STAG Industrial Inc (STAG) 2014 Q1 法說會逐字稿

Greetings and welcome to the STAG Industrial first quarter 2014 earnings conference call. (Operator Instructions). As a reminder this conference is being recorded.

I would now like to turn the conference over to your host, Brad Shepherd. Thank you, sir. Please go ahead.

Thank you. Welcome to STAG Industrial's conference call covering the first quarter 2014 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 a 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 with the Company's filings with the SEC and the of 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, Tuesday, May 6th, 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 a call we will hear from Ben Butcher, our Chief Executive Officer, and Bill Crooker, our Chief Accounting Officer. I will now turn the call over to Ben.

Thank you, Brad. Good morning everybody and welcome to the first quarter earnings call for STAG IndustrialWe are pleased to have you join us and look forward to telling you about our first quarter results and some significant subsequent events. We are happy to report that 2014 is off to a good start for STAG and its properties. Presenting today in addition to myself will be Bill Crooker, our Chief Accounting Officer, who will review our first quarter financial and operating results. Also with me today are Steve Mecke, our COO, and Dave King our Director of Real Estate Operations. They will be available to answer questions specific to their areas of focus.

Before getting into our discussion of the quarter you may have noticed that Bill Crooker, our very able CAO, will be presenting today as our CFO slot is temporarily unoccupied. I am happy to report it is likely to be a very temporary situation as the search process as produced come very qualified candidates for CFO. We expect to be in a position to announce our new CFO in a matter of weeks. Our first quarter operation results show continued significant recent activity by the Company. Acquisition activity was, as expected for the first quarter, somewhat muted by seasonal realities.

During the first quarter the Company acquired four buildings for a combined all-in purchase price of approximately $37 million. The one million square feet acquired in the quarter increased the Company's portfolio square footage to 39 million square feet, a 25% increase in square footage from the end of the first quarter last year. The four buildings acquired are located in four different states and represent diverse industries including automotive, business services and office supplies. Our acquisition pace picked up in April. The monthly acquisition total matched the total for the entire first quarter around $37 million.

Our pipeline of deals that meet our investment criteria continues to be robust with approximately $900 million on that list 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% per-year growth through 2014 and beyond. The Company produced strong leasing activity in the first quarter as well, particularly in regard to lease renewals.

In the quarter, the Company signed five renewals totaling approximately 1 million square feet. Four of the five renewals were set to expire in 2014 and one in early 2015. In the quarter we also leased approximately 125,000 square feet of existing vacant space. Occupancy declined slightly during the quarter from 95.6% to 95.3%. Tenant retention was 75% onapproximately 875,000 square feet expired in the quarter.

We continue to see the cyclical larger increases in rental rates. Cash [rollover] rent changes were a positive 3.7% for the retained leases on a cash basis, and were double-digit increase on a GAAP basis. One other item to note, following the end of the quarter our largest formation transactions partner, GI Partners, elected to redeem their entire OP unit position for common shares and then exited their investment through a bulk sale of those common shares. This transaction by GI eliminates an over hang issue from the Company's formation IPO transaction that has been asked about from time to time by both investors and analysts.

The general outlook for industrial real estate leasing continues to be very positive. The same factors were evident in 2013 and continued general economic improvement, and shortening and flattening the supply chains, on shore manufacturing and will continue to drive demand for industrial space over the next couple years. Even some moderate slowing of economic growth will not change the generally positive outlook. In recent months, the potential for over supply has begun to creep into some specific market commentary , Dallas, Houston, Southern California in particular.

These are markets we are generally not active in, and to the extent we are active, it would be in product where we would have a significant cost utility advantage over the new [spectrum] of product. On a macro national basis, net absorption is expected to be dramatically higher than new supply. This will lead to further reductions in availability and improving conditions for landlords to achieve rent growth and (inaudible) vacancy more promptly when it occurs. We continue to expect to see cyclical rent growth above long-term norms through the next three to four years. Yesterday we announced the Board of Directors approved a 5% increase in the Company's annual common stock dividend from the annual -- current annual rate of $1.26 per share to $1.32 per share, commencing with the July 2014 dividend.

The increase equates to a dividend of $0.11 per common share per month, and represents an annual distribution rate of 5.5% based on the Company's first quarter ended share price of $24.10. This is consistent with our stated policy to review our dividend and pay out ratio more than just annually. I will now turn it over to Bill to review our first quarter financial results and provide some further detail on our balance sheet and liquidity.

As Ben mentioned we had another solid quarter from an acquisition and operation standpoint. Our cash NOI was up 26% over the first quarter of 2013. This growth was driven primarily by our strong acquisition activity. Our core FFO increased by 23% over the first quarter of 2013. 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 9% over Q1 of 2013 while maintaining our low 27% debt-to-enterprise value. Our AFFO for the quarter increased 26% over the first quarter of 2013. This is one of our key evaluation benchmarks as it reflects the low CapEx nature of our portfolio. Because of the single tenant focus of our business our leasing and CapEx costs continue to be quite modest. Tenant improvements and leasing commissions for the 1.1 million square feet of lease assigned in the first quarter was only 1% of cash NOI.

Our occupancy was 95.3% at the end of this quartercompared to 95.6% at the end of the fourth quarter 2013. Year-over-year same store occupancy decreased by 1.2% to 93.9%. This same store occupancy drop is a result of lower retention rates in the second half of 2013.

Retention rates improved in the first quarter of 2014 as we achieved a 75% renewal rate on expiring leases. In addition we signed leases for 1.1 million square feet both new and renewals. Our debt metrics continue to be quite strong. Our net debt to annualized adjusted EBITDA was 4.7 times at quarter end.

Our interest coverage for the first quarter was 5.1 times. Our total debt to total assets was 42%, and debt-to-enterprise value was 27%. All very strong metrics. In general, the financing markets continue to be attracted to our properties' ability to generate high cash yields with limited leasing costs. As a result, we closed a new seven year, $150 million unsecured term loan.

The interest rate is one month LIBOR plus a spread of 170 basis points,45 basis points less than our previous seven-year facility entered into at the beginning of 2013. We have one year to draw on these funds and then we're [driving] closing. The delayed draw feature enabled us to match our debt needs with our acquisitions. (inaudible) to the quarter we signed a no-purchase agreement for $100 million in private placement unsecured notes consisting of $50 million with a 10-year term and $50 million with a 12-year term. both notes bear an interest rate of 4.89 -- 4.98%.

The 12-year note is expected to be drawn on July 1st and the 10-year note is expected to be drawn on October 1st. These debt facilities help us continue to ladder-up our debt maturities in this low interest rate environment. As of quarter end we had approximately $22 million outstanding and $178 million of availability under our revolver. The ATM program was very effective raising gross proceeds of $78 million for the quarter. The ATM has allowed us to maintain leveraged mutual as we continue to fund our granular acquisition strategy and global portfolio. Given our extremely strong credit statistics, our financing strategies 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 you may know, Greg Sullivan our former CFO, decided not to renew his contract beyond April 20th and subsequently signed a 12-month consulting agreement with the Company beginning April 21st to help with the transition of a new CFO. The accounting treatment of Greg's consulting agreement will result in a charge to our G&A of approximately $2.8 million in the second quarter of which $2 million is a non-cash charge. This one-time nonrecurring charge will be added back to our key financial measures in the second quarter. I will now turn it back over to Ben.

Thank you, Bill. It was another successful first quarter for the Company with good leasing results and the expected somewhat muted acquisition page at the outset of the year. We will continue to move forward with our low-level 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 a spread investment basis.

General market conditions remain favorable with relatively low and stable interest rates,. continued strengthening in the leasing market and a relatively stable the cap rate environment. 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 first quarter operational results provide continued 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). And our first question comes from the line of Sheila McGrath with Evercore. Please proceed with your question.

Yes, good morning, Ben. I was wondering if you can talk the about the competitive landscape? Have you bumped into more competition on acquisition. And how is the pipeline looking versus the size of the pipeline versus year-end?

I think the preponderance of our competition remains the smaller players, guys that are 1 to 10 assets. That's again the [remainder] of the people we buy primarily from and people we compete with primarily. We do see at the margin the aggregated private funds as well as some of the public non-traded. In addition to which some of the now-traded companies (inaudible) we see occasionally in our markets.

For the most part we remain competing with, again, those smaller players. I might note that the -- and everyone has been talking about the impact of rising interest rates that should that occur and clearly that hasn't eventuated yet, we feel that would be good for us on a competitive basis because we are a lower leverage player than our principal competition, these smaller buyers. The pipeline running around $900 million right now is pretty consistent with where it was at year-end. It is made up of mostly granular acquisition opportunities with some portfolio opportunities mixed in, and a couple of build-to-suit [take head] opportunities. The pipeline remains very robust and we remain very confident of our ability to execute on our 25% or perhaps greater add to our portfolio throughout the course of the year.

And just one quick follow-up, on the renewal percentage that moved back up from the past couple quarters were lower, so it is back to the 75% range, as you look out over the next three quarters, do you think that kind of higher renewal percentage is sustainable?

I think that we are -- we always run into the small sample size issues. We are not completely out of the woods yet in terms of getting back to the sustainable 80% to 85% retention we think is a long-term equalibrium number. We expect next quarter to be another moderate at best retention quarter. And I think the remainder of the year as we have indicated in prior calls, the remainder of the year we expect to be trending back towards that 75%, 80% and hopefully in the 80% range. The next quarter is -- we would not be surprised based on the data we have to date, that it would be another relatively moderate retention quarter on a small sample size.

Thank you.

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

Hey guys, good morning. On the ATM issuance was a little more than we originally expected at $78 million. Is it fair to assume maybe you guys accelerated the issuance that you expect to see or given good pricing, or do you think it can continue at that level going forward?

You know, we were a little opportunistic and reactive to some block inquiries, some large -- interest from some large known re-buyers to enter the stock through block purchases under the ATM. That was probably higher than we anticipated for the quarter. On the other hand we expect to have block entries going forward. The $80 million -- or the $78 million is the run rate we need to fund our expected acquisition activity for the quarter..

So I wouldn't expect that we will run at that kind of rate . Probably more like half that for the remainder of the year. What has been demonstrated to us is the ATM's productivity is -- appears to us to be sufficient even at higher acquisition volumes, sufficient to fulfill our equity needs through the year as opposed to relying on periodic follow-on offerings. As I'm sure we've discussed over time, from the Company's perspective the smaller discounts and the lower fees associated with the ATM issuance versus the follow-on issuance has to be good for the Company and for our shareholders.

That's helpful. And then, Ben, can you talk a little more about the portfolio deals out on the market right now and what size you guys consider pursuing at the high end?

I think that the -- in the continuum portfolio deals, if you move to the levels where Blackstone or their industrial entity Indcor, has participated over time, $250 million and up, it still feels to us like cap rate basis and probably an IR basis as well, you are giving up a couple hundred basis points of return. That's a trade that despite the attraction of perhaps of being able to execute at those kinds of volumes, that is a trade we are not likely to be interested in undertaking. It would not meet our return requirements for our shareholders. We feel that in the sub $100 million dollar portfolio say $30 million to $75 million we are maybe only giving up 50 basis points.

That may be a trade that is of some interest to us. We will continue to look at them. I think you'll see us execute on some small portfolio trades. There may be an add on to the ATM issuance in that some of the trades are likely to at least have the possibility of OP and issuance as part of the trade. You will see us doing some portfolio activity, but the smaller end of the range. Sub $100 million most likely.

And then on the occupancy side, flipped a little bit this quarter, but from a high number. Do you have any sense of how you think the number is going to trend for the rest of the year?

You know, we said consistently we think [not] around 95% as an equilibrium number, and we have been running a little above that. I don't think we are thinking any differently for the remainder of the year. The really strong leasing environment -- we expect to have some pretty good results throughout the year of leasing of currently vacant space. Which is the flip side of what has been this period of lower retention. Frankly we don't have that much vacant space, so our leasing guys don't have that much to work on. But we expect to have some good results in leasing throughout the year.

Great. And then this quarter a lot of your peers talked about the impact of higher than usual snow removal and utilities expense. Did you guys have any of that, and what kind of -- what was the affect on, say, same store NOI for the quarter?

Same store NOI was down 4-something percent, and half of that probably was due to weather-related issues. Direct weather-related issues which are higher -- non reimbursable snow removal, but also the indirect effects of snowing a little harder and people are not -- just the general malaise caused by all that bad weather I think probably --If you listen to most of the industrial companies that reported so far, there has been a tendency -- or there has been some indication of just slower activity, occupancy drops -- small occupancy drops, etc. I think it's pretty consistent across the landscape. Slightly higher costs and probably a little bit muted leasing activity during the quarter, new leasing activity during the quarter.

Great.

Thank you.

Our next question comes from the line of David Toti with Cantor Fitzgerald. Please proceed with your question.

Good morning.

Good morning.

I had a couple of big picture questions. We are hearing from some of our industry contacts that there is an increased interest in secondary and tertiary markets given the growing pressure on rapid delivery. Are you seeing interest in tenants in some of your more peripheral markets and peripheral assets from those types of tenants? Are you seeing more blanket distribution at the local level as well?

I will ask Dave King to give me his thoughts on that. I wouldn't say there has been a large factor, anecdotally. Dave, do you have any --

We were seeing a little bit of building up the spokes from the hub whereas the tendency has been for very large regional centers. In order to get closer to customers they tend to recently have looked at smaller facilities closer to the population . There is a bit of building out of the spokes, but I don't think the landscape has changed that much.

So maybe early days. My other question has to do with obviously there is a sort of growing wave of land acquisitions spec development coming which I think you touched on in your comments. Are you seeing this potentially as competition given higher technical qualities in the new assets, bigger clearance, bigger footprints? Is that in anyway connected to your retention rates at this point in the cycle?

We talked about this in the last call and I think we continue in our review of tenants that have not renewed. I don't believe we had any tenant not renew because they wanted a building with higher clear height, different type of sprinkler system, different lighting or anything like that. The lighting, sprinkler systems, etc. are generally number of doors are all addressable within the existing structure. The reason the tenants leave is generally because the building isn't big enough for them, because of consolidation or M&A activity, or just growth of business . They have outgrown the building to a level that is -- the building is not expandable.

Most of our buildings have some incremental expansion capacity. We are not seeing the landscape of tenants looking for buildings that are different technologically. What goes on -- the technological advancements are mostly what goes on inside the building and not with the building itself. The RFID, or other types of material handling equipment, etc. are internal to the building. I was into looking into an industry expert SIOR interview talking about obsolete buildings. And then he went on to say but these can be made non-obsolete by the addition of T-5 white areas, the fire sprinklers.

It wasn't as much the (inaudible) buildings were obsolete, it was just that the things, if you will the bells and whistles at the margin, have been changed. These are addressable in older structures for the most part. If you have an upper 20s and mid-20s clear height, that is suitable the large preponderance of tenants that are operating in the market today.

My final question has to do with pricing power and I think there is sort of a broad, modest recovery taking place in absolute rental rates given this upswing of demand. Are you seeing this in terms of your early discussions on renewals? Are you finding you have more negotiating power given the shrinkage of product in the market?

You will see our numbers this quarter were up 3.7% on cash rolls. In terms of new deals coming in we are at or above prior rents and those rents tend to have grown over time to something perhaps that could be considered above market, but is becoming more market . So we are seeing a lot more demand, a lot more interest in our spaces and that should ultimately result in pricing power.

Thanks for the detail today.

Our next question comes from the line of Michael Salinsky with RBC. Please go ahead with your question.

Good morning, guys.

Good morning.

Just going to the same store numbers. The cash decline in same store revenue, how much was due to the occupancy drop and how much was due to the burn off of the above market rents.

Hi Mike, it's Bill Crooker. The same store numbers, as you see, dropped 5% on a cash NOI. That was driven for a couple of factors. One being in 2013 we had some existing tenants paying cash rents which are now paying -- that are in a free rent period. One of those being the Sun Prairie lease we entered into at the end of 2013. That contributed about 2%. If you take that out it is about 2% of the cash NOI change. The winter, the harsh winter contributed to about 1% of that change. The other 2% contributed to the vacancy and the occupancy loss related to the lower retention in the end of 2013.

That's helpful. The Sun Prairie lease and free rent rate, when does that burn off?

There is two months of free rent in Q2. And another in (inaudible - multiple speakers)

Very helpful. Second of all the G&A hit, I think you mentioned for Greg's consulting agreement, what was the number in the second quarter again? And then how much should we expect since it is a one-year agreement, how much do we expect in the third and fourth quarter? So what is the run rate after the second quarter?

The way the accounting works on that is it will all be -- the whole charge will be taken in Q2. The proximate charge is about $2.8 million of which about $2.1 million is a non-cash charge. On a go-forward basis there will be no charges related to his consulting agreement. The only potential charges or changes is in his bonus. but that will be minimal. (inaudible - multiple speakers)

And the final question, you talked about some deals of call it $30 million to $70 million, but under $100 million of portfolio opportunities. If you look at the pipeline today how much does that represent? How many portfolios are you looking at of that size?

We have about six portfolios in the range between $10 million and $60 mill at this point on the deal sheet.

$150 million of the $900 million, something like that.

Appreciate the color. Thanks, guys.

And our next question comes from the line of Emil Shalmiyev with JPMorgan. Please proceed with your question.

Good morning. I'm not sure if you disclosed this, but what was the tap rate on this quarter's acquisitions?

I always love the cap rate question. The cap rate was right around 9%. We are focused on -- cap rate is not a great measure of the quality of the return of the deal. So we are -- although we talk about, and have talked about in the past, cap rate and our nine cap rate acquisitions, you can buy a transaction with above market rent and was a two-year deal with a 12 cap that might have really bad financial returns. You can buy a seven-and-a-half cap with a 15-year lease to a credit tenant with 2% bumps that might actually provide pretty good returns.

We've tended to try to talk away from cap rates as a measure. It is a point in time measure of return much like the dollar price of a bond that maybe is not as informative generally speaking as an IRR or some longer term measure of return. We continue to buy -- because the market likes to talk about it, we continue to buy 9% cap rate deals, but our focus is really on the long term that can be garnered from owning these assets. And that has been and will continue to be our focus.

Right, understood. And as a follow-up, what was the occupancy level of those acquisitions?

They are 100% occupied.

Thank you.

Thank you. (Operator Instructions)Our next question comes from the line of Jon Petersen with MLV. Please proceed with your question.

Great, thank you. You mentioned the GI Partners converted -- sold out their units for shares. When did that happen? I know there was a large block trade that happened a few weeks ago that I think the market assumed was an ATM offering. Was it --

We had the good fortune to hit our all time closing high four days in a row. They sold the day of our la -- the fourth of those days. We closed at $24.99 on a Tuesday. I forget the actual date. I believe they executed that evening.

Got it. That wasn't additional equity that was issued. The market assumed there was a little dilution there. Thanks for the clarification. And then I know we just touched on cap rates and I know your opinion on it, but just generally speaking we are hearing from other industrial REITs that cap rates in primary markets have declined. You can look at the data yourself like real capital analytics down anywhere from 25 to 50 basis points over the last two to three quarters. Are you seeing the same declines in the secondary markets more or less?

Generally speaking, we talked about this before, one of the features of the secondary markets that we like and will allow us to continue to produce very predictable results is that they're just lower volatility markets on rental rates, on occupancy rates, and on cap rates. Primary markets moving 50 basis points typically the secondary markets would be moving 10 or 20 basis points. Just lower volatilityAll of the discussion about -- that's been in the popular press and other discussions about, it is time to move to the secondary markets because there are no returns in the primary markets, we still haven't seen a lot of organized capital pursuing secondary markets. So while there has been some pressure on pricing in the secondary markets it is nowhere near what's been in primary markets.

Thank you.

Thank you. Our next question comes from the line of Jamie Feldman with Bank of America. Please proceed with your question.

Great, thank you. So our economists are still calling for a 375 10-year treasury by the end of the year. If we hit that number, what do you think changes in your business model or your dividend growth? How would that impact your outlook?

Rates obviously have been moving the opposite direction of late. I fully count that a lot of economists are calling for a 10-year of that level. I would tell you I think it would generally be -- it would have relatively -- over time it would have relatively little impact on our returns. We are about 40% levered and it the general history has been within small bands that cap rates move at about 50% of interest rates. If cap rates went up, you're talking about 200 basis points. If our cap rates go up 100 basis points, our overall returns given our leverage levels returns to equity would not be terribly changed.

What would really change is, which I touched on before is the competitive environment. We are mostly dealing with even the larger players we compete with, the real estate private equity funds are operating at a significantly higher leverage than we are. And their competitiveness would be hindered by higher interest rates far more than ours would. As you move down the spectrum to our principal competition and the guys that have one to 10 assets they are typically operating at a much higher leverage than us, and their access to capital I think would be less attractive and diminished. I think in general again within a moderate range and obviously depending on the pace of that and how much cap rate lagged the interest rate increase, I think generally speaking it could be good. Interest rates rise should be good for us.

If you go back to prior cycles, did the cap rates actually go up when interest rates increased? Or did (inaudible - multiple speakers)

Generally speaking in history is, within normal range is around 50 basis points. What's happened -- not -- 50% of the interest rate increase. I think that's because real estate tends to be levered in total around 50%. Maybe that's where the muting comes from. That has been pretty consistent through time.

Whether we are in a different paradigm this days because of the capital chasing real estate, the primary markets , you can make a strong argument that cap rates and interest rates have detached from each other. There is just too much capital pursuing those markets. I don't think it stands up quite as well in secondary markets and I think over time it won't stand up in any market. I think the returns are -- the desire to maintain returns will make cap rates follow interest rates at some point. Again, typically with a lag. Six months or so.

And then I know you are not really focused on the markets that are seeing a lot of new supply, but I am curious from your vantage point what your thoughts are on the broader warehouse cycle right now. I know markets getting (inaudible -- multiple speaker)

Anything on the macro basis, the overriding statement is that there is a lot of -- net demand is still projected to vastly exceed net supply. On a macro basis you have to feel like the ease with which you lease vacant space, the ease with which you have negotiations about rental rates with existing tenants, all of that stuff has to continue to improve as absorption on the order of 100 million square feet exceeds supply which again is projected to do this year. The anomalies are markets where people have land banked and permitted and are in the ground and building buildings on spec or build-to-suit basis, where I think you read people think Dallas may have moved over to where supply will exceed absorption this year. People talked about Houston, some Southern California markets. The big competition for us is really not speculative supply, but again when tenants need bigger buildings the build-to-suit activity is the competition we frequently see as competition for our tenants. But again it is not because they are moving because they want a prettier building or higher clear height or some other feature of the building. It is because they need a bigger building is almost always the case.

Are there certain markets are you not willing to buy because of the supply story and build-to-suit risk?

We are happy to buy in Dallas and Houston and Southern California if we can get 10 IRRsThe reality is it is not likely we are going to be able to do that. I think we will be able to find transactions in other cities in Texas and other parts of California. For the first time we are pretty close to a transaction in California but not in those markets where the abundance of capital chasing those markets have driven -- or continue to drive returns down to levels we are not interested in. Despite the fact that those markets are also markets that have supply risk, capital continues to chase transactions in those markets.

Great, thank you.

Thank you.

Our next question comes from the line of Dan Donlan with Ladenburg. Please proceed with your question.

Thank you. Just a couple of clarifications. Ben, when you put at the non-cap I assume you mean cash on that.

Yes.

As far as the free rent with Sun Prairie can you quantify how much of that was in the quarter?

In this quarter it was about $320,000 of free rent. In Q2 there will be a couple hundred thousand running through as free rent. There was probably an additional $500,000 of other free rent in this quarter that we burn off the next quarter.

And does it all flow through straight line rents?

It does.

And then as far as just real quick on the G&A, I think your guidance last quarter was $21 million. Obviously with the consulting agreement being $2.8 million should we add the $2.8 millionto the $21 million and that seems like a good run rate, or a good number for the full year?

I would say -- quickly answer that as no because I don't think Greg's compensation was already in, (inaudible) that $21 million number. I will let Bill answer more.

I think adding it to the existing $21 million is a good start until we see what happens when we hire our new CFO. I think right now that's the best we can do is to add that to the $21 million.

Okay. Thank you so much.

And it seems we have no further questions at this time. I would like to turn the floor back to management for closing remarks.

Sorry, I was having a conversation with Steve Mecke about something. Thank you all for participating in the call today. We appreciate your support. I think the general word from us here at STAG is the opportunity we see in front of us continues to be very attractive both in terms of leasing our current vacancy and acquiring new buildings that will deliver the kind of returns we have delivered to -- for the Company along the way. We're very encouraged about the prospects for 2014. We thank you for your support and look forward to delivering on those promises. Thank you.

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