand in both primary and secondary markets. As expected, our portfolio continued to perform well to start 2017. We executed 900,000 square feet of new leases and 2.7 million square feet of renewal leases. This level of new leasing activity for the first quarter exceeded our full-year total for all of 2016.

On the total of 3.6 million square feet lease during the quarter, we experienced cash rent change and GAAP rent increases of 4% and 10% respectively. Our tenant improvement spend continue be quite low, $0.28 per square foot, on these leases.

In reviewing our earnings release, you may have noted that our tenant retention for the quarter was 51%, lower than our long-term expectations of circa 70%. Our retention leases resulted in cash and GAAP rent increases of 13% and 24%, respectively. High retention is generally a good thing for operating results but not always.

If we were to add back to be no downtime leasing, i.e. where the building is already leased prior to the current tenants departure in the quarter, retention would have been 82%. The new leases for these incremental buildings had a cash roll up of 22.5%. For the full year 2017, we continue to expect retention to be in between 65% and 70%.

On the external growth front, we acquired $100 million of accretive assets at a stabilized cap rate of 8.2%, our largest first quarter acquisition total ever. Perhaps even more significantly, we are scheduled to close between $200 million and $250 million in the second quarter, another historic quarter.

We continue to see attractive opportunities for acquisitions as we look broadly across the U.S. industrial landscape. Our pipeline sits at $2.1 billion and consists primarily of granular single tenant industrial buildings.

The increased pace of acquisitions this year is due in large part to the continuous improvement of our underwriting process and systems. Our investments in the STAG machine are showing results. As a result of this higher first quarter acquisition pace, we are increasing the lower end of our acquisition guidance for 2017.

We now expect to close between $550 million and $600 million of assets in 2017 within the same previously guided stabilized cap rates averaging between 7.5% and 8%. These acquisitions, both closed and projected continue to reflect the parameters of the assets acquired over the last few years.

The level of FFO per share accretion on these acquisitions has been enhanced by a reduced cost of capital. We have continued to utilize our ATM to issue equity as needed to fund our accretive external growth. Over the last three-plus quarters, we have raised nearly $500 million of common equity through this very efficient method of issuance.

Our principal focus continues to be on the bottom line and we are very happy to report another quarter of year-over-year accretion. With that, I will turn it over to Bill to walk you through our first quarter results..

Thank you Ben and good morning everyone. We have been very successful on the acquisition front this quarter and into the second quarter. We closed less than 10% of the transactions we underwrote which is in line with past years, but the number of transactions we have underwritten has increased.

We continue to maintain our pricing discipline as evidenced by the 8.2% stabilized cap rate we achieved in Q1. We close approximately $100 million of acquisitions in Q1 and $21 million thus far in Q2. During the quarter, we disposed of one building for $4 million, which was a non-core asset.

We continue to expect to have non-core and opportunistic dispositions between $40 million and $80 million in 2017. At quarter end, we owned 324 buildings with a total of 63 million square feet. Occupancy for the operating portfolio stands at 95.8% with an average lease term of 4.4 years. Cash NOI for the quarter grew by 14% from the prior year.

Same-store cash NOI decreased by 1.1% over the prior year first quarter, excluding termination income and was up 20 basis points over the same period when including the impact of cash termination income. The quarterly same-store decline was primarily driven by an average occupancy reduction of 50 basis points.

It is important to note that our same-store pool represents only 78% of our total portfolio. The portion of our operating portfolio excluded from our same-store pool is 96% occupied and has annual fix rental bumps of 2%. We expect 2017 annual same-store cash NOI to be down between 1% and 1.5%.

As we have said in the past, our primary focus is on the bottom line core FFO. During Q1, we grew core FFO by 27% compared to the first quarter of 2016. On a diluted per share basis, core FFO was $0.41, an increase of 5.1% compared to last year. This also represented our highest first quarter core FFO per share in the company's history.

The growth in our per share metrics coupled with growth and long-term cash flow remains a primary focus for our company and is a central consideration in our acquisition and operating decision-making. Our G&A for the quarter was $8.8 million, which is not a representative run rate for the year.

The first quarter G&A is seasonably higher due to year-end public company costs. We continue to expect full-year 2017 G&A to be between $33 million and $34 million. If acquisition volume hits the high-end of our guidance range, G&A will likely be on the high end of the guidance range as well.

We have continued to maintain a very strong and flexible balance sheet. In Q1, we raised $69 million of gross proceeds from our ATM and raised an additional $135 million subsequent to quarter end. ATM issuance continues to be a very effective and efficient tool maximizing cash flow for our investors.

At quarter end, our immediately available liquidity was $383 million, our net debt to run rate EBITDA was 5.3 times and our fixed charge coverage ratio was 3.7 times. At quarter end, we had approximately $1.1 billion of debt outstanding with a weighted average maturity of 5.3 years and a weighted average interest rate of 3.7%.

All of our debt is either fixed rate or has been swapped to fixed rate, except for our revolver. Looking forward, we have a very attractive refinancing opportunity in August when we have the ability to refinance $88 million of legacy secured debt bearing a weighted average interest rate of approximately 6%. I will now turn it back over to Ben..

Thanks Bill. STAG sits in an enviable position. We have a proven investment thesis, capital opportunity to execute on it and attractively priced capital to deploy. We will continue to demonstrate discipline in all phases of our business including acquisitions, asset management and balance sheet management.

At the same time, we are cognizant of the current and persisting opportunities to deploy capital, both in our existing portfolio and on accretive acquisitions. Our focus remains on delivering bottom-line performance for our investors. As Bill noted, our core FFO per share grew 5.1% over the first quarter of 2016.

We have consistently demonstrated a commitment to providing our shareholders with not only growth but also income. On a May 1, our Board of Directors approved a dividend increase to $1.41 per share annually.

This continued focus and demonstrated capital discipline combined with 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..

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

Yes. Good morning..

Good morning..

Ben, you raised $135 million subsequent to the end of the quarter.

I am just wondering if you have increased visibility on near-term closings or if there is a portfolio acquisition on the horizon?.

Good morning Sheila. As we discussed in the call, we have a very active second quarter of closings. We are expecting to close $200 million to $250 million. So we are raising in anticipation of those closing. We typically run around 60% equity, 40% debt. So 60% of $250 million is $120 million to $150 million of equity required.

So we are looking to keep our leverage in that lower band of five to 5.5 times, the lower end of our five to six times debt to EBITDA. So we are raising in anticipation of those closings and keeping our leverage at a place where our balance sheet has capacity to handle future growth..

Okay.

And as a follow-up, can you talk about the acquisition market in terms of competition? Since you have been successful in this niche, are you seeing more organized capital as competitors?.

Surprisingly, not really. We know that Duke obviously just came into a bunch of money. But I don't think you will see Duke competing broadly across the markets. We have both the desire and the ability to look broadly across the industrial universe and to identify and underwrite assets across a very wide swath of markets. And that sets us apart.

I don't think there is anybody else who has that capacity to do that. And that allow us to find these accretive acquisitions. As Bill mentioned, we are acquiring about 10% of what we underwrite. But we underwrite less than 30% of what we identify as worth underwriting.

And there is a triage even earlier than that as to whether or not it's even worth considering underwriting. So it's a very selective process but it results in the accretive acquisitions that we fund..

Okay. Thank you..

A long-winded answer. No, I don't think the competition changing very much..

Okay. Great. Thanks.

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

Good morning guys. Ben, just from a bigger picture standpoint, the retention that you talked about and I do hear the caveat that you made to that in terms of maybe quicker move in, but the 65% to 70% range for the year is kind of lower than you have, I think, typically run long-term.

A lot of the issues you have talked about historically would be credit or big tenants outgrowing your space.

But how much of your tenants with outgrowing state, how much are they being reconfigured to different areas, different location, how much of that is impacting decision-making right now?.

So the principal reason remains the building is not big enough. Typically that is because of consolidation. So it's not a 200,000 foot building needing to go to a 225,000 foot. It's a 200,000 foot building and two other 200,000 foot buildings being consolidated in, say, 0.5 million square feet.

So that kind of consolidation continues to be the primary reason that we are seeing. It is not a credit issue where we continue to experience very low --.

We had probably no defaults..

That's right, default related losses in tenancy. So it continues to be tenants who are feeling good about their business and doing positive things in their business and consolidating, M&A activity, et cetera..

Yes. And Dave, more specifically in this quarter, as Ben mentioned, the lower retention was related to these two tenants we backfilled with no downtime. But we didn't see any tenants moving out of the markets per se. It was just moving buildings within the market..

Got you. And then maybe a follow-up on what Sheila had asked that cap rates in the first quarter, closings were a little higher than the range.

Did you see any pull back from private investors as interest rates bounced around late last year, early this year that made it that more compelling for you to be in the market or anything unusual around that scenario?.

Yes.

You look at sort of the higher level seems like potential rise in interest rates or potential changes in tax laws, you sometimes expect there to be, even with marginal changes in interest, you expect there to be changes in the small act or behavior, either buyers or sellers but I don't think we have really seen very much change down at the granular level..

Yes. This is Steve. I agree with Ben We thought once the short-term interest rates popped up earlier in the year that we would start seeing some greater retraining and things like that going out in the market. But it really hasn't materialized. So we really haven't seen much of a change at all in that..

Last question for me.

I know you guys maybe haven't historically given this number out specifically but do you have mark-to-market for the portfolio now that you are getting a lot more price discovery out there in the market with regard to leasing activity?.

I think we generally believe that the portfolio was marked at or around market, maybe slightly below. I think that the lease rules would indicated it's marked below, but quarter-to-quarter obviously, it depends on which leases are rolling and when they are originally signed, all that sort of stuff..

Okay. Great. Thanks guys..

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

Good morning guys. So just to that question about acquisitions and the investor markets.

The increase in the deal pipeline itself, are there more portfolios? Are you stretching in terms of the geographies you are looking at? Is there anything that's really behind that increase that we are seeing?.

I think Bill alluded to it.

What you are seeing is the effect of the people that we have in the markets are having longer experience in the markets being better known in the market, generally the STAG name being better known in the market, our reputation for transaction certainly getting better known as well as we have six outward facing acquisition people.

But we have some of their support team, the analyst team is starting to pick up some outward exposure as well. So at the margin, that probably helps.

But I think it's more just a maturation machine and I know you love the word machine, but it's the maturation of the machine and the maturation of the individuals and also the analytic support, we are just more efficient, able to underwrite more deals and as Bill alluded to, we close something around 10% of the deals we identify and decide to underwrite.

So the amount of the throughput is increasing and the amount of closings are increasing. The amount of assets to get on the pipeline are increasing. It all flows through..

Great. And then one more for me. The same-store, I know you guys kind of alluded to it being toward the lower end of the range that you established previously, but you backfill those two spaces with no downtime.

So I am just trying to understand you know what's really driving that decline?.

We still had a loss. I am sorry. Go ahead, Bill..

Yes. It was really just driven by the average occupancy loss of 50 basis points and the related carrying cost of those tenants. So even though backfilled two those tenants with little to no downtime with positive rent bumps, there was still an average occupancy loss in the quarter of 50 basis points..

And Mitch, I may sound little bit like a broken record, but we don't think same-store NOI is a particularly meaningful statistic for a growth company such as ourselves. We push you to look at what we feel is a more important factor is bottom line per share growth..

And in addition, as I said in the prepared remarks, Mitch, we gave the rental bumps on the remaining 20% plus of the portfolio being 2%. So we try to capture the full portfolio with that statistic..

That's contractual, obviously the contractual bumps..

Right..

The lease contractual bumps..

That's right..

Thanks..

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

Good morning guys. I guess first just going back to portfolios for a second.

I was wondering if you could talk about portfolio valuation in the context of where you are acquiring single asset today at plus or minus rate cap? And where you are seeing larger entity level transactions taking place?.

I think as we have talked about when we sold of the small portfolio last year, our experiences prior on that portfolio when we were a private company. We have seen pretty consistently 100 to 150 basis points of compression between where those individual assets are acquired and where a portfolio of those assets can be traded.

That is driven by, we think, two factors. One is the portfolio is more easily finance, so more easily capitalized. Folks are looking to be able to put out money in larger amounts. But also we think that our ability or the work that we have to done to amass six assets to sell, as Bill alluded, we buy 10% of what we underwrite.

We had to identify, underwrite and acquire, well not acquire but identify and underwrite 60 assets. So we are being paid for the work we have done in aggregating those portfolios. It is a phenomenon that has been consistently observable throughout our history since 2003 that these portfolios will trade on that 100 and 150 basis points inside.

We also believe that that's for a nonmanaged pool of small pool of assets that the enterprise value of a managed pool of assets is another, you pick a number, 100, 150 basis points inside of that, more reflective of where you see some of the implied cap rates on the other industrial operating companies..

Got it. Appreciate that insight. And then final one for me. You guys obviously achieved a significant amount of leasing in the quarter. Just looking at your lease expiration schedule, you have got 5.3% of rent remaining on the expiration schedule for 2017.

Just wondering how we should think about the leasing volume for the remaining three quarters of the year in the context that a lot of the expirations have already been cleared out for 2017?.

Well, before I turn it over to Dave, I will say that we probably more remiss in not accruing more about the leasing success in the first quarter. Some very, very strong leasing, not only in the amount, but in the achievement of rent. So having said that, I will turn it over to Dave to talk about the rest of the year..

And out through the rest of the year, I think we anticipate being in the 70% or high 60% retention rate. We do anticipate continued high volume of deal flow and tenant confidence and certainly deal velocity and their willingness to sign leases for longer term remains high and we expect it to continue..

All right. Thanks guys. I appreciate it..

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

Thanks. Hi guys. So you guys have definitely favored equity funding recently and issuing on the ATM has been pretty efficient but your acquisition pipeline and targets each year have grown.

So assuming equity remains attractive, do you foresee having to incorporate more overnight offerings into the strategy? Or do you think the ATM is sufficient for now?.

Well, as we remarked, we have been able to raise circa $500 million under the ATM since last July. I think that one of the reasons why we are able to do that is, we have demonstrated that the ATM is going to be our main source of issuance.

So investors, including the REIT dedicated investors, if they want to take a position in the stock they do it through reversing core into the ATM. We obviously are very happy with the ATM issuance. It is relatively just-in-time funding.

It obviously has a significantly lower cost to the company and to the existing shareholders than the follow-on offering.

And we think we are able to talk enough with our existing shareholders and with potential shareholders through the conferences and non-deal road shows that the advantage of the follow-on as a chance to talk to investors is mitigated by those activities. So we are pretty comfortable that the ATM will allow us to fund our growth going forward.

Having said that, if it doesn't we are very, very conscious also of balance sheet management and not desiring to get above our promulgated debt level. So if we need to go to something whether it's a bought deal or a follow-on offering.

We certainly aren't reticent about doing that with the caveat that we like the ATM and continued issuance of the ATM is sort of a self fulfilling prophecy or effectiveness is because that's the way you do it..

Got it. That's helpful. And then when I look at page 14 of the supplemental, the leasing and retention statistics, there seems to be a pretty big difference in the rent spreads you are achieving on the retained square footage which are around 13% on a cash basis relative to total renewals at 3.2%.

Is that just indicative of better pricing power when the tenant waits till the last minute to renew? Or is there something else going on there?.

Yes. Blaine, it's just a mix. The retention square footage is the square footage that rolled this quarter. So some of those leases were signed this quarter and some were signed prior to this quarter. The renewal leases, the same thing. Some of those leases will impact this quarter and some of those leases will impact future quarters.

So it's just the mix of leases rolling and when we sign them..

So it's not really an indication that since, I guess, the early renewals are at lower spreads, we should expect lower spreads in the future?.

No. Because some of the retained square footage are for early renewal as well..

Sure. Got it. Thanks..

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

Great. Thanks guys.

Just building on the financing terms kind of going forward, how would you guys look to bring in maybe a JV partner, given there is a lot of demand for industrial out there in the marketplace and it strikes me as you guys, if you guys were inclined to do a JV, you could actually get some fairly favorable terms, maybe even better cost of capital than your stock price.

How do you think about that?.

So Barry, the trade-off in that kind of JV, it's sort of equity capital JV is transparency, simplicity, operating efficiency versus potential cost of capital effectiveness. And I think that we have come down firmly on the side of maintaining a simple balance sheet, a simple income statement as opposed accessing that capital.

The other analogy I have used is that when you enter into a JV, it's like being at a dance and when you ask a girl to dance, you are not asking for a dance, you are asking for five years of dancing and maybe a really good idea is the dance but do you really want to sign up for that for that long a period.

I think that the other thing is that when you look back, we are very confident of our ability to identify and acquire accretive assets.

When you look back at the cost of capital, what may have looked like at the outset a cheap source or a cheaper source of equity will in effect actually not be a cheap source of equity because we will deliver we think very good returns, very solid returns to the joint venture partner.

So I think we are pretty solid on the raise common equity, occasionally preferred equity, standard forms of debt and deliver the accretion to our shareholders..

Great. Thanks guys..

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

Hi guys. A question on the 2Q transactions that sounds like you, the $200 million to $250 million.

Is that all single transaction? Or is there a portfolio in there?.

There might be a couple of two asset transactions, but it is all granular, no portfolios..

Okay.

And then for expected cap rate going forward, should we expect the cap rate that you posted for 1Q or down at 4Q level or a little lower?.

We are expecting to run for the year in the 7.5% to 8% range. So the achievement in the first quarter of 8.2% was really a mix. There were obviously similar perhaps there were some assets that slid from the first quarter to the second quarter. Had they closed in the first quarter, it would have brought those cap rates down to the 7.5% to 8% range..

It's just really mix..

Okay. Great. Thank you..

[Operator Instructions]. Our next question comes from the line of Neil Malkin with RBC. Please proceed with your question..

Hi guys. Good morning. Just given the strength you are seeing in the leasing environment and the favorable supply demand dynamic and that there is some perhaps -- sorry, let me go back here.

Just given the strength you are seeing, I am wondering if there are known vacates that you have coming up that you could talk about or maybe vacates that you could actually poll forward to take advantage of some better pricing in the market?.

Yes. I think that the reality is that if you have a good tenant in the building and the tenant wants to stay in the building, you are going to find a way renew that tenant. It is very, even the strong market, it is very hard to overcome downtime and the increased tenant improvement cost of changing a tenant out.

So three to five year leases, even if you have downtime, two downtime, the lease being paid, the rent being rent, the rent being is only six months, that's still, on a three year lease, that's a very large loss of income. On a five year lease, obviously a little bit less. But we find that it is better, it's almost always better to retain.

Now we obviously have some very good experience this quarter with some rent roll ups on non-retained tenants. But I think in the long run, we are focused on retention when we can..

Okay. Thanks. And then, there has been talk of some elevated supply in certain markets.

I and wondering if you think that is an opportunity for you guys to potentially get into some newer markets to diversify your portfolio further?.

Yes. I think it's an opportunity to diversify the portfolio. We are certainly seeing opportunities to acquire newer buildings, just delivered buildings, et cetera where the developer and/or owner of that building maybe a little nervous about those markets.

Having said that, our mix of market, as we alluded to in the call and perhaps we didn't highlight this enough, we expect to have better rent growth in our mix of primary and secondary markets than either the primary or the super primary markets will have over the next five years.

That's just a reflection of sort as we move through the latter stages of the expansion cycle into the other parts of the cycle, we have again, we think very strong market exposure..

Okay. Great.

And then last for me, the $2 billion or $2.1 billion pipeline you have, what is the actual number of -- what is that relative to the actual number of transactions you are looking at or underwriting each quarter?.

Yes. Neil, that pipeline is assets that have made it through an initial triage. So they are assets that we believe that are worth underwriting and assets that we have at least have a preliminary underwriting on..

Yes. So they have gone through, we have modeled them, we have looked at them, we have discussed them. So they are fully vetted versus just a quick pass and thrown on to the pipeline..

And again, what's the likelihood --.

Go ahead..

I am sorry. What's the likelihood of close on those? So you say that you get 10% of everything you underwrite or a little less, sorry.

What is the likelihood of close on that $2.1 pipeline, for example? What's the hit rate on that?.

10%. We intend to close 10% of those assets. Now that is a dynamic pipeline. Obviously assets go on and off at all the time. So obviously if we are going to buy $500 million during the year, then there was $5 billion on that pipeline at some point during the year of individual assets..

Yes. And some assets stay on that pipeline for 60 or 90 days if we take them from the beginning all the way to close..

Okay. Thank you guys..

Some may stand longer because they are unrealistic expectations by the seller because there is a leasing process even though they have been listed there, there is a lease renewal or new lease negotiation ongoing with a sort of hang fire, if you will. So there is a variety of times the assets can sit on the market or sitting in our pipeline..

But for most part, they are going on and off, as Bill said, on a fairly regular basis. But thinking back, if we are going to do $500 million or we have actually said $550 million to $600 million, that means $5.5 billion to $6 billion will be on the pipeline at some point this year..

Got you. Thank you guys..

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

Yes. Hi. A couple of questions here and I apologize if I missed the first one.

But in terms of dispositions, can you talk a little bit about what exactly you are selling? And is it mark based? Is it fully priced? Or just stuff that you want over the long run?.

So we have talked to before about we have sort of three categories of sales. We have non-core dispositions which is primarily our flex office portfolio, which are assets that we will sell opportunistically as we move through that portfolio. We are continuing to process through that. In the next couple of years those will disappear.

Now there may still be assets in the portfolio that we don't want to own long-term. But I think much, again we get through get to the flex office portfolio, that will be largely gone. The other two are capital sources like the portfolio that we sold last year. That is an opportunity to raise capital.

It's accretive but it's not, we don't think, the best methodology for our shareholders long-term as we grow the company. So that is an arrow in the quiver for capital raising, but it's not one that we are looking to use again in the short-term.

The other, the third leg if you will of that stool, is opportunistic sales, where asset is worth more to somebody else than it is to us in our portfolio.

And that occurs, very frequently it occurs when you have a building that has gone vacant, a user shows up and says I will pay you the value as if it was leased or perhaps even more than the value as if it was leased. And we have had a number of those over time. They result in very strong returns.

Last year we were talking about mid-teen unlevered IRRs in those types of sales. So the other opportunity is when we sign a long-term lease with a desirable credit, it's likely that somebody will find that asset to be more valuable than we view it as in our portfolio.

But dispositions are not, as Bill alluded, $40 million to $80 million?.

That's right?.

Dispositions are not expected to be a big part of the STAG story going forward..

Okay. And then separately, just in terms of cap rate, it's up. I know in the past you have talked about the same-store NOI growth, how it could be slightly negative because you buy products that's 100% leased, then naturally it goes to 95% or just more of a natural occupancy level.

And I guess the question is, when you are talking about cap rates that are 8%, does that assume the occupancies at 100% and then it's going to gravitate down, so an 8% effectively is 7.5%? Or does that automatically assume it's underwritten at the 95% where it's going to gravitate to?.

No. We are underwriting actual cash flow..

Yes. Mike, at the stabilized cap rate. So it is a first year NOI as if the absolute 100% occupied. So in Q4 we bought a vacant asset and our cap rate for Q4 represented a stabilized cap rate for that asset as well. So there is no haircut to the 95% occupancy level..

Got it. Okay. Thank you..

Obviously Mike, one of the things is, the reason we do that is that we think that obviously actual reflects the cash flow that will be received in the short-term and the money or the that you receive as these assets continue to be 100% occupied as the occupancy normalization occurs is still real cash flow..

Got it. Okay. Thank you..

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

[indiscernible]. 15% or 20% of your annual acquisition bogie already done at an 8.2%. In order to hit the lower end of 7.5%, you would obviously have to buy a significant number of assets below 7.5%.

And I am just wondering, where you are comfortable, how well you are comfortable in going before you think it changes the perception of the story?.

Well, I think, Bill, we are looking out obviously and thanks for the call and the question. We are looking at our average acquisition returns, both cap rate but more importantly, our FFO per share over three to five years, our cash flow over the three, five and 10 years and different metrics that assess the cash that we will receive over time.

So now there can be some lower cap rates that are longer term leases with no capital required. They are very clean cash flows where we can develop the requisite long-term returns that we are looking for. So you know, as we average 7.5% to 8%, there will be numbers obviously below 7.5% and above 85 that are part of that average.

The $100 million that we closed in the first quarter, another $20 million after that, is roughly 20% of what we are closing for the year. So the other 80%, obviously can come in at 7.5% and still be averaging between that 7.5% and 8%..

Right. Okay. That's it for me. Thank you..

Thank you. Mr. Butcher, we have no further questions at this time. I would now like to turn the floor back over to you for closing comments..

Thank you for your questions. We are very excited about the strong start to 2017 and our expectations for the full year. We will continue to execute on our business plan to capitalize on the 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 STAG..

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..