Greetings and welcome to the STAG Industrial, Inc. Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce, Steve Xiarhos, Senior Associate, Investor Relations and Capital Markets. Thank you. You may begin.

Thank you. Welcome to STAG Industrial's conference call covering the third quarter 2024 results. In addition to the press release distributed yesterday, we have posted an unaudited quarterly supplemental information presentation on the Company's website at www.stagindustrial.com, under the Investor Relations section. On today's call, the Company's prepared remarks and answers to your questions will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. Examples of forward-looking statements include forecasts of core FFO, same-store NOI, G&A, acquisition and disposition volumes, retention rates, leasing prospects, rent collections, industry and economic trends, and other matters. We encourage all listeners to review the more detailed discussion related to these forward-looking statements contained in the Company's filings with the SEC and the definitions and reconciliations of non-GAAP measures contained in the supplemental information 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'll hear from Bill Crooker, our Chief Executive Officer; and Matts Pinard, our Chief Financial Officer. Also here with us today is Mike Chase, our Chief Investment Officer; and Steve Kimball, EVP of Real Estate Operations, who will be available to answer questions specific to the areas of focus. I will now turn the call over to Bill.

Thank you, Steve. Good morning, everybody. Welcome to the third quarter earnings call for STAG Industrial. We are pleased to have you join us and look forward to telling you about the third quarter 2024 results. We are happy to report another strong quarter of operating results. The industrial supply pipeline continues to contract and absorption remains stable in many of our markets. Availability and vacancy appear to be approaching a trough, although our expectation remains that we won't see an inflection point until the back half of next year. Market rent growth for our portfolio stands at 3.2% through September 30, keeping us on track for full-year market rent growth of approximately 4%. The leasing market is active with tenants committing to space. I'm happy to report that we have already leased 38% of the square feet we currently expect to lease in 2025, achieving cash leasing spreads of 24.1%. This level of leasing is on a similar pace to last year. On October 22, American Tire Distributors voluntarily filed for Chapter 11 bankruptcy. In conjunction with this filing, the tenant entered into a restructuring support agreement with participation from the current holders of its term loans. American Tire Distributors is the nation's largest independent tire distributor with over 80,000 customers. They operate within seven of our facilities across 841,000 square feet and represent 1% of our annualized base rent or approximately $6.1 million. In the aggregate, these seven leases have rents at market, and all seven buildings are actively utilized. All leases are current with zero missed rental payments. We are monitoring this situation closely. This event is reflected in our updated guidance provided in yesterday's earnings release, including core FFO per share for the year. The acquisition market regained momentum in the third quarter with activity noticeably accelerating post-Labor Day. Acquisition volume for the third quarter totaled $130 million. This consisted of six buildings with cash and straight-line cap rates of 6.7% and 7.2%, respectively. During the quarter, we acquired a five-property portfolio totaling 290,000 square feet. The total acquisition cost was $78.1 million with a cash cap rate of 6.9%. The portfolio is located in the supply-constrained Route 128, Route 3 submarkets of Boston, Massachusetts. All of the buildings are located within close proximity to I-93, I-95, and I-495. The portfolio is 100% leased to five tenants with a weighted average remaining lease term of 4.9 years and weighted average lease escalations of 3.75%. Subsequent to the quarter-end, we acquired two buildings for $66.6 million at a 6.3 cash cap rate. On the development front, as of September 30, we have over 2.1 million square feet of activity across nine buildings in the U.S. In July, we closed on a five-acre land site. The planned 76,000 square foot building will be developed with an estimated delivery date of Q3 2025. In August, we closed on our first single-asset joint venture with a national developer. The project will consist of a single 284,000 square foot distribution facility capable of accommodating up to two tenants with an estimated delivery date of Q4 2025. Both projects sit in the North Valleys submarket of Reno, which has experienced robust tenant demand and rent growth over the past several years and continues to be a premier location in the market for distribution tenants. With that, I will turn it over to Matts who will cover our remaining results and updates to guidance.

Thank you, Bill, and good morning, everyone. Core FFO per share was $0.60 for the quarter, an increase of 1.7% compared to the third quarter of last year. Cash available for distribution for the third quarter totaled $88 million. We have retained approximately $75 million of cash flow after dividends paid through September 30 of this year. These dollars are available for incremental investment opportunities, debt repayment, and other general corporate purposes. Net debt to annualized run rate adjusted EBITDA was 5.1x, and liquidity stood at $974 million at quarter-end inclusive of available forward ATM proceeds. During the quarter, we commenced 20 leases totaling 3.3 million square feet, which generated cash and straight-line leasing spreads of 24.6% and 34.3%, respectively. As of today, we have achieved 99.5% of the leasing we expect to accomplish in 2024, or approximately 13.2 million square feet at cash leasing spreads of 28.5%. There are six large leasing spread outliers totaling 1.2 million square feet that featured aggregate positive cash leasing spreads of almost 100%. Excluding these leases, cash leasing spreads would be 22.5% for the year. As mentioned by Bill, we have accomplished 38% of the square feet we currently expect to lease in 2025, achieving 24.1% cash leasing spreads that are relatively in line with the adjusted 2024 level. We achieved same-store cash NOI growth of 4.4% for the quarter and 6.1% year-to-date. We've increased our annual same-store cash NOI guidance to a range of 5.25% to 5.5% for the year, or a 12.5 basis point increase at the midpoint. Moving to capital market activity, in the third quarter, we issued 2.3 million shares on a forward basis under our ATM program at a gross average share price of $39.89, resulting in gross proceeds of $93 million. As of today, we have $164 million of forward equity proceeds available to fund at our discretion at a net share price of $38.86. This equity will be used to pay down the revolver and match fund our acquisition development pipeline. On September 10th, we refinanced our $1 billion senior unsecured credit facility. The refinance revolving credit facility matures in September 2028 with two six-month extension options and no change to pricing or covenants. Subsequent to quarter-end, we fully repaid our $50 million private placement note that matured on October 1. Moving to guidance, we made the following updates. As previously mentioned, we have increased the cash same-store growth expectation through a range of 5.25% to 5.5%, an increase of 12.5 basis points at the midpoint. Additionally, we narrowed the range of expected acquisition volume to a range of $500 million to $700 million. G&A expectations for the year have been decreased to a range of $49 million to $50 million, a decrease of $500,000 at the midpoint. These guidance changes result in core FFO guidance revision to a range of $2.38 to $2.40 per share, an increase of 1 penny at the midpoint. I want to note that we've also added a new slide to our supplemental information package. Given the increase of development projects, we've added the slide to detail each project in our development pipeline. This can be found on Page 10 of our supplemental informational package. I'll now turn it over to Bill.

Thank you, Matts, and thank you to the rest of our team for their continued hard work and achievement towards our 2024 goals. We will now turn it back to the operator for questions.

Thank you. We'll now be conducting a question-and-answer session. Our first question comes from the line of Craig Mailman with Citi. Please proceed with your questions.

Hey, good morning. Bill, maybe just going back to your commentary about the leasing market getting more active over the last year or so, you guys have become less active than historically partly on the cost of capital and then just deal flow. What do you think it is now that's really kind of opening up the deal pipeline to you guys? Is it just the cost of capital, or are you just seeing better opportunities out there? And kind of what do you think we could get back to sort of the baseline level of acquisitions you guys were doing a couple of years ago?

Yes. Thanks, Craig. And just to clarify, you're referencing the acquisition market, right? I thought I heard leasing market.

Sorry. So do acquisition market, yes.

Yes. Okay. Yes, I think that's a number of things. I think there was pent-up seller demand to sell properties, so we've seen a lot more properties on the market. I think with rates stabilizing for a period of time, it reduced the bid-ask spread. So you saw a lot of transactions occurring. I think there's just a lot of confidence in where we can buy a building, the cap rates we can pay for it, but that's market. So we're seeing a lot of opportunities. Our pipeline, as you saw, moved a little bit north of $4 billion, which was nice to see about 75% of that pipeline is individual assets across the CBRE Tier 1 markets. About 20% of that pipeline is portfolios, ranging from a little five buildings or more. About 5% of the pipeline is development. Regarding your second part of your question and what pace of acquisitions we can achieve, I think it's going to be subject to interest rates and seller expectations when we look at transactions; we price transactions to be accretive day one and typically with some growth embedded in it, whether it be from escalators or mark-to-market, and we ensure that those acquisitions are in the submarkets that they're in really well. So we're certainly happy with the progress we've had on the acquisition front this year. We raised our guidance, and we've had a bit of success subsequent to quarter end. We closed another $67 million of acquisitions subsequent to quarter end. So the pace right now is really strong. Typically, the fourth quarter is the biggest quarter regarding acquisitions. We'll see if that pans out this year. Overall, we're really happy with what we're seeing in the acquisition market.

And just from a competitive standpoint, I know you guys are in markets with other REITs, but largely not as much overlap. I mean, is that the competitive advantage here that your local peers may just need to source financing and you guys are all cash, and that's given you surety you've closed? Like is there a differentiator for you guys? Or is it solely just your cost of capital is going better, and you could maybe be a little bit more flexible on price and that's what's getting the deal flow back up?

Yes, I think it's a combination. It depends on what markets we're in, who our competition is. A lot of our competition has been private equity and large institutional private equity. I think we still have a cost of capital advantage against some of those folks, but then it comes down to maybe their return metrics being a little bit more aggressive than ours or they have their underwriting differently. Oftentimes, we do compete against small local regional private equity, where not only do we have a cost of capital advantage, but we have that surety of close. Over the years, especially in the fourth quarter, there have been opportunities where sellers need to close a disposition in their case, an acquisition in our case, by year-end. Because of the processes and the people we have in place, we're able to close relatively quickly. So, surety of close is a priority for some sellers. There are instances that we are not the highest bid, but because of our reputation and our broker network, and our surety to close, we're able to get those transactions. So, short answer to your question, it's a combination of cost of capital advantage, reputation, and surety of close.

And if I could sneak one more quick one in. Any comment on what the Exeter transaction during the quarter kind of means potentially for the valuation of your portfolio?

Yes. I don't want to talk specifically about other transactions in the market, but as we view our portfolio, we see the submarkets our portfolio is in and where the supply-demand dynamics are heading. We feel like there's a lot of upside to our portfolio going forward, and frankly, we are happy with where the portfolio is going.

Great. Thank you.

Thank you.

Thank you. Our next question comes from the line of Nick Thillman with Baird. Please proceed with your questions.

Hey. Good morning, guys. Maybe touching a little bit on 2025 leasing. I appreciate sort of the update on spreads, how they're tracking thus far. Do you think that's indicative of where you look at 2025 roll, is that a good representation of what you guys are rolling and what you expect for the full year without…

Yes. Nick, we'll give a range for our leasing spreads that we always do in our February guidance for 2025. But this is indicative of what we expect at this point, but we'll provide a range as we move into 2025.

And then maybe a follow-up for Matts. On just bad debt, maybe what was it in 3Q? I appreciate the update on American Tire, but any other tenants on the watch list or things we should be watching out for?

Yes. Hey. Good morning, Nick. So in terms of the watch list, it's similar as it was 90 days ago. We've experienced about $1.4 million of credit loss through September 30, which is about 23 basis points. We maintained our guidance. We did raise same-store rate in core FFO. This compares to the guidance of 50 basis points for the year. We expect that to be a real number, and we expect to incur that. But the theme across our credit events is really centered on weakness in the highly leveraged low-margin businesses, and our analysis is fully captured in the guidance that we gave for the year.

Thank you. Our next question comes from the line of Eric Borden with BMO Capital Markets. Please proceed with your questions.

Hey. Good morning, everyone. Maybe just starting with development. I appreciate the new disclosure there and the new slide in the sub. I was just wondering if you could provide an update on potential tenant interest as it relates to your Greenville/Spartanburg assets and your Powell Road assets. Bill, I think you mentioned in your prepared remarks that availability and leasing the environment appears to be troughing and we could see a potential increase through the back half of 2025. So just curious, are more tenants kind of testing the waters today, and could we potentially see those leased up in the upcoming quarters?

Yes. I mean, I think as we said on our last call, our expectation for the two Greenville/Spartanburg assets is that we expect to lease in Q3 2025. The other Greenville/Spartanburg asset, the casual drive asset has a 12-month lease-up period we underwrote. That one, as a reminder, was a sister building. When we acquired that project, we also acquired a fully completed building that we ended up leasing up shortly after closing for – I think it was a 7.5% cap rate. On the casual drive, I think we're closer to the 7% cap rate range. In that market, we have great demand drivers. The buildings are positioned extremely well near the Inland Port, can service light manufacturing users or distribution users. Although the market experienced some excess supply, that supply is getting absorbed. It's going to take a little bit of time. However, we've had a fair bit of activity on all three of those buildings. Nothing to report yet, but overall, we still expect to lease them up in the prior timeframe and in the Q3 2025 range for the first two and then about a year lease-up for the last one.

That's helpful. And then maybe one for Matts. Sorry if I missed this in your prepared remarks, but could you just provide an update on your same-store average occupancy loss expectations for the remainder of the year?

Yes, absolutely. So there was no change. If you recall last quarter, we had adjusted our guidance initially at the beginning of the year, we had guided the market to 50 basis points of average occupancy loss. We've seen some successes, and retention has ended up at the higher end of our range or guidance of 75%. We adjusted the expectation down. We're still assuming 25 basis points of average occupancy loss on the year.

All right. Thank you very much.

Thank you. Our next question comes from the line of Jason Belcher with Wells Fargo. Please proceed with your questions.

Good morning. Just wondering if you could talk about any common themes or characteristics in the properties you sold recently or are targeting for sale this year. To what extent are there specific markets you may be looking to exit or tenant industries or categories you're trying to avoid?

Yes. With respect to the markets, we have that CBRE Tier 1 focus. So I would expect most of our dispositions that are non-core to be in the non-CBRE Tier 1 markets. We'll have dispositions on an annual basis that are opportunistic, where we feel like we've achieved the most value out of that asset, and we'll realize that value and redeploy that capital. Regarding what we sold this quarter, that was a non-core asset, and I think we spoke about it on the previous call, that was sold for a 7.1% cap rate. Overall, we're really happy with that execution given our view on the asset.

Great. Thanks. And then just one more in terms of the slowdown in construction we've seen this year. To what extent have you seen land prices decline? And how are you thinking about maybe adding or building up your land bank for development opportunities in the future?

Yes. We've seen land prices stay relatively flat throughout the year. Right now, with our development initiative, we're not buying raw land. We're really focused on sites that are permitted, so we're not as far out on the risk spectrum. However, we still continue to see a lot of opportunities to acquire land for development. We feel like we can continue to grow that throughout the years.

Great. Thank you.

Thank you.

Thank you. Our next questions come from the line of Michael Carroll with RBC Capital Markets. Please proceed with your questions.

Yes. Thanks. Bill, just kind of building off of that last question, how do you think about new development starts? I know it does look like you bought a few land parcels past quarter. I mean, are those sites that you want to break ground and start developments on? Or do you want to lease up some of your projects that are currently under construction and completed before you start pursuing new starts?

Yes. The ones that we did buy were permanent, and we've already broken ground on those, Mike. So we're not sitting on any land parcels that are permitted and ready to go. Everything that we have on that development slide, we've broken ground. As I mentioned earlier, we underwrite a 12-month lease-up period upon building completion, so we can model when that revenue should be coming in. Regarding new opportunities, we'll continue to evaluate them. I like the laddered development schedule that we have right now, and as we add new properties, it will take approximately nine to twelve months to build and another twelve months to lease. We can continue to ladder these developments. When I look at some of the newer developments, the Tampa developments will be completed in the fourth quarter. Those are getting some really good interest. It's not a pre-leasing market, but we feel really good about the suite sizes and how they fit the market. The Nashville property that was on land we owned in the portfolio has been permitted and we broke ground on that; that's going to be a very successful market as Nashville is one of the stronger industrial markets today. The Portland development is a 10-year build-to-suit for a strong credit tenant, which has a high-6s cap rate. The Reno market, we like both those locations I mentioned in the prepared remarks; it's among the premier submarkets within Reno with suite sizes that think will fit the market pretty well. Overall, I'm really happy with the way the development initiative is coming along and comfortable adding to it, assuming we can put up buildings that fit the submarket well.

Okay. I mean, is there a limit to how big you want the pipeline to be that's not yet leased? At what point do you want to kind of slow that down? And then just second to that, what is your capitalization policy? Should we assume that these Greenville/Spartanburg assets will roll off capitalization at the beginning of 2025 if they're not leased?

Yes, that's right. I think from a capitalization policy, that's just GAAP. So I think it's 12 months; that's what the allowable time is to capitalize interest on that. Regarding cap and development, it's something we're evaluating. If you look at the total invested capital here, it's a very low percentage of our overall enterprise value. We'll continue to evaluate that. The build-to-suits bring far less risk than more speculative developments that we have. Right now, somewhere in that 5% of enterprise value is where we feel comfortable. It will be well-laddered and diversified across geography and suite sizes.

Okay. Great. Thank you.

Thanks.

Thank you. Our next question comes from Jessica Zhang with Green Street. Please go ahead with your question.

Hi. Good morning. I was just wondering if you could provide some color around the drop in retention rate this quarter. Was it driven by any particular leases?

There was one lease that was a non-retention, but we backfilled it with zero downtime. We didn't include that in the prepared remarks, maybe we should have. If you factor that in, our retention adjusted for immediate backfills is about 73%. It was really just one outlier that we didn't retain, but we backfilled it with no downtime.

Okay. Great. Thank you. And then just maybe one more. On the occupancy side, are there any material non-move-outs in 2025 that we should be aware of?

No, no material non-move-outs. At this point in the year, there are leases rolling in the back half that we're unsure whether they're going to be retained, but nothing material that's known to move out at this point.

Okay. Great. Thank you.

Thanks.

Thank you. Our next questions come from the line of Rich Anderson with Wedbush. Please proceed with your questions.

Hey. Thanks, team. Good morning. So if we go to American Tire, what is the bull and bear case there in terms of things that could transpire? You said you're monitoring, but are you devising some plan B? Also, where do the rents sit relative to market? Maybe there’s an opportunity here in some cases, if you could add some more color to the extent you can?

Yes. On average, the leases are pretty close to market. I don't want to dive too much into this since we are speculating. If you read some of the public information, there's very good support from their lenders. I think it’s going to come down to their evaluation of their distribution network and how they're utilizing the buildings and whether they affirm or reject leases. As you can probably figure out with our guidance this year, there's not a lot related to ATD credit loss. The buildings are utilized, and these are buildings that fit the submarket well. They're highly functional buildings in healthy submarkets, with leases generally at market. The bull and bear case would be whether they vacate all leases or stay in all leases. But we'll have to wait and see how things shake out in the first quarter next year.

Is it too fresh to think about optionality should something come at you? Or are you just monitoring this at this point?

We've got some views on this; it's just nothing I want to publicly comment on right at this point.

Fair enough. Second question on the acquisition window; the pipeline is up relative to last quarter. You referenced a stable interest rate environment, which was yesterday's news at this point. I'm wondering how quickly does that pipeline kind of ebb and flow as the macro changes? We've seen quite a change at the longer end of the curve in the recent past. I'm wondering how much the 4.2 can go to something below 4 with some suddenness?

Yes. The pipeline is dynamic. The assets roll on and off every week. It’s not going to go from four to three in a matter of a week, but a lot of times, assets will sit on the pipeline if they don't trade. When you think about the broader transaction market and what's happened at least in the past couple of years, as you've seen spikes in interest rates, there's a pause in the market; sometimes sellers reset expectations, and sometimes they don't, resulting in a pause in the acquisition market. For us as net buyers, we adjust our returns immediately with our cost of capital. The benefit of the team we've built is that we're looking across all the CBRE Tier 1 markets and evaluating opportunities from high net worth individuals to large institutional private equity; we're adjusting our returns immediately. We think there are still some really good opportunities even with some elevated 10-year rates right now.

Okay. Great. Thanks very much.

Thank you.

Thank you. Our next questions come from the line of Brendan Lynch with Barclays. Please proceed with your questions.

Great. Thank you for taking my questions. Maybe on the development – excuse me, the acquisition pipeline, can you just talk about the characteristics of the assets that you're looking for in terms of value add or fully leased or market condition considerations?

Yes. It's in CBRE Tier 1 markets. The building needs to fit the submarket well. About 75% of the pipeline consists of individual assets, 20% portfolios, and 5% developments. The individual assets include some value-add opportunities. I don’t have the exact breakout, but it's a wide range of opportunities. Similar to past years, we look at assets ranging from vacant to those with a 10-year lease term, and we evaluate all aspects of the transaction when determining whether to place a bid.

Great. In the past, you've called out El Paso as being a market of particular strength. Can you give us an update there and maybe any others along the border that are performing particularly well?

El Paso is still performing well, but we are seeing a slight uptick in vacancy there with some new deliveries. Still, it remains a very strong market. If we look across other markets, many Midwest markets continue to be strong, such as Detroit, Milwaukee, Minneapolis, Chicago, and Sacramento. Tampa is performing well, and Nashville is also strong; the development there looks promising. We’ve seen continued weakness in Columbus and Indiana, as well as in Philadelphia and Southern Jersey. However, on the whole, we’re seeing markets generally improve in terms of absorption, month over month, staying flat, and it feels like we’ll see some good recovery in the back half of next year.

Great. Thank you for the color.

Thank you.

Thank you. Our next question comes from the line of Jon Petersen with Jefferies. Please proceed with your questions.

Great. Thank you. I appreciate your time. One more question on American Tower. One of your peers had a similar situation. They talked about how there’s a security deposit in place that can contribute to topline rents in case they don’t pay. Do you guys have anything like that with American Tire, and what would be the duration on it?

Nothing material. I will say, as mentioned in the prepared remarks, they're current on all the rent. There's no accounts receivable related to them. We've seen that all seven facilities are being actively utilized. They're highly functional buildings in healthy submarkets.

Got it. Okay. I appreciate that. And then maybe just one other, somewhat more broad question, but what impact does election uncertainty have on your business right now, whether it's closing on transactions or the leasing market?

It’s an interesting question, Jon. We've heard from brokers that larger tenants are waiting on the election to make a decision. I don't know the reason for that other than they may be buying some time and seeking certainty. It feels like it's being used as a reason to delay decision-making in the leasing market. Regarding the acquisition market, I don't think it's really played a factor, but more on the leasing market in delaying decision-making.

All right. I'll ask you a follow-up question at NAREIT on what you think once we get the results. Thanks, guys.

Thank you for not asking it now.

Thank you. That does conclude our question-and-answer session. I would now like to turn the floor back over to Bill Crooker for closing remarks.

Yes. Thank you all for attending the call. Thank you to the analysts again for their thoughtful questions, and we look forward to seeing you all soon.

Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.