Matts Pinard - Vice President of Investor Relations Benjamin S. Butcher - Chairman, President, and CEO William R. Crooker - CFO, EVP, and Treasurer Stephen C. Mecke - COO and EVP David G. King - EVP and Director of Real Estate Operations.

Sheila McGrath - Evercore ISI Michael Carroll - RBC Capital Markets David Rodgers - Robert W. Baird Mitchell Germain - JMP Securities Bill Crow - Raymond James Daniel Donlan - Ladenburg Thalmann Barry Oxford - D.A. Davidson Joshua Dennerlein - Bank of America Merrill Lynch.

Greetings and welcome to the STAG Industrial Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. I would now like to turn the conference over to your host, Matts Pinard..

Thank you. Welcome to STAG Industrial's conference call covering the second 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 second quarter earnings call for STAG Industrial. We're pleased to have you join us and look forward to telling you about our second quarter results.

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

This was a great quarter. Historic acquisition volume, millions of square feet leased, and per share accretion coupled with a material reduction in leverage. We acquired 286 million in the second quarter, the largest acquisition quarter in the company's history and more than 200 million above any previous second quarter.

We leased 3.3 million square feet and in just the first two quarters have exceeded the leasing volume accomplished for all of last year. We produced 7.9% core FFO per share accretion while reducing leverage from 5.5 times to 5.0 times today as compared to the same quarter in 2016.

Our strategy and investment thesis have remained constant over six plus years as a public company. Our company is built to identify, analyze, acquire, and operate industrial real estate transactions across 60 plus markets across the U.S.

Our risk adjusted probability based analysis allows us to continually identify great relative value, granular transactions found across these markets. Over the past 18 months we've improved our data capabilities, streamline processes, added to our acquisition platform, and enhanced our market presence and reputation with brokers.

These factors have contributed to our increased pace of acquisitions and to the size of our pipeline of transactions being considered. Even with the increased pace of acquisitions, our head rate which is our close transactions as the percentage of those fully underwritten is still expected to be approximately 10% to 12% for the year.

This is reflective of our continued investment discipline and adherence to our internal investment return thresholds. During the quarter we acquired 21 buildings for $286 million at an average cap rate of 7.2%.

This slightly lower cap rate which is just a point in time measure, is a reflection of the long average lease term, 9.1 years and other attractive parameters of the assets we acquired in the quarter. It is not a reflection of any diminishing in our investment discipline or return thresholds.

As we look out for the remainder of the year we continue to see ample acquisition opportunities. Our pipeline is set to $2 billion. Given the sizable near-term opportunity set, we are raising our previously provided acquisition guidance to a range of 600 million to 700 million in acquisitions for 2017, up from the previous 550 million to 600 million.

We expect cap rates to be approximately 7.5% for the year. The industrial sector on an aggregate basis continues to be very healthy. We can continue to see demand outpacing new supply in the markets we are active in and believe this will persist for at least the remainder of the year and likely beyond.

During the quarter we leased 3.3 million square feet and experience cash rent change and GAAP rent change of negative 3% and positive 6% respectively. Our tenant retention of the quarter was 60%, slightly lower than anticipated due to a couple operational choices to accept vacancy in search of higher rents or advantageous user sales.

As a result of this quarter's lower number, we expect retention to be in the 60% to 65% range for the year. Our balance sheet is in great shape, reduced debt to EBITDA of 5.0 times at quarter end to our significant capital markets activity. We raised $224 million of equity in the quarter primarily through the efficient use of our ATM.

A portion of the equity raised, $18.6 million was through OP unit issuance. This tax advantage component was a significant factor in our acquiring a high quality functional building in San Diego. With that I’ll turn it over to Bill to provide some more detail on our second quarter results. .

Thank you, Ben and good morning everyone. We're very active with acquisitions during Q2 acquiring 21 buildings for $286 million at a 7.2% stabilized cap rate. This closed cap rate reflects the inclusion of three built-to-suite take out transactions that closed this quarter.

These are brand new buildings with long term leases and little to no CAPEX requirement for the foreseeable future. The cap rate was also driven by higher contractual rental bumps across all the leases we acquired. During the second quarter we sold three buildings for $7 million.

We continue to expect to have non-core and opportunistic dispositions between $40 million and $80 million in 2017. Subsequent to quarter-end we sold a vacant asset to a user. This user sale was possible following a non-renewal in Q2 for a tenant that moves into an expansion we completed for them at another site.

This resulted in an unlevered IRR of 18%. At quarter end we owned 342 buildings with a total of approximately 68 million square feet. Occupancy for the operating portfolio stands at 94.8% with an average lease term of 4.8 years. The average lease term of the operating portfolio increased by almost half a year during the quarter.

Cash NOI for the quarter grew by 18% from the prior year. Same store cash NOI decreased by 30 basis points over the prior year second quarter. Same store cash NOI was down 50 basis points on a year-to-date basis excluding termination income and was up 12 basis points over the same period when including the impact of cash termination income.

The quarterly same store decline was driven by an average occupancy reduction of 1.1%. It is important to note that our same store pool represents only 73% of our total portfolio. The 27% of our operating portfolio excluded from our same store pool is 96% occupied and has annual fixed rental bumps of approximately 2%.

As we've said in the past our primary focus is on the bottom line core FFO. During Q2 we grew core FFO by 40% compared to the second quarter 2016. On a diluted per share basis, core FFO was $0.41, an increase of 7.9% compared to $0.38 per share last year.

The growth on our per share metrics coupled with growth in long term cash flow remains the primary focus for our company and is a central consideration in our acquisition and operating decision making. Our G&A for the quarter was $7.9 million. We expect full year 2017 G&A to be between $33.5 million and $34.5 million.

As Ben noted, we raised equity of $224 million in Q2 and delevered down to 5.0 times on a net debt to run rate EBITDA basis, the lower end of our promulgated leverage band. Our fixed charge coverage ratio is at 3.9 times and our liquidity is $321 million.

At quarter end we had approximately 1.1 billion of debt outstanding with a weighted average maturity of 4.9 years and a weighted average interest rate of 3.6%. All of our debt is either fix rate or has been swapped to fixed rate except for our revolver.

Subsequent to quarter end we executed a 150 million 5.5 year term loan which we fully swapped out for an all in fixed rate of 3.15%. We also paid off three traunches of secured debt with the principal balance of $88 million and an interest rate of 6.1%. These properties will now be part of our encumbered asset pool.

These subsequent debt transactions have increased our liquidity to $384 million, more than enough liquidity to meet our increased 2017 acquisition guidance. With that I will now turn it back over to Ben. .

Thank you, Bill. STAG sits in an unenviable position with a proven investment thesis, ample opportunity to execute on it, and attractively priced capital to deploy. We'll continue to demonstrate the discipline in all phases of our business; acquisitions, asset management, and balance sheet management.

At the same time we're 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 previously noted our core FFO per share grew by 7.9% over the second quarter of 2016.

We have consistently demonstrated a commitment to providing our shareholders not only with growth but also income. This continued focus and demonstrated capital discipline combined with the abundance of accretive acquisition opportunities 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..

[Operator Instructions]. Our first question is from Sheila McGrath with Evercore. Please state your question. .

Yes, good morning. Ben I was wondering if you could discuss the built-to-suit take out transactions in a little bit more detail.

Is there more of that business, how competitive is it, and is it similar IRRs and that's why you're willing to take a lower cap rate?.

Yes, thank you Sheila, good morning. Yes, the essence of this built-to-suit take outs is that they are long, clean income. So I think the average lease term on cost for this is 14 years. Obviously they are brand new so very little capital expenditure over the beginning years.

So, to get that clean income they're also pretty good credit so we are expecting again to get most of the income that is contractually owed to us over that time without diminishing from having to spend money on roofs or whatever.

The market for built-to-suits is very competitive and so you won't likely see us doing a built-to-suit with an investment grade credit in the [indiscernible] because other people are willing to pay more for that.

We are maintaining our IRR, long-term cash flow thresholds in those assets and because of that although we love the transactions they probably won't be more than say 10% of our volume in a typical year. We continue to look for them, but will maintain our pricing and return discipline as we undertake them. .

Okay, great and one follow up.

Can you discuss the tenant retention in the quarter and outlook, were there any large lease non-renewals of note, and any on the horizon for the balance of the year?.

Yeah, I mean I think the non-renewals were not large leases. There were a couple, maybe three leases including the one that Bill referenced where we actually were able to sell the building to a user at a very attractive return, on 18% unlevered return.

And that return is just on that sale, it doesn't relate to the returns derived from moving that tenant into the new expansion that we did on the other side. So, there's nothing big and chunky out there in terms of lease expirations or non-renewals. We expect to have a pretty good second half of the year and nothing unusual to note..

Okay, great. Thank you..

Our next question is from Michael Carroll with RBC Capital Markets. Please state your question. .

Yes, thanks.

Ben, can you talk a little bit about your acquisition strategy today and how has it evolved, just looking at the 2Q 2017 investments it looks like you're acquiring assets from some of the larger markets including Dallas, Houston, Chicago, will this be a trend going forward?.

Yeah, I think that what we do is look across the 60 or so markets that we're active in to find these individual transactions that are -- that meet our return thresholds and that's what we acquire.

So the fact that they are -- we're finding them in some of the larger markets is probably reflective of our exposure to brokers and sellers in those markets, our time working to identify assets in those markets.

And I think the basic inefficient nature of the single tenant industrial market, the assets don't always trade for perhaps where they should trade. The anomalies of say creditor term or something they may cause not all the buyers to show up at a price. We can achieve a price that will allow us to derive our returns.

We are only again buying about 10% of those that we've fully underwrite and we only fully underwrite about a quarter of the ones that we initially identify as potential interest in. So it's a pretty selective process.

I think that as we described in the call, a little bit lower cap rates that you saw this quarter are reflective of the longer lease terms and other things perhaps like market location. But our return to thresholds have not changed. .

Okay, then can you provide some color on how many acquisitions that STAG, the STAG platform could support a year.

I guess given your previous commentary it seems like you're running near full capacity now, do you need to add more people to support this deal volume?.

One of the good things about and I should say one of the things is the manner that you do, as you look at your organization trying to figure out what the constraining inputs are, constraining variables are.

And as we've gone through the years we've increased the number of analysts supporting our acquisition people to allow our acquisition people to spend more time in the markets. Our acquisition people have spent more time in the markets and gotten to know the brokers and the brokers have gotten to know them better.

Our internal systems the way we handle data and move data around internally has gotten better. It’s just a variety of things that have removed constraints and so I think we probably told you last year that our practical limit was somewhere around 750 million for the year.

That number, it feels to us like that number just organically moves up with very little in the way of additional G&A or a spend that just goes up because we get better at what we do. And indeed the market is better at recognizing who we are and what we buy and so if we get to see if you will more and better transactions from the market..

Okay, great. Thank you..

Our next question is from Dave Rodgers with Robert W. Baird. Please state your question..

Hey, good morning guys. Maybe on the size of the backlog. I think it's just under $2 billion, 35 million square feet.

Can you talk about maybe the inclusion of more portfolios in the backlog, is it still one off assets, kind of what you're seeing in that backlog and the confidence obviously that you have in the guidance increase for the rest of the year?.

Hi, it’s Steve Mecke. The mix of the portfolios versus granular deals is very similar to what has been in previous quarters.

Trusting a wholesale change in the pipeline for that in terms of sort of what's on the pipeline we're at -- as we said our pipeline is very dynamic so every week we're adding more and more deals to that pipeline and as deals fall out. So we're comfortable with the guidance for the year and I think the pipeline is in good shape to achieve that..

Of the capacity additions that Ben you just talked about driving that backlog higher, are you seeing just a substantially higher number of market offering at this point in the year?.

I don't know there is necessarily more market offerings. Again I just think that our reputation and our position and our knowledge of the market and the market knowledge of us has increased.

As well I alluded to the internal improvements in our systems at how we handle -- we're just more efficient internally and that allows our, I would say six or seven hours facing people to be in the market more, in their respective markets more, and developing those relationships and seeing those assets, etc..

You talked Ben a little bit about seeing increases or larger portfolio bumps in the assets that you acquired.

I guess I tie4d two things together; one is can you talk about the leasing spread, anything anomalous in the current quarter that you just reported in terms of just kind of the slight decline in the leasing spreads and then kind of tie that into also what kind of bumps you're seeing in your core portfolio versus what you acquired?.

Hi Dave, it’s Bill. From what we acquired this quarter the average bumps in those leases were around 2.3% which was above 40 basis higher than the bumps we acquired last year. So that was positive.

Generally our portfolio has a little higher than 2% bumps for 70% of the portfolio and then for this quarter the leasing spreads, that was driven primarily by one lease where we extended the lease to a total lease term of about 14 years.

So the going in cash to cash rolled down but overall it's an attractive transaction for the company and shareholders..

Especially on a GAAP basis. .

Right. .

Because of the long-term..

Yeah exactly, okay, thanks for that.

Last question Ben maybe on the dividend, I know that you've been trying to work your AFFO payout ratio lower as you look forward with the increased amount of acquisitions and the higher share price that you've been able to tap into the ATM offer, can you talk on the dividend?.

Yeah, I mean we have committed to staying on an annual increase but keeping the increase relatively deminimus as we push that down to something in the range of 80% of AFFO, less non-recurring or which is essentially equivalent to CAD. Obviously these are less well defined terms. And we're committed to continuing to do that.

The duration of that operational strategy depends a little bit on the pace of acquisitions and equity pricing and number of other things. So, we can't give you a firm number of how many years we will be involved in that, that continue to push that number down.

But when we get through that it's -- I don't know it's somewhere between, I hate to get it -- less than five years and more than a year. I'll leave it as vague as that. But when we get to that point then you would expect our dividend increases to go back to sort of our AFFO per share increase levels on an annual basis.

We're not looking to drive that number down below the 80%. We're driving -- we are taking it down to 80% and then we will sort of march in concert with our AFFO per share growth at that time..

Alright, thanks guys. .

Our next question is from Mitch Germain with JMP Securities. Please state your question. .

Good morning. I just wanted to get some insight on the pace of acquisitions. Obviously really big quarter though nothing done since then.

So, should we think of the next, I think it's around 300 or so or 250 or so, kind of be a more back weighted in the year?.

Yes, Mitch it is Bill. I think Q3 will probably be a little lighter and Q4 will probably be more in the average Q4. So definitely back-end weighted. .

As you know Mitch we have always been or the pace of acquisitions is definitely cyclical. And the fourth quarter is typically our largest acquisition quarter. It has been I think virtually every year. So we're expecting a little bit of back weighting, but we're going to have a pretty good third quarter.

I'm not diminishing what Steve and his team have accomplished and are accomplishing through this quarter..

Great, that's helpful and then with regards to the yields, obviously you took them down a little or I guess you're kind of talking about more the midpoint, is that really just a reflection of what happened in the second quarter or is this also looking out in your pipeline, is that including more of the built-to-suits and transactions with higher contractual ramp ups?.

Well, I think that the second quarter as Bill discussed it was affected by some -- the fact that we hit the three built-to-suits, the longer lease term overall. Again we're expecting the same sort of average cash flows and IRR resulting from that acquisition activity.

The second half of the year is going to have and we think slightly higher cap rates probably reflective of slightly lower average lease term that is set under the frame. So we are buying the same overall quality of assets and overall quality of returns. And just the samples include different things.

We're looking at 7.5 for the year which would tell you that the next few quarters are likely to be pretty solid. .

Got you, and last one from me. I think first quarter you had a move out that was immediately back filled way on retention. This quarter I know it was the user sales.

So if we kind of back those circumstances out it seems like that would kind of bring you back toward more historical levels, is that the way to think about it?.

It is and we still think that 70 is a good number. As we go forward. I think the remainder of the year may be right around that number. But the average for the year is going to be pulled down by those eventualities you just mentioned. .

Thank you..

Our next question is from Bill Crow with Raymond James. Please state your question. .

Hey, good morning guys, certainly an active quarter. I think Ben you called it a great quarter. The push back we get from our clients is that to be a great quarter there's got to be some same store growth.

And I am just -- as the same store portfolio gets bigger and bigger and bigger and industrial fundamentals continue to be terrific, just help us to explain why there's still no material same store growth?.

Well, I think that the same store obviously is a number that is derived out of a couple of things. One, is it is two data points. I mean it depends where lease started to where they're going today. And we will go deeper typically on that.

But same store remains for us as our portfolio gets bigger, our acquisition pace is essentially keeping pace with it. So we're still running, the sense to our portfolio was still in the mid 70's of our overall portfolio.

And so the assets that we have in – that aren’t in the same store portfolio are highly leased and there is going to be some occupancy normalization. So you have the two vectors if you will struggling against each other as occupancy normalization, 100% occupied assets. In total it will degrade down to the mid 90s.

At the same time you have contractual bumps and then on lease rolls you have rent growth. The fact that we project and have continued to project sort of flat to slightly negative same store is reflective of a very healthy underlying conditions albeit with this occupancy normalization headwind against it..

But, the peers are 94% to 95%, they are running 70 percentish sort of retention rate, right and so if you compare the markets or you just not get…?.

No, when we mentioned in the last call and again it's [Indiscernible] advisors who is not infallible certainly but they're one of the more respected data sources in the industry is projecting the mix of markets we have is going to outperform the primary markets by 50 basis points on CAG, on a compouned annual growth rate over the next five years.

There's nothing wrong with the markets that we're in.

Indeed we own I think a selection of better assets in those markets and depending on where you are in the cycle, the primary markets were outperforming and during the expansions phases of the cycle and during the less expensive phases of the cycle, the secondary markets will outperform the primary markets.

We believe we're moving into the less expensive portion of the cycle where our markets will outperform. But I think that the biggest factor remains this occupancy normalization.

Our peers are not growing, we're growing and the fact that we're growing in the same store and we have everything in our same store and we don't remove redevelopment assets in any great amount, we don't take out vacancy is something the lease guys do etcetera this is a real number.

And flat to slightly negative is a good result given the occupancy normalization headwinds..

And Bill just the other point as I mentioned on the call, 27% of our portfolio is not included in our same store. So when you run that 27% which is at 95% to 96% occupied that's the normalized occupancy and that has 2% rent bumps in it. So when you start layering that onto our same store number you see a much more normalized same store number..

And you know by end of the strategy and what you say, is there a time as you look forward as you do your longer term budgets when you think that same store would turn appreciably higher?.

Well yeah, I think that the -- that happens when we stop growing 20% to 25% a year as we have pretty consistently since our IPO. And we're at $3.5 billion of assets or something like that today. Growing 25% a year gets harder and as that happens the same store layering on will get less of an impact and will become more of a static portfolio.

But there are years to run yet before that happens. And once that happens, the occupancy normalization does not happen overnight. It happens over a period of four or five years. So that occupancy normalization weight will still be there for a period of time.

So we do not expect to have same store numbers comparable to the static pools that most of our peers have. And I mentioned earlier, its same store and leasing spreads are sort of to arrive at a point-to-point numbers.

If you lease the building back in 2012 at some discounts to get occupancy you are now rolling that over, you might expect to get really good leasing spreads. We don't have a lot of that in our portfolio. We never actually ran the -- during that time we never sort of ran a less gain occupancy by discounting rents model.

So we would tell people as we have before look at our bottom line metrics, look at our FFO or core FFO per share which as we've pointed out is growing even while we're delevering.

And I think that's -- that continue to be our message and it's obviously incumbent on us to continue to deliver that kind of performance if we expect people to not focus on things like same store or leasing spreads which again we think are interesting statistics.

But then I think this is primarily for companies that aren’t dynamically growing like we are. .

Yes, fair enough. I appreciate the discussion, thanks. .

Thank you Bill. .

Our next question is from Dan Donlan with Ladenburg Thalmann. Please state your question..

Hey, I think we kind of layered the point on the occupancy but I just wanted to ask one more point on that. If your -- since we’re post state as it existed today where do you think you are versus market occupancy.

I think you ended the quarter at 94.5%, do you think market occupancy is closer to that or do you think it may be in the 93% range, just kind of curious assuming that portfolio stays static?.

So the last statistic that I saw for vacancy, industrial vacancy in the U.S. was 4.9%. The different numbers out there depending on how you define what goes into your denominator in there and obviously your numerator. But -- so if the whole market is circa 5%, I say we own a little bit better assets in the whole market.

So I think practical occupancy maybe close to 96. We think we will run 94 to 96 sort of consistently. Obviously we are at a very healthy portion of our time in the market today. So I think that moving in the middle to the upper part of that 94 to 96 range is where we expect to be..

Okay and then going back to Mitch’s question, if you exclude the three leases that you chose not to renew in the second quarter, what would the retention -- tenant retention ratio have been?.

Closer to 70..

Okay and then on the acquisitions, I thought you said that the guidance was around 7% cap rate, did I miss that, I mean you said in response to what…?.

No 7.5..

7.5, okay, that makes sense.

And so there isn't really any cognizant decision, I don't want to use the word agnostic but to maybe go after longer weighted average lease terms, it just so happened that that’s the opportunities that came to you, it is not a direct decision to kind of maybe chase longer walls?.

No, I mean we are and we will forgive the word if you use agnostic. We’re agnostic to all the parameters individually. We're not agnostic to the collective effect of the parameter.

And so I can remember being -- that lease conference is making the statement that lease term doesn't matter and it really doesn't if you can take it on a rational basis the effect of the lease expiration in your analysis.

You know a three-year lease term with a tenant that’s highly likely to renew may produce significantly more, likely will produce significantly more cash flow that a 10 year lease term to a tenant who may or may not renew in 10 years.

The rent you receive over the 10 years maybe significantly higher because the cap rate on that three year lease is going to be significantly higher. So we look at what we think on a rational basis on a probability weighted basis, the cash flow to be derived from that asset over the next 10 or 20 years.

And we are -- have returned thresholds and if we can find those returns in longer-term leases and we did obviously this quarter, we have the three built-to-suits which helps stretch that average duration out.

We will if we find it in a bunch of six month and 18 month leases which is not likely because you know there's a big cash flow impact to potential non-renewal. We're likely to find most of the value in sort of middle term leases. We have historically have that acquisition and somewhere in the range of five to seven years.

This year was a little -- this quarter was a little longer, again affected by those built-to-suits. But we don't -- we’re not telling you next quarter is going -- it will be what it is. We're going to buy assets that are going to produce great cash flow over time and the lease term will fall out of that.

As well frankly the cap rate will fall out of that because cap rate is just a point in time measure and we're really focused on long-term cash flow..

Okay, appreciate the comments Ben..

Thank you..

Our next question is from Barry Oxford with D.A. Davidson. Please state your question..

Great, thanks guys.

Ben real quickly, we see statistics from a construction standpoint ticking up all this year in 2017, are there any submarkets that you guys are currently in where you're like getting concerned about the building that I'm seeing going on around in this particular submarket?.

There really isn't, most of that building is taking place in super primary markets. The one area where we might have some concern is Eastern Pennsylvania. There's been a lot of new supply coming online there. But in general we don't see a supply threat in our markets. .

Okay great. .

You know something Barry is when you first started asking the question I thought you were talking about construction costs ticking up and obviously construction cost ticking up are good for people that own a lot of real estate like we do.

We are at almost 70 million square feet of real estate which interestingly makes us larger than a couple of peers who appear a lot larger than us. We're a pretty sizable portfolio of solid functional real estate..

Right, exactly. Thanks guys..

Our next question is from Joshua Dennerlein with Bank of America Merrill Lynch. Please state your question. .

Hey guys, curious on the San Diego deal that you won with the OP unit, give us a little background on that and I think you've also said in the past that issuing OP units is a pretty rare event, do you think this is the start of a new trend that gets more recognition in the market?.

You know, it's always been our hope and belief that the market would find or sellers would find more reason to use OP unit transactions. They're not easy transactions. Our legal department has to spend a bit more time, etc on them.

And obviously the seller is going to need hire their attorneys and advisors to understand the transaction and its complexities. We still don't believe that it is going to be a big factor going forward. There is some chance if you read the details of the [indiscernible] tax law proposal there's some chance that it could go away.

So we don't expect it to be a big factor going forward. It was a big factor in this acquisition because it enabled a pack advantage transaction for the seller..

Got it, thanks. I think that's it. I think everyone asked my questions. Thanks. .

Thanks Josh..

[Operator Instructions]. Okay, we have reached the end of our question-and-answer session. I would like to turn the call back to Ben Butcher for closing remark..

Thank you very much and thanks to all of you for your questions and for joining us this morning. We're very proud of our performance, our ability to grow our bottom line metrics while accomplishing significant deleveraging. I think it is a pretty attractive result over the past year and the past quarter.

We believe that we are well set up for a successful second half of 2017 and we look forward to delivering those results to you. Again, thank you for joining us today..

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation..