STAG Industrial Inc (STAG) 2013 Q4 法說會逐字稿

Greetings. Welcome to the STAG Industrial Incorporated fourth-quarter 2013 earnings conference call.

At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions).

As a reminder this conference is being recorded. I would now like to turn the conference over to your host, Brad Shepherd, Vice President of Investor Relations. Thank you Mr. Shepherd, you may now begin.

Thank you. Welcome to STAG Industrial's conference call covering the fourth-quarter 2013 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 those related to STAG Industrial's revenues and operating income, financial guidance as well as non-GAAP financial measures such as trends from operations, core FFO and EBITDA.

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 information package available on the Company's website. As a reminder, forward-looking statements represent management's estimates as of today, Thursday, February 13, 2014. STAG Industrial will strive to keep its stockholders as current as possible on Company matters but assumes no obligation to update any forward-looking statements in the future.

On today's call we will hear from Ben Butcher, our Chief Executive Officer and Greg Sullivan, our Chief Financial Officer. I will now turn the call over to Ben.

Thank you, Brad. Good morning, everybody, and welcome to the fourth-quarter earnings call for STAG Industrial. We are pleased to have you join us and look forward to telling you about our fourth-quarter results and some significant subsequent events.

We are happy to report that 2013 was a good year for STAG and its properties. Presenting today, in addition to myself, will be Greg Sullivan, our CFO, who will review our fourth-quarter financial and operating results.

Also with me today are Steve Mecke, our COO; Dave King, our Director of Real Estate Operations, and Bill Crooker, our Chief Accounting Officer. They will be available to answer questions specific to their areas of focus.

Our fourth-quarter operational results provided continued validation of our investment thesis with significant acquisition and leasing activity by the Company. During the fourth quarter the Company acquired 10 buildings. The 3.1 million square feet acquired represented proximally 8.7% increase in the square footage of the Company's real estate assets over the previous quarter.

On a year-over-year basis the square footage of our own properties increased by 30%. The 10 buildings were acquired for an all-in purchase price of approximately $96.9 million. Total acquisitions for the year with $346 million.

The acquisition totaled for the fourth quarter of 2013 was $17 million higher compared to the fourth quarter of 2012 but excluding the large portfolio deal acquired in 2012. The 10 buildings acquired in the quarter are located in 8 different states. The tenants reflect diverse industries including automotive, containers and packaging and logistics and at varied lease expirations.

In addition, our pipeline of deals that will meet our investment criteria continues to be robust with approximately $900 million including small portfolio transactions of potential acquisitions being reviewed and considered by our acquisition teams. We expect to be able to continue our significant 25% year growth during 2014.

The Company experienced strong leasing activities in the fourth quarter as well. In the quarter the Company renewed leases totaling slightly more than 134,000 square feet.

In the quarter we also leased approximately 594,000 square feet of existing vacant space. This is the highest quarterly total we have had as a public company.

Occupancy rose significantly during the quarter from 94% to 95.6%. Tenant retention, which was 59% for 2013, continues to trend below our long-term expectations for this metric. We continue to believe this is a temporary phenomenon that will diminish in the near term as general economic conditions improve.

For 2014 and beyond the general outlook for industrial real estate is very positive. The same factors that were evident in 2013, continued general economic improvement, shortening and fattening of supply chains, on-shoring of manufacturing, will continue to drive demand for industrial space over the next couple of years.

Even with some increase in new supply, which occurs mostly in the primary market, net absorptions expected to continue to be dramatically larger according to most industry sources on the order of 100 million square feet larger than new supply. This will lead to further reductions in availability and improving conditions for landlords to achieve rent growth and backfill vacancy more promptly when it occurs. We expect to see cyclical growth above long-term norms for the next three to four years.

During the fourth quarter the Company began paying monthly dividends. The Board of Directors approved a 5% increase in the Company's annual common stock dividend from the current annual rate of $1.20 per share to $1.26 per share commencing with the January 2014 dividend. The increase equates to a dividend of $0.105 per common share per month and represents an annual distribution rate of 6.2% based on the Company's fourth-quarter ended share price of $20.39.

In an effort to continue its policy of sharing our growth in per share financial metrics with the Company's stockholders, the Board anticipates evaluating its dividend policy periodically throughout the year. Greg Sullivan, who joins me here today on this call, has recently announced that he will leave his role as CFO at the conclusion of his contract this April in order to pursue other interests. He'll continue an association with the Company for another year after that as a Senior Financial Advisor.

Greg has been instrumental in the growth and development of STAG into the solid financial entity that it is today and we appreciate all of his efforts. His decision to leave the CFO role is reflective of the strength of the Company and its employees. I will now turn it over to Greg to review our fourth-quarter financial results and provide some further detail on our balance sheet and liquidity.

Thanks, Ben. As Ben mentioned, we had another solid quarter from an acquisition and operations standpoint.

Our cash NOI was up 43% over the fourth quarter of 2012. This growth was driven primarily by our strong acquisition activity.

Our core FFO increased by 35% over the fourth quarter of 2012. We think these non-per share metrics are important because they convey our ability to grow the business while the more typically cited per share metrics are heavily influenced by our financing and liquidity decisions. Having said that our core FFO per share grew meaningfully by 12% over Q4 of 2012 while maintaining our low 32% leverage.

Our AFFO for the quarter increased 38% over the fourth quarter of 2012. This is one of our key valuation benchmarks as it reflects the low CapEx nature of our portfolio. Because of the single-tenant focus of our business are leasing and CapEx costs continue to be quite modest.

I should note that TI costs were a bit higher this quarter due to a couple of factors. One renewal lease signed in the fourth quarter was a 60,000 square foot lease in a legacy office building, so excluding that the industrial property renewal TI and leasing commission was only $0.03 a square foot on the other 74,000 square feet of renewal leases signed.

Also the Brown Shoe replacement tenant in the Sun Prairie, Wisconsin building signed a 10-year lease so the leasing commission was larger than normal and the tenant had some above-standard building improvements, which are being repaid to us in the rent. Otherwise the CapEx costs for this lease were normal.

Our occupancy was 95.6% at the end of this quarter compared to 94% at the end of the third-quarter 2013. Sequential same-store occupancy was up from 93.6% to 95%. Full-year year-over-year same-store occupancy was down a bit to 93%; however, it represented less than half of our portfolio.

We did have a sizable termination fee of $2.5 million in the fourth quarter that related to our Creedmoor property, which we have excluded from our financial results. That property was sold empty for $9.5 million to a user buyer which is more than we paid for it in 2009. We also earned an attractive current return during their tenancy.

Our debt metrics continue to be quite strong. Our net debt to annualized adjusted EBITDA was 4.6 times at quarter end down from 5.8 times at yearend 2012.

As usual we had a number of acquisitions closed towards the end of the quarter. Of the $96 million that closed in Q4, $48 million closed in the last two weeks of the quarter. If these acquisitions had closed on the first day of the quarter our run rate debt to EBITDA would've been 4.4 times by comparison.

Our interest coverage for the third quarter was 5.8 times, our total debt to total assets was 44% and our debt to enterprise value was 32%. All very strong metrics.

In general, the capital markets continue to be attracted to our ability -- to our property's ability to generate high cash yields with limited leasing costs. As a result we improved the borrowing spreads and fees in our unsecured revolving credit facility and 5-year term line.

We are also in the process of launching new 7-year and 10-year unsecured term loans to continue to extend our debt maturities. As of quarter end we had approximately $81 million drawn under our revolvers, total capacity of $200 million and net outstanding balances down to around $33 million today.

The ATM program once again was effective at funding our granular acquisition strategy with gross proceeds of $15 million for the quarter as well as $55 million for the year and we expect to continue to utilize the ATM going forward. Given our extremely strong credit statistics as confirmed by our investment grade rating, our financing strategy is to continue to emphasize unsecured financings and maintain credit metrics consistent with an investment grade rating and the financial flexibility that comes with that as we continue to grow.

As Ben mentioned we did increase our dividend by 5% in the first quarter, which represented a payout of 86% of AFFO. We will continue to monitor the size of our dividend over the course of the year. I'll now turn it back over to Ben.

Thank you, Greg. Let me take a moment here to again thank Greg for his service to the Company over the past 10 years, through our IPO and through our first years, three years of public company existence. He leaves the Company well prepared for future growth and success.

Another busy and successful fourth quarter has set the table for what we expect will be a great 2014 for STAG. We will continue to move forward with a low leverage strategy for the execution of our differentiated investment thesis. STAG continues to benefit from a combination of factors to provide a significant volume of quality and accretive opportunities for acquisitions both on a relative value and spread investment thesis.

General market conditions remain favorable with relatively and stable low interest rates, a further strengthening leasing market and relatively stable cap rate environment. In particular for our differentiated investment thesis the past year has provided significant valuation of the leasibility of our assets when vacancy should occur. Thus we continue to be optimistic about the future for our Company, for our owned assets, and for our investment thesis.

We believe that our business plan to aggregate and operate a large portfolio of granular and diversified industrial assets will produce strong and predictable returns for our shareholders. Our fourth-quarter operational results again provide validation for this contention.

Going forward we will maintain our investment discipline and focus on shareholder returns. We thank you for your continued support.

Thank you. We will now be conducting a question-and-answer session.

(Operator Instructions). David Toti, Cantor Fitzgerald.

Good morning, guys. Just a couple of detail questions. Did I miss it, or did you mention the source of the termination fees in the quarter?

It was from one building. There was the Creedmoor Building and what happened was the tenant was no longer an occupancy even though they were paying rent and we had a user buyer who was interested in the property, so we cut a deal where we got a $2.5 million termination fee and then at the same time sold that building to a user buyer for more than we paid for the building back several years ago.

So obviously it was a pretty attractive transaction. And we just wanted to point out, because I know a couple of the analyst reports this morning mentioned the termination fee, we obviously take that out of our core FFO because that is a nonrecurring item.

Okay. And then sort of bigger picture, as we look at various industrial reports it seems that fundamentals across the country are improving modestly. Are you seeing that reflected in transaction cap rates in the pipeline? Are you seeing any compression?

Do you generally view cap rates as being somewhat stable at current levels? What's the dynamic in that space at the moment?

Yes, David, thanks for the question. I think that we view cap rates certainly in the markets that we focus on as being relatively stable. They have been relatively stable over the past year.

It's a feature generally of the markets that we focus on is that they are more stable than the primary markets because they have a lot more cyclical variation in cap rates. So we haven't seen much in the way of a change in cap rate environment over the past year.

Okay. Thanks for the detail.

Sheila McGrath, Evercore.

Yes, good morning. Ben, I was wondering if you could talk about the competitive landscape in your niche? Are there any new players that you're bumping into more often on the acquisition side?

Good morning, Sheila, thanks for the question. We are seeing some names that we haven't seen before over the past year. We probably saw Gramercy a few times, we've seen a few private people maybe more often but I don't think that generally speaking the competitive landscape for us has changed markedly.

We are still primarily competing with small and local owners; people that own 1 to 10 assets are our principal competition. Most of the public companies continue to be focused on primary markets, port markets, etc. We think, obviously, to the detriment of their return characteristics but we are still not seeing much significant organized capital competition in our markets.

Okay. Ben, you mentioned in your prepared remarks that the pipeline is about $900 million. Could you give us some insight how that compares historically? And kind of how (multiple speakers)

Yes, Sheila, last year at this time we were commenting on the fact that we were surprised that our pipeline has expanded. It was either in this quarter or next quarter last year that our pipeline expanded from where we typically had run it in the $400 million to $500 million range.

Again, this is a dynamic pipeline that assets are coming on and off it on a weekly basis either because we have -- assets are coming on because they are coming to market, or we have identified opportunities and coming off because either we've bought them, someone else has bought them, or we have determined that for some reason they aren't worth our further pursuit.

So a year ago that pipeline was running a little more than a year, running $400 million to $500 million. We had noted, again, I think it was this quarter last year that it had popped up to around $600 million and now we are reflecting a pipeline of around $900 million. This is because of our continued existence as a, or improvement of our profile as a known and reliable buyer.

I think a very important component of our success in the market is that our transactional certainty reputation remains high. We tell somebody we are going to do something we don't have obviously have capital constraints on us that some of our smaller buyer competitors have, so that people can take confidence in that. And we also understand that it's important for us to perform, as we have indicated we are going to perform in an individual transaction, that we not looking to go out and work as an individual transaction maybe to garner some slight benefit through taking advantage of perhaps some buyer weakness or whatever.

We perform based on what we say we are going to do, based on our understanding. Obviously if things change during the transaction and that indicates a change in pricing should be achieved that will happen, but we are very conscious of our profile in the market.

This transaction certainly helps us a lot to see deals, have deals awarded to us, etc. So the uptick now to $900 million, again, is reflective of our position in the marketplace, to some extent just more assets available, but most of that I think it's just we are seeing more assets. And also I think we are seeing more of these small portfolio opportunities that perhaps we didn't in the past.

Okay. Thanks. One quick question for Greg.

Greg, you mentioned the 7- and 10-year term loans. Could you just give us a rough idea of approximate pricing for those two tranches?

Yes, sure. The 7-year benchmark -- it's interesting, it's been somewhat thin traditionally. I would say there's a fair bit of demand in the marketplace for that from lenders and so the last deal we did was priced at 250 over.

We are looking at pricing on this new deal that is probably about 175 over, so with LIBOR you're under 2% on a floating rate basis. That would be at about 4% on a fully swapped out basis, and 10-year unsecured money probably somewhere between 5% and 5.5%. So reasonably cost-effective, particularly given where we are buying assets at the cap rates we are.

Thank you.

Dave Rodgers, Robert W Baird.

Good morning guys. Maybe for Ben, you commented in your prepared remarks about rent growth and cyclical growth above average for the long term over the next couple of years. I'm interested to hear your comments about what you expect to see in your own portfolio, your own ability to maybe drive more rent growth.

You've been very cautious in the past about talking about the ability to drive rent kind of above the 1% level. So maybe any color on spreads and/or just kind of market rent in the secondary, tertiary market that you are feeling more confident about as well.

Yes, we've obviously experienced over some of the prior quarters rent growth above sort of our 1% to 2% long-term expectation. And we reached out to CBRE Econometric Advisors to get some of their updates on what they were seeing and their expectations are for rent growth, and it varies by year, but the next three to four years more like 3% to 4% per year.

Again, a combination of recovery from the global financial crisis and also this supply/demand dynamic that you are seeing demand greatly outstrip new supply. And, frankly, the economic -- we don't believe that the economic, especially in secondary markets, we don't think that the economic incentives are there for supply to jump up and meet that demand simply because there is not demand at prices that justify new construction.

So it's a good time to own existing industrial assets at good values such as we do. And we have demonstrated I think quite well over the last year the contention that we have had all along is that our assets are fungible and leasable. So it's a good time to own industrial assets at good values.

Do you see any ability in the near term to put a greater level of annualized rental rate increases or rent bumps into the leases as you're negotiating today?

It certainly is a lot better than it was in 2009 and 2010. You actually have tenants competing over spaces, which obviously didn't occur during those dark days back in the global financial crisis and its aftermath. So there is some benefit there.

I mean again we view our assets in the markets we operate in is relatively static so you are not going to see the type of rent growth that, for instance, the M1 or Empire might have where you might have 20% or 30% per year, but that's because you had a 50% down year two years back. So, again, just less volatile so the upside surprises will be smaller as well as the downside.

And maybe a second question focusing on the turnovers you mentioned again in your comments and as we saw in the fourth quarter. Turnover obviously above or lower retention, turnover higher than you have seen historically.

Is it fairly typical earlier in the cycle as we begin to see rent growth, as we begin to see more economic growth, that you will see more businesses make these decisions, should retention stay relatively low over the next several years and be backfilled by kind of a growing economy, or should we expect that number to normalize? How should we think about that?

Well, we are obviously an interested observer of when that number normalizes. I think we've talked a little about this heightened corporate change activity period that I think is continuing and I think will diminish over time.

One of the important things I think to look at is in terms of cycles is this is the global financial crisis was a credit issue, not a recession. And so the recovery from that is -- most credit -- real credit crisis is to recover from that, we recover from that historically has been much longer and slower than for instance a recession.

So I think to look at recent recessions, the 1998, the 2001 recessions, etc., aren't necessarily informative to the experience we are having today. What is probably more informative is looking at 1990 and the 1989, 1990 credit issues that occurred then.

So we are not surprised that it has taken a long time, longer than normal, for this period of heightened corporate change activity to come to the fore. Looking at the year, 2014, there is a variety of factors that will come into play. Renewals, nonrenewals new leasing activity and obviously acquisitions of acquired buildings.

I think the sum total over the year we would be surprised, or we would expect that our occupancy at year end will be somewhere around where it was at the beginning of the year, somewhere in the 95% or so category. We kind of feel that is in equilibrium occupancy rate. With what's going on in the general market with this large mismatch between demand and supply, certainly there is a chance that we might trend above that, but we kind of feel like 95% is kind of a good equilibrium number.

Great. Thank you.

Jamie Feldman, Bank of America.

Great, thanks. I guess first, Greg, congratulations. It's been a pleasure working with you.

So as we think about the CFO role can you guys talk a little bit more about the search process? And then I guess for Greg, just kind of talk a little bit more about your decision to leave and what you'll be doing as a consultant over the next year or so.

Sure. Maybe I will go first.

I think the press release pretty clearly explained what transpired. Just as a bit of context, I have obviously been involved with STAG since we started it from a yellow pad about 10 years ago. Been on the Board for a number of years while we were a private company.

I sort of look at my time at STAG and I feel like I've accomplished all the things that I had planned to accomplish. I came in as an employee to try to ensure successful IPO back in 2011, and sort of run the financial side of the house for three years, we've had pretty good results and no surprises, and so obviously the Company is a great company. It's stronger than ever.

I just feel personally it's time for me to find a new challenge. Having said that I am going to stay on for an extended period of time to make sure that there is a smooth transition between myself and the next CFO. And I am very optimistic about the future of STAG.

I have no plans at the present time but I am sure I can find something intriguing to do when the time comes. And thank you for asking.

So, Jamie, we've engaged a search firm. We are going to do a thorough search to identify a CFO to move forward.

Frankly, one of the challenges may be that the, as Greg said, he has already done most of the work. We have Bill Crooker is here on the call with us today, runs the accounting and reporting side of the house and we are very happy with the capabilities and capacity of that group.

We're, frankly, now a pretty boring capital market company because we are so simple. We don't have joint ventures, we don't have any really complicated things going on in terms of our balance sheet.

The acquisition machine basically is that, it's a machine. It runs much as we all like to think we are all very important, it will keep running without the input of any individual. It has a deep bench and systems and processes set up to ensure that it continues to acquire assets for the benefit of our shareholders.

We have good expectation of being able to find a good candidate to replace Greg. And frankly we are for the next couple of months as Greg is here and transitioning, we feel very confident about the ability of the Company to continue to do what it is doing.

Okay. Thank you. And then can you talk a little bit more about the vacancy in the quarter?

I think there were three leases that moved out. Just a little bit more color on those specifically and your thoughts on backfilling?

Well, basically those are -- they are three very small leases. Individual corporations making decisions independent of others.

There is not a common theme. It's just companies making decisions.

As I alluded to in the remarks, this was our largest leasing quarter four new leasing activity, about 580,000, 590,000 square feet of new leases executed on vacant space. Again reflective of the overall market conditions.

There is demand for space and there is demand for space at pricing that frankly new construction can't meet. So we feel very confident about our fungible assets continuing to be attractive to new users.

Okay, and along those same lines, so I thought I know you had mentioned it in the Q&A, the tenant retention somebody asked how that is trending, but I guess, your comment on the call was that you think tenant retention will improve as the economy improves. But we are already seeing the economy already get better and certainly the warehouse markets have been getting better. Is there something else, any other trends you are seeing this cycle versus last cycle that are -- (multiple speakers)

Again, I think it's perhaps as the economy improves is not exactly accurate. It's really as the economy settles into the coming out of the post-financial crisis.

We believe that there are a lot of things that have been occurring over the last year that were sort of pent-up that didn't happen because people weren't sure about corporate credit availability from banks, weren't sure about where their business was going, etc. So those decisions that have been put off are now happening, or have been happening over the past year and continue to happen.

We expect over some period of time that that case of corporate change will slow down. We believe that there is a correlation between increased economic activity and corporate change. So tenant retention probably has in the long run a slight inverse correlation to general economic activity but we do expect that number to diminish as we move forward.

Okay, so as you think about the move out, is it at this point in the cycle, is it tenants upgrading their space to new product, or is it tenants that are shutting their doors or consolidating -- (multiple speakers)

I don't know that we have had anybody who has left to go to the same size building that was newer or a hired clear, or anything like that. Generally when the tenants leave they leave because they are looking for more space. Or they are changing their logistical patterns and are moving to a different market or to a different pattern for meeting their logistical demands.

I know there are some people in the industry that want to have you believe that tenants move out of 26 foot (clear?) buildings to get into 32 foot clear buildings. We don't see that. I don't think we've ever seen an example of that.

So it's not a, generally speaking, a desire for a new building, or a different capacity for the building. It's because the building is not big enough, or because they are changing their logistical patterns.

Okay. And then finally, there's a lot of talk this year about capital flowing into some of the secondary markets. How do you differentiate your product in your markets from that trend because it sounds like you're still, I think you mentioned Gramercy, but overall it sounds like you are still not seeing capital flow in. Is your product that -- (multiple speakers)

Jamie, it's interesting -- I have talked to a lot of folks who have sources of organized capital, other public companies, etc., who've said we're going to start doing what you do. And then you ask them about, you give them a specific example and say, would you buy this, no we wouldn't buy that.

Still there is a lot of talk about secondary markets but being able to get down in the trenches, identify, acquire and manage these assets is not as trivial as perhaps, for instance, some of the net that these guys would want on a set. It requires industry expertise, it requires contacts and requires a lot of hard work. So we are not sitting looking at screens and being able to pick off assets.

We are out in the market interacting with brokers, understanding the markets. We have spent a lot of time developing this transactional certainty reputation that stands us in good stead. So just saying you want to operate in secondary markets and buy smaller buildings is not really putting your hand in the air and saying you want to do that is not sufficient to be successful and execute on the thesis.

But I just wonder, is that capital that we are reading about, is it even looking at your type of assets that you guys are still in a bit of a different class?

I would say that we are in a different class because again it's not easy to do what we do. You can't go to CVS and say I want to buy 100 stores and they'll hand you a contract for $500 million and you are done.

We are volume building $6 million, $7 million, $2 million at a time and they are highly differentiated for most part in from each other. Part of the value proposition is our diversified portfolio but it also makes it difficult to execute.

Okay. All right, great. Thank you.

Michael Salinsky, RBC Capital Markets.

Good morning, guys. Just to go back to the retention question. As we look to 2014, any reason why, or any large vacates that are known at this point, any reason why we wouldn't see an 80%, 85% retention ratio?

No, I really don't have an answer for that, specifically. The leasing people are working with tenants. I don't think we know any large move outs, significant move outs like Famous Footwear.

Looking forward we are very confident that our occupancy at the end of the year will be at or around or perhaps even higher than it is today. But the individual tenant negotiations, etc., we don't see any reason to believe other than that occupancy will remain 95% or slightly above.

Okay, that's helpful. Second of all, I believe to a previous question you talked about seeing a little bit better rent growth potential in your markets over the next couple of years relative to the traditional 1% underwriting. Do you have that across the portfolio today where market rents are versus where in place rents are, have you started to see that gap widen a bit?

We have just entered into the phase of higher growth. I don't know how long it is actually been going on but maybe last six months, a year, something like that.

So we're only enrolling relatively small amounts of our portfolio on an annual basis, so the overall impact is if you roll 8% or 10% of your leases and then go up 2% obviously on a portfolio basis, that's a pretty small impact. But if you have rent growth of, again, 3% to 4% a year for three or four years, obviously the second year you have had that rent growth has been ongoing and underlining that. So I think the bigger impact will come as we roll leases further into this cycle.

That's helpful. Third question. You mentioned a pipeline of $900 million.

That's up from the $600 million run rate you talked about throughout much of last year. How much of that is related to portfolio opportunities versus individual one-off assets?

There's probably a couple of hundred million in portfolio, something like that. These are portfolios that are as small as $25 million, $30 million and up to as big as $70 million, or $80 million.

Okay. Then just the final question. Can you give us a G&A run rate there, how much incremental overhead are you going to take on in 2014 to complete the 25% growth plan there?

Yes, on the last conference call I believe I gave a little bit of guidance, not that we give that much guidance, but we do give guidance on a couple of things. One is acquisition volume, which we continue to expect 25% asset growth and the second was on G&A where I gave guidance that we would expect to spend about $21 million in 2014.

Okay. Thank you much.

Dan Donlan, Ladenburg Thalmann.

Thank you and good morning. Greg, first off, sorry to see you go, but had a couple of quick questions for you and then I have some for Ben. The spike in intangible amortization and rental income, is that just related to the Sun Prairie asset that you leased up in the quarter?

No, it's really from acquisitions. Every time we do a valuation you have to do basically a component valuation, so you allocate value to land, an empty building and then various components of the income stream including the potential for future renewals.

They call that customer value. So every time we buy an asset as opposed to in the past where you just booked the asset, now you have to book these components including a fairly sizable amount that goes to intangible assets, so that's really what is happening every quarter. There's a component of each of our purchase prices which gets allocated to intangibles and it relates to customer value and other things that are part of the valuation process.

Yes, so the $22.1 million is the good run rate there, right?

Yes, that is a good run rate. It may increase or decrease depending on what type of assets we acquired during the year and whether we have a bubble market leases related to that. As Greg alluded to, this is just the above or below market lease amortization and not necessarily the other components because that runs through depreciation and amortization.

Okay. And then the recurring CapEx you explain that. What was your total CapEx for the quarter, your total CapEx for the year?

Yes, we really don't have that. What we try to do is give people a sense of the new leasing TIs, which are in our supplemental, our renewal TI's and then our recurring CapEx.

We really don't get into our total CapEx, which could include nonrecurring items like a roof here and there, obviously roofs last 20 to 25 years. So we really don't have that figure that's publicly available.

But it's probably not that material -- it's not that much more than you recurring, it's not $5 million or something like that, is it?

No. And keep in mind that the nonrecurring CapEx items on a fairly simple industrial building are relatively few and far between. You have a roof, which is something we expect very carefully when we buy our assets.

There aren't that many things that the landlord is responsible for. So they tend to be relatively episodic.

Okay. And Ben then, on the Sun Prairie asset that you guys released. Just kind of curious how that played out versus your expectations for that property and if this is kind of a model for other potential vacancies that may occur.

In other words is it your plan as vacancies come to try to get a 10-year lease term and maybe not as much rent increases as you would let's say on a 5-year type of new lease? Or how should we think about future vacancies and how you manage rent growth versus lease term, let's say?

Well, we react to every opportunity to lease a building. What we think is the best long run answer for our shareholders. And that's evaluating a 5-year versus a 10-year versus a 3-year.

There are a variety of options that may come up in the tenant, depending on what their motivation is may be willing to overpay you for a 10-year commitment and maybe sometimes maybe willing to overpay you for a 3-year commitment, or we just have to evaluate what is best. I don't think that there is a consistent theme. We obviously like long leases but we are not willing to penalize our returns or our shareholder returns overly in order to garner a long-term lease, if we think that the economics for the asset over a long period of time are better by sending a short-term lease.

Okay. That's helpful. And then on the pipeline, and maybe this has more to do with single-tenant retail than industrial, or office let's say, but there's talk of volumes still being strong this year in 2014 but potentially starting to peter off in 2015 as folks that acquired at really good cap rates in 2009, 2010 and 2011, stop selling properties, they have kind of run out of their existing stock. Are you worried at all about volume in 2015 and clearly your pipeline has gone up from $600 million to $900 million, but is there any type of similar dynamics happening there, or is it just a completely different story altogether?

Yes, one of the things that is nice about our business is that the niche, and it is a large niche that we target, on the order of hundreds of billions of dollars, is owned by probably tens of thousands of people. The largest owner of industrial real estate in the United States, Prologis, probably owns about 2.5% of the fungible assets. Duke owns maybe 1% of the fungible assets.

So most of the assets are owned by again the kind of people that we buy from, the guys that own 1 to 10 assets. And frankly there are, again, there's tens of thousands of them sitting across the table from us as potential sellers and they are not -- we don't believe they are highly correlated.

So the reasons that they have to sell assets, which I have been given reasons like they have a daughter that wants to go to school, they hate their partner, they have debt coming due, they are 65 years old and decide they don't want to manage buildings anymore -- there's a variety of reasons that are relatively uncorrelated. So we believe in examining and participating in this market over the last 10-plus years, there has always been a supply of assets coming to market, again because of this low correlation among sellers.

If we were trying to buy something like say regional malls there might only be 10 people on the other side of the table who are highly correlated in why they are buying and selling assets. So we believe that the target that we are focused at, the combination of there not being a tremendous amount of organized competition but also more importantly the very low correlation among all these potential sellers and the large number of potential sellers, will mean there is always a steady supply of assets for us to buy.

Okay. Thank you and just last question on the dividend.

How should we think about increases on a going-forward basis and when are you going to stick to the policy of maybe one raise a year, is this something that you guys review quarterly, or monthly? And how should we think about modeling --

I'm very thankful that I am sitting two seats away for my General Counsel so she can't kick me now. She will kick me.

Our goal is to pass out 9% of our AFFO as a dividend policy. We have in the past done one increase a year. Because of the rate of growth in our per share metrics, one increase a year maybe hasn't been able to keep up with our growth.

So our Board has noted that and suggests that they will look at our dividend on a quarterly basis to make sure we try and keep up with our per share metrics. What that means going forward isn't set in stone in any way, shape or form but if our growth in per share metrics continues we will be looking at that dividend more frequently than once a year.

Okay. Thank you so much.

Emil Shalmiyev, JP Morgan.

Hi, good morning. In terms of new leases and searches are you seeing a pickup in demand from any specific industries whether it's e-commerce or housing?

I think at the margin e-commerce, housing, logistics, automotive, the industries that are growing and succeeding are at the margin taking down more space. So we are seeing that.

We've seen our portfolio concentration in automotive has increased over the last year, year and a half. Still well within our guidelines for -- our internal guidelines for industry concentration. And the category automotive includes both equipment manufacturers, Tier 1 and Tier 2 suppliers, there's a lot of variability and diversification within that category. But we are seeing growth, as you have suggested, the places you would expect to see growth.

And in terms of these internal guidelines, are you able to disclose what they are, or is it just a percentage of revenue or square footage?

We basically are trying to maintain guidelines that broadly will make sure that we are not introducing undue correlation across the portfolio. I think we would be uncomfortable if we had, say if automotive got over 15%, that would probably mitigate our acquiring any other automotive assets.

Okay. Thank you.

Gabe Hilmoe, UBS.

Good morning, thanks. Maybe kind of a broader question.

I guess it seems like the North Carolina sale was maybe kind of a similar situation as Fuller Brush where you had a move out or a vacancy and subsequent sale. I guess given the geographic exposure in typically single-tenant assets, can you just talk a little bit about how you think about retenanting versus selling out of assets when you do have vacancy, or a move out?

Yes, we try to be agnostic as to the solution of vacancies. We are not agnostic as to returns.

So if a user shows up and will give us economic returns that are similar to, and sometimes better than, leasing the asset, we will sell the asset. And there certainly are users out there that prefer to own rather than to lease.

So the Creedmoor asset that Greg was describing the situation on before, that was the situation. We had somebody if they had leased it probably would have been an inferior economic result to us over all, or could have been an inferior economic result to us overall. That worked out better as a sale.

So we're agnostic. Any asset that we have that is vacant is available for sale or lease. We lead with leasing because generally speaking that is going to provide better economic results for our shareholders but we are always open to sales that will provide similar results for the shareholders.

Okay. Greg, good luck with everything. Thanks.

(Operator Instructions). Brendan Maiorana, Wells Fargo.

Thanks, good morning. Ben, your acquisition pipeline it's up to $900 million. You talked about seeing increased interest, that you're getting more looks as a buyer given your reputation.

Your share price is near an all-time high and you've got a very attractive cost of capital. So I guess, and if I look at your track record of acquisitions it's exceeded that 25% threshold over the past several years since you have been public. So I guess the question is, is the 25% target feel pretty conservative given what the pipeline looks at and certainly given the attractiveness of acquisitions relative to your cost of capital as you kind of sit here early in the year?

Well, Brendan, I think you may have even told us this to underpromise and over deliver. So we would never want to stray from your direction to us. We feel very confident about our ability to grow 25%.

Looking forward at 2014 there is a little bit of wiggle room obviously in our estimations because we don't know what will happen during the year. We feel very confident because of the highly diversified nature of the selling base if you will, but the number of sellers out there, that there will be assets reflective obviously of the $900 million pipeline, but there will be assets to allow us to acquire that 25%.

I personally would hope we can do better than that but that's a number we're comfortable with and obviously as our asset base grows every year that 25% bogie grows every year. So we feel quite comfortable in making that assessment and we hope to surprise both ourselves and you with more, but that's where we are comfortable today.

Yes, I was just testing you on how much you are going to stick to that conservatism.

See, Brendan, I blamed it on you.

Exactly. I just wanted to drill in a little bit on the comment that you mentioned where your reputation is driving more interest from sellers.

Is that sellers or brokers that are reaching out to you, or can you just provide a little more color on exactly what that means? And does that help you in terms of yield?

I think it helps us probably more in terms of, yes, in terms of yield. We frequently are awarded deals where we are not the high bidder, so we're going to get a better yield on the transaction because of our transactional certainty.

I think that it is important, and you've got to understand the dynamics of the market. These small sellers, again a guy who owns 1 to 10 assets, is not in the market every day.

So they are not conversing necessarily with who the right buyer is, or what the right financial source might be. So they are almost always going to rely on a broker to give them advice and help them through the process.

And so our relationships primarily are with brokers. Even on the limited marketing transactions, it's the brokerage advice that typically sways the seller's decision as to who to pick as a buyer.

So we're very careful and cognizant of our broker relationships and part of the reason our pipeline is growing is that our broken relationships are being further enhanced with time. And also with obviously with the payment of fees. Brokers like people that are frequent transactors and deals get done and brokerage fees get paid.

Yes. Okay, that's helpful color. Greg, last one for you.

As you guys have talked about the retention that happened in 2013 and maybe how that drove the CapEx, you have given us some pretty good color on that. Historically, you guys have had very low CapEx, it's been in that sort of 1% to 2% of NOI level. If retention gets back to more normalized levels, is there any reason to think that the level of maintenance CapEx, TIs, leasing commissions won't go back to where it had been historically?

No, I think we would expect it to run just about the same and that is spend.

Great, thank you, guys.

To that point, Brendan, I think we haven't changed our attitude about trying to buy leasing, or buy lease rate. We believe that our stance that we have had and will continue to have with regard to CapEx is that we are -- we have fungible assets that don't need to be -- we don't need to go out and buy leasing, or haven't needed to in the past and don't expect to in the future.

Yes, it clearly is different than a CBD office. We think strategy where you can put well above standard improvements in and get a higher face rate. The CapEx in an industrial property is very little.

Other than the roof, the office space is typically about 5%. There isn't much money you can spend and so people really just focus on the rents. And as a result, as has been suggested, our CapEx strategy really is unchanged regardless of retention.

Yes, and just for clarification, historically you guys have done a very good job keeping that number really low, as I mentioned in that 1% to 2% of NOI level. I think your target is to kind of keep it at 5% or below, is that right?

Well, it's a little bit of the example, as Ben suggested, under promising and over performing. When we first were going public people suggested we were going to run 10% to 12%, we sort of put 5% out there as a number that was credible compared to what their expectations were. We expect to continue to operate well below that number.

Okay, great. Thank you, guys.

Thank you. There are no further questions at this time. I'll turn the floor back to management for closing comments.

Thank you all for joining us this morning and thank you all for your support and continued interest in the Company. We obviously continue to like our strategy and continue to like our position in the market and look forward to a very successful 2014.

I will close with this will be the third thank you, but thanks Greg again for obviously his participation in the call today and the helpful, not helpful the knowledgeable comments he made today but also for 10 years of both in our private existence and our public existence, of his support and preparation of the Company to the level of preparedness and strength that it has today. Thank you, Greg.

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