STAG Industrial Inc (STAG) 2015 Q4 法說會逐字稿

Greetings, and welcome to the STAG Industrial fourth-quarter 2015 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Matt Spenard, Vice President of Investor Relations for STAG Industrial. Please go ahead, sir.

Thank you. Welcome to STAG Industrial's conference call covering the fourth quarter 2015 results. In addition to the press release distributed yesterday, we posted an unaudited quarterly supplemental information presentation on the Company's website at STAGindustrial.com under the Investor Relations section.

On today's call, the Company's prepared remarks and answers to your questions will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. Examples of forward-looking statements include statements relating to earnings trends, G&A amounts, acquisition and disposition volumes, retention rates, debt capacity, dividend rate, industry and economic trends and other matters. We encourage all of our listeners to review the more detailed discussion related to these forward-looking statements contained in the Company's filings with the SEC, in the definition 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, Friday, February 26, 2016. 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, you will hear from Ben Butcher, our Chief Executive Officer, and Bill Crooker, our Chief Financial Officer. I will now turn the call over to Ben.

Thank you, Matt. Good morning, everybody, and welcome to the fourth quarter earnings call for STAG Industrial. We're pleased to have you join us, and look forward to telling you about the quarter and the full-year of 2015.

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

I wanted to start off today by mentioning the very strong fundamentals currently existing in the US industrial markets. Seemingly at odds with the preponderance of US -- excuse me -- of current news headlines, as other industrial operating REITs have already reported, we are seeing strong tenant demand for our buildings, declining vacancy, and rising rents across a broad array of markets we operate in.

The tenant demand comes not only from e-commerce, which itself is a broad geographic demand generator, but also from a variety of other industries benefiting from health and confidence of the US consumer, responsible for about 70% of GDP. New supply concerns have greatly moderated, and in most of the markets we operate in, new supply was never really an issue. The combination of continued moderate growth, and the relative insularity of the consumer-driven US economy, only about 8% of GDP is related to [non-NAFTA] trade, should provide advantageous operating conditions in the coming years.

The fourth quarter was a strong finish to a solid operational year for STAG. This is readily apparent in the continuation of our robust booking activity, healthy acquisition volumes, continued asset dispositions, and resultant portfolio improvement, and most importantly, continued strong earnings growth.

We continue to see widespread opportunities for accretive acquisitions. Our current pipeline contains over $1.4 billion of transactions that have passed an initial triage. In response to this continuing opportunity, we have advanced our preparations to source alternative equity capital, so that we can continue to accretively acquire for the benefit of our shareholders. Bill Crooker will share more detail on our results with you in a moment.

Subsequent to the end of the quarter, we announced the departure of Geoff Jervis, our former CFO from STAG. Bill Crooker, our new CFO, has been a member of the STAG team since before the IPO. He initially came to us as our Chief Accounting Officer, bringing extensive REIT accounting and reporting experience and competence.

During his tenure at STAG, he has added both corporate finance and capital markets expertise, to round out his qualifications for the CFO role. We view this transition as seamless, and his elevation to CFO as a testimony to the bench strength in the Company. We look forward to his continued contributions in the coming years. With that, I will turn it over to Bill, to walk through our fourth-quarter and full-year 2015 results.

Thank you, Ben, and good morning, everyone. As Ben mentioned, we had another solid quarter from an acquisition, disposition, and operations standpoint. We acquired 14 properties for a purchase price of $138 million, and a weighted average cap rate of 8.8%. For the year, we acquired 49 properties for $427 million, representing an 8.4% cap rate. These acquisitions are consistent with our prior acquisition, in terms of tenant and asset quality, as well as deal parameters. For 2016, we expect the relative value acquisition opportunity to continue, and we expect to acquire between $300 million and $400 million.

During the fourth quarter, we executed on two types of dispositions, opportunistic and non-core. This resulted in four dispositions for gross proceeds of $12.8 million. For the year, we disposed of six properties for gross proceeds of $22 million.

In 2016, we plan to significantly increase our opportunistic and non-core disposition activity. The opportunistic dispositions include both small and medium-sized portfolios. We consider all of our flex office to be non-core, and attempt to divest ourselves of this property type of over time, and in an orderly fashion consistent with maximizing our economic realization from individual properties.

At quarter end, we owned 291 buildings in 38 states, with a total of 55 million square feet. Occupancy stands at 95.6% for the portfolio, with an average lease term of four years. We continue to see robust activity in the leasing markets, as evidenced by cash and GAAP rent growth of approximately 1% and 12%, respectively, another strong quarter.

On the retention front, we had a retention rate of 49.2% on the 800,000 of square feet expiring in the fourth quarter. This lower retention rate was driven entirely by one non-renewal of 400,000 square feet, 200,000 of which the Company re-let with no downtime. In total, over the last 12 months, our retention rate has been 70%, and we expect retention for 2016 to be in the 70% range.

From an operations standpoint, cash NOI for the quarter grew by 18% from the prior-year. Same-store cash NOI grew approximately 2% quarter-over-quarter, and up approximately 1% for the full-year compared to 2014. Core FFO grew by 18%, compared to the fourth quarter of 2014. On a per share basis, core FFO was $0.40, up 8% compared to last year, and up 3% to the previous quarter. This is the second consecutive quarter of record core FFO per share results.

Our AFFO for the quarter increased 27%, compared to the fourth quarter 2014. This resulted in an AFFO pay out ratio of 86% for the fourth quarter.

Our balance sheet continues to be strong, and in line with our triple BBB investment grade rating. At quarter end, our debt to run rate EBITDA was 5.6 times, and our fixed charge coverage ratio was 3.1 times. We continue to operate in our promulgated leverage ranges of 5 to 6 times debt to run rate EBITDA, and greater than 2.5 times on our fixed charge coverage ratio. As of the fourth quarter, we had $56 million outstanding on our revolver, and $422 million of immediately available liquidity, which includes cash on hand of $12 million, and an unfunded $150 million term loan.

During the quarter, the Company closed a seven-year unsecured private placement offering for a $100 million of proceeds bearing a fixed rate of 3.98%. The Company also funded the previously committed $150 million term loan B. At quarter end, we had approximately $987 million of debt outstanding, with an average maturity of 6.5 years, and a weighted average interest rate of 4.1%.

All of our debt is either fixed rate or has been swapped to a fixed rate with the exception of our revolver. In 2016, we will continue to maintain a flexible balance sheet, and be prudent allocators of capital. I will now turn it back over to Ben.

Thanks, Bill. I would like to update you on our progress with STAG's five-point action plan that we first announced last summer. First, we continued to demonstrate equity discipline. We have not sold common stock since June 30, 2015, and are not contemplating issuing common equity in this environment.

Second, we have shown G&A discipline, while ensuring the Company is appropriately staffed. We beat our G&A forecast for 2015, $28.8 million versus our forecast of $29 million. Further, our projection for 2016 has been reduced again to $31 million, versus prior guidance of $32 million. The $31 million of G&A in 2016, excludes the one-time charge for the departure of Geoff Jervis. The increase in the G&A from 2015 and 2016 is related to the full year cost of 2015 hires.

Third, we have allocated our available capital to its highest return, continue to make accretive acquisitions. We established a large amount of available debt capacity in the third quarter of 2015. And due to our low leverage metrics and flexible balance sheet, we have been able to put this capital to work, while staying well within our promulgated leverage levels.

Fourth, we have shown continued earnings growth. Yesterday, we reported core FFO of $0.40 per share for the fourth quarter. This is an 8.1% increase over fourth quarter 2014, and a $0.01 increase over the prior quarter. Full year core FFO per share was $1.49, a 3% increase over 2014. We finished 2015 on a strong growth curve, and we'll continue to drive for earnings growth going forward.

Our fifth goal, establish alternative equity capital sources is ongoing. As prudent managers and allocators of capital, we've identified a path for alternative equity sources, which we plan to begin [executing] on in the near future. These sources include sales of preferred equity, asset sales, and various forms of private equity, principally joint ventures. We plan to increase our disposition activity in 2016 to a total of between $100 million to $200 million. This will be an important component in the funding of our acquisition activity in 2016.

In continuation of this fifth point, as prudent and rational allocators of capital, we are both conscious of, and open to various potential uses of our capital. The big three uses, buy assets, reduce [staff], or buyback stock, will all be considered, and capital applied as appropriate at that time. As we move into 2016, we will continue to focus our [efforts] around the strength of both our investment [thesis] and the Company.

We thank you for your time this morning, and for your continued support of our Company. I will now turn it back to the operator to open the floor for questions. Thank you.

(Operator Instructions)

David Toti, BB&T Capital Markets.

Great. Good morning, guys.

Good morning.

Ben, just a question for you, and I want to touch on some of the information that you shared relative to capital costs. At what point do the capital costs begin to impact your investment strategy? Is there a hurdle rate, is it a bit more gray? How do you guys think about that spread, investing as your capital costs move up?

Well, I think that the -- we think of the returns that we want to deliver to our shareholders, and we have a threshold that have been relatively static, through the variability of our equity cost of capital. I don't think that the need -- we haven't seen any need to change that threshold, because again of that variability. We believe that the spread between our threshold, and what we think a reasonable stabilized cost of capital is, is quite large. It's large, versus our current cost of capital, and even larger versus what we think our stabilized cost of capital will be, the long-term valuation of our portfolio.

Okay. That's helpful. And then, my second question is, relative to the assets you are seeing in the market today, are you seeing any wholesale change in cap rates and valuations, especially at the higher end -- the higher yield end of the spectrum?

We are not really -- despite the fact that people look at us sometimes and say, you can't buy cap rates like that, we really are not working in the higher yield spectrum. I think that sort of the range of 8% to 9% that we're buying it today, I think most observers who saw where we're buying, and observe where we're buying, would find we were just identifying relative value, where there is sort a middle spectrum if you will.

So I think that we are -- we have seen maybe an end to the decline in cap rates, or at least there's seem some indication that cap rates have stabilized. And if you listen to, anecdotally, to the sales brokers in the market, there is a suspicion that there may be a lot of assets coming to market that the, if you will a -- the long-held belief that the cap rates eventually will rise, is coming to the market. And perhaps we will see an onslaught of assets where there have been people have been holding onto, as they sort of -- with the expectation that perhaps cap rates would continue to decline. People have been projecting that for a number of years. So we'll see if that actually eventuates, but we are certainly seeing, I think stability in cap rates.

Okay. Thanks for the detail.

Gaurav Mehta, Cantor Fitzgerald.

Thanks. Good morning. So you talked about alternative sources of capital, one of them being sales, and you also talked about [private] equity and JVs. I was hoping you could provide some color around private and JV, how you think about those two sources?

Well, I think we've always been -- and I think we've been quite clear about this, we've always felt that as a public company, our main source of equity capital should be common equity. Obviously, given the current pricing environment for our common equity, that is not a source that is particularly attractive. Asset sales as we described in our commentary will be a bigger component of our funding of equity capital going forward.

Again, we are going to use that equity capital in its highest return to our shareholders, which whether that be buying assets, reducing debt or buying back stock, but we are -- if we sell an asset at a 7% cap, that's effectively equivalent to raising equity, common equity in the $23 range or $24 hour range. And so, that's going to be a bigger component as we look at the year.

The joint ventures, again are not our first choice, but the private equity is available, aggressive, and quite interested in what we do. And we have an accretive -- we have opportunities to do accretive acquisitions, a machine if you will, set up to do those. And it's not unexpected that you would find people interested in accessing that ability to deploy capital.

Okay. And then, a second question, as you look to sell your assets in 2016, what's the timing of those sales, and have you started marketing any of those assets?

Well, we are -- we're always in the process of selling assets. And we're just -- and we have I think -- I don't know what we've announced, but we have granular asset sales that are coming in this quarter and beyond, about $40 million of asset sales already planned. In addition to that, we're taking out a number of small geographically focused portfolios for sale in a number of markets where we have concentrations.

And the timing of those will be the middle to the back half of the year.

All right. Great, thank you.

Thank you. Juan Sanabria, Bank of America.

Hey, good morning. Just on the joint ventures, how should we think about how you guys would deal with potential conflicts, in terms of growing assets either on the joint venture side, or relative to on balance sheet?

Well, Juan, that's obviously a very interesting question, and I think the answer maybe somewhat dynamic. The amount of equity capital that the public company supplies to the joint venture, I think varies with the expected return from that venture, and the opportunity that exists for the REIT to invest directly. So the answer is a little bit complicated. But we believe -- are committed to the public company, and to what's in the best interest of the shareholder.

Okay. And then just, if I look at your statement of cash flows relative to the maintenance and leasing CapEx in your supplemental, there's seems to be a big variance. How should we think about that delta? Is there anything else included in the statement of cash flows figure, which is about five times greater than the CapEx listed as [maintenance]? And how do you think about that relative to the dividend?

Yes, the statement of cash flows is -- it's tough to tie that to the AFFO statement for a couple reasons. One that has changes in our AP related to CapEx. So it really is a cash statement, and not on accrual basis, similar to what's disclosed in our AFFO. Additionally, our AFFO is recurring, and excludes nonrecurring CapEx.

The way we think about our CapEx and underwrite is, about $0.15 per square foot on the portfolio will be nonrecurring, and about $0.10 per square foot is recurring. Over the past year, we've incurred less recurring CapEx in relation to the $0.10 per square foot, which is why that number is a little lower on the AFFO statement.

And how much of that $0.15 have you actually had to book over the last couple of years, that would make it nonrecurring?

I would have to go back, when you talk about going back the last couple years, but we were pretty close to that number in 2015.

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

Tom Lesnick, Capital One Securities.

Hey, good morning, everyone. First, just big picture, historically you guys have kind of targeted growing your asset base by about 25% a year. Just wondering how you're thinking about the pace of growth here in 2016? And depending on your ability to execute all of these alternative sources of capital, how you would potentially ratchet that growth rate, either up or down?

Yes, that's a great question. At the time of our IPO, we promulgated this 25% growth a year -- I will freely admit, we kind of pulled it out of thin air at the time. And for most of our existence, we have exceeded that number. Last year, we were right at or just slightly below that number. But it has never been a number that we put on the wall someplace, and said we've got to beat this number.

We've always acquired assets that we deemed were sufficiently accretive, and it has turned out in most years that number was 25% or higher. Looking at 2016, as we've talked about $300 million to $400 million, which obviously would be below the 25% number. I think that number is reflective of what we expect, or what we saw sort of at the end of the year is a little bit, a competitive market, that they might impede our ability to get past the $400 million.

But I say that, and I look at our pipeline, and I talk to our acquisition people, there's a lot of opportunity out there. We're being a little conservative in our estimates perhaps for this year, but we know we can fund that $300 million to $400 million through the initiatives -- the non-common equity initiatives that we have on -- that we mentioned on the call.

Got it. Thanks. And then, with regards to the potential asset sales, I know you mentioned it would be a mix of potentially opportunistic sales, and then some non-core flex office space. Can you give us a sense as to the ratable portion you are expecting those two categories to represent of your asset sales?

It will be largely tilted towards the opportunistic, accretive sales.

Probably in the $100 million to $150 million range of opportunistic, small to medium-size portfolios, which would be weighted to the middle back half of the year.

Got it. Thanks. And then, with regards to a potential JV partners and equity, what kind of partners are you in talks with? Can you give us any kind of color as to the types of partners you are talking to?

We've engaged an advisor, and we are looking at an array of potential counter-parties that include, near sovereigns to the household name private equity firms. And I think that the -- our ability to deploy capital and produce high current returns, some preponderance of the total return coming from current return, is potentially very attractive to the entire array of capital sources. And as opposed to a lot of potential JV sponsors, we are in the process of doing exactly what the joint venture would do.

So it's not a big stretch for one of the counter-parties to considering doing business with us, to see us being able to deploy capital. Which is, a lot of times you see joint ventures announce, and then nothing happens. I think that our ability to make our counter-party comfortable with our ability to play capital is not a big hurdle, and therefore one of the reasons, why the list of potential counter-parties is so long.

Got it. I really appreciate that insight. And then Bill, one final one for you, just wondering -- where do you see pricing on preferred in today's environment? And what are your thoughts with the upcoming -- of potentially redeemable issues that are here in the next year or so?

Sure. I think pricing on preferreds would probably be in the range of our last preferred, our series B, maybe a tick higher, that price, that [6 5/8%]. In terms of taking out the Series A 9% in November, that's something that we will call -- it's likely we will call that, with a mix of asset sales, or potentially refinancing it with another preferred.

Got it. Really appreciate it, guys. Thanks.

Thanks, Tom.

Mitch Germain, JMP Securities.

Good morning. Any, have you guys seen any changes in -- within the dynamics of the investment sales market? Smaller pool of investors, longer deal term -- length I mean?

Yes, Mitch, I think that the -- certainly, the buyer's side of the investor market is ever-changing. Two years ago, I would have told you that the sweet spot was $250 million and above, and that was probably because of acquisition activity by certain large private equity firms.

I think today, what we are hearing from the market is sort of the $30 million to $50 million or $60 million size portfolio is of more interest. That is financeable generally by private parties, and financeable by either CMBS or a local bank. Obviously, the short-term dislocation of CMBS markets could quell some of that activity, but I think those parties are just as likely to be using local bank financing, as they are CMBS.

Dave Rodgers, Robert W. Baird.

Hey, good morning. Either Ben or Bill, when you look at your acquisition plan, disposition plan and the funding for the year, absent the redemption of the preferred in November or ahead of that, do you really even feel the need to go do some other form of equity this year? You seem to have the capacity on the balance sheet to just kind of lever up, as the year goes on. And I'm wondering if absent that redemption, you could just kind of skate through the rest of the year?

Well, Dave, I think that the ability to skate through, and move up towards our -- the upper end of our range, I think is probably a stance that we'll avoid if we can. Having flexibility on the balance sheet is something that we've always thought was important. So I think we will be accessing other forms of capital in advance of hitting that upper number. But you are right, there is flexibility in funding today, and there would be through a number of quarters.

Okay. With regard to the joint ventures, where do you think the cost of capital differential is today, by going that route versus going to the public equity market? I realize that it may be easier, and maybe there's greater demand there today. Just wondering how you view the differential on the cost of doing that?

Yes, I think that the -- I mean, that's a very -- the answer to that question is not simple. The difference is in the perception of raising private equity, versus the perception of raising common equity is large, in terms of the other common equity's view of what you are doing, and how it'd impact their world. The other thing is, although we would certainly be careful on a consolidated basis about leverage, the joint venture could obviously -- or not obviously, but typically would operate at a slightly higher leverage.

And so, there's no question that some of the counter-party sources would have a higher return threshold. But that return threshold can be met we think, by a combination of the accretion that occurs from building portfolios with an eye toward [low correlation] et cetera, as well as the relative value buys that we're always able to do. So meeting the return thresholds of higher return counter-parties, we don't think is that great a stretch, provided that the counter-party understands our [investment thesis] and appreciates its impact.

Okay. Your $31 million -- and thanks for that by the way -- and your $31 million normalized G&A run rate ex the severance costs in 2016, does that consider increasing headcount at all? I don't know if there's an offset at all in the CFO compensation there, that you are going to be able to add more people, or are you stabilized with the number of people you have?

We're pretty stabilized at this point.

And a JV wouldn't change that?

I would say it's fair to say, we are at scale from a G&A perspective.

Okay. And last question maybe. And the asset sales to fund the acquisitions, is that viewed as neutral, dilutive, accretive, any meaningful impact one way or another from?

So our expectation is, I don't know -- in some of our materials we've talked about how individual assets are priced, and then sort of interim portfolios, sort of moderate-sized portfolios are priced, and then how enterprise should be priced. And if you think about the individual assets being priced at -- last year, we averaged 8.4%. And then think about sort of the intermediate portfolios, so a collection of those assets, 10, 20 of those assets being priced maybe around [7%] or [7%-plus], so maybe 100 basis points inside of that.

We have been reluctant over time to sell those intermediate portfolios, because we believe the -- sort of the enterprise value -- the bottom chart from our materials is another 100 basis points inside of that how -- where a large diversified -- not 10 or 20 assets, but several hundred or more assets would price.

When we can point to some of the large portfolio trades that occurred last year like the [EMCOR] trade -- actually that was late 2014 -- but we can point to some of those. And so, in the past we've been reluctant to sell small portfolios of assets, because we think that we are giving up some eventual value for our shareholders.

We are -- I shouldn't say, more open -- we're now -- have sort of shifted our thinking a little bit, and accept the fact that buying the [8-plusses] and selling them at [7-plusses] is in and of itself accretive, although not as much potentially as some long-term hold to some enterprise value, but it's certainly accretive. And it actually, in and of itself, a decent business. You buy -- have a relatively strong cash flow in the interim, and sell 100 basis points inside, you could simply do that as a business.

Now we think our business is demonstrably more accretive and profitable, long-term profitable than that, but that business is an acceptable level of accretion. So our opportunistic dispositions will, we believe will be of that nature. The dispositions that we do, in terms of moving out the flex and office assets, we think of those in a slightly different manner, and it may include selling vacant assets and things like that. So the preponderance of our sales, the opportunistic sales will be expected to be accretive.

Great. Thanks for the color.

Michael Mueller, JPMorgan.

Yes, hi. Going back to asset sales first. So $100 million to $200 million of dispositions. But if we're trying to think about, what's the base case for what effective asset sales could be this year, I mean, what could it be, if you layer on JVs? If you are selling a stake in a pool of assets, would that effectively be another $100 million, on top of the $100 million to $200 million? Would it be bigger? (multiple speakers)

Yes, Mike, I think our inclination, or our belief of a likely structure of the joint venture would be a de novo joint venture. So simply buying assets, not contributing assets. We would be loath to contribute assets at the price we bought them at, because again, we think that the move from single asset pricing to portfolio pricing is at least 100 basis points.

It's probably kind of a tough way to start a negotiation and or counter-party relationship, by a discussion about an increase in value on a portfolio of assets. And so, we think it's highly likely, it'll -- would be a de novo JV, so there would not be asset contributions.

Got it. Okay. And then -- (multiple speakers

I think the reason why we say that, have some confidence in our ability to enter into such a JV, is what I alluded to before, is our pipeline, and our demonstrated ability to deploy capital will make the counter-parties comfortable, that the JV won't simply sit there, as a pile of paper with no execution underneath it.

Got it. Okay. And then, going back to CapEx for a second, what is the difference -- the definitional difference between recurring and nonrecurring? And I guess, if a nonrecurring is consistently bigger, than the recurring, isn't is essentially recurring?

Yes, our definition of nonrecurring -- since the IPO, has been roof and structure is nonrecurring, something that occurs at an asset every 20 years. We are going to revisit our disclosure in Q1 on CapEx, as we continue to get more and more questions on it. But that has been our definition. And recurring is, for example, some recurring items are HVAC -- some more complicated, more bigger roof repairs, those types of items.

Got it. Okay. And will you give us the history, going back as well when you change it around?

Sure. And part of the nonrecurring as well, is items we identify at acquisition, that we underwrite at acquisition that we will incur over the next two years, is nonrecurring as well, because it's effectively baked into our purchase price.

Okay. Okay. Thank you.

Michael Carroll, RBC Capital Markets.

Hey, guys, it's actually George on with Mike. I was just wondering, if investments were to slow down, should we expect same-store metrics to improve?

I think that the -- as we've discussed over time, same-store metrics are a result of -- I should say, the fact that our same-store metrics are somewhat muted in performance, are the result of us acquiring 100% occupied buildings that will -- whose occupancy will normalize over time down to say, 94% or 95%, where the rest of our portfolio is.

And so, that doesn't occur overnight. So if we stop our -- if we stop acquiring, it would take a while for those cohorts, the 2015, the 2014 cohorts to normalize. At the same time, when they were normalizing, we're operating in an environment with very strong rent growth. So that occupancy normalization is being offset, but it would continue to be muted by this -- so the same-store NOI growth would continue to be muted by that occupancy normalization.

But over the course of three or four years, you would see that normalization occur. And then after that point, you would think us -- you would probably look at us to have the same-store NOI numbers very similar to our peers.

All right. And then, could you give us some color on some of the upcoming expirations you have this year? Do you expect any major move-outs, or have you made some solid releasing progress?

Yes, our viewpoint for the year is that the 70% retention is a number, that we're pretty comfortable we'll hit again.

All right. And then, are there any significant strategy changes with Geoff stepping down, and Bill taking his place?

No, from a balance sheet perspective, we maintain our view of maintaining a conservative and flexible balance sheet. Debt to EBITDA levels are 5 to 6 times, fixed charge coverage ratio north of [2.5], but that has operated in the low [3s], high [2s] area. So that's not going to change. We've talked about our strategy on dispositions, and sources and uses of capital, and being prudent allocators of capital. And that's our view going forward.

All right, thanks guys.

Thank you.

Dan Donlan, Ladenburg, Thalmann.

Thank you, and good morning.

Good morning, Dan.

Good morning, welcome to the party, Bill.

Thanks, Dan.

You're welcome. Just wanted to kind of touch on -- the page 19 -- it looked like 44% of your NOI is part of the 2013, 2014 vintage. So was just curious if you looked at the 2012 vintage and going backwards, do you feel like you are at market occupancy with those vintages? Just curious, if you think you can see further occupancy loss, or do you feel like you are matured there to some degree?

Yes, it feels from an occupancy standpoint, we're close to market in those vintages. I will say the -- if you look at the square feet in those vintages, they're small. So you're going to see some volatility in those numbers, as tenants roll in and out. This is a slide that we put in there to really just demonstrate the same-store dynamic. But you're going to see some volatility. The post IPO portfolio is $3.5 million, the STAG 2 is [4, 4.2], 2012 is [8.3] -- they are just smaller. They are smaller cohorts. So you're going to see some volatility. But to your specific question, the 2012, it seems to be at market, maybe a little bit above it, maybe [95.6%], but it's close.

Okay. I appreciate the thought. And then as far as the lease term, what you have for lease term in the quarter, 9.5 years is pretty lengthy. [And I think I ask this] every quarter, but is there any effort on your part to try to push that out longer, given where we are in the cycle, or is it always just a case-by-case basis on your end?

Dan, we -- I mainly haven't used the word is frequently in the last quarter or two, but my favorite word -- and I get to use it again -- agnostic, and actually the agnosticity, my even more my favorite word. We're not looking for a particular lease term. We're looking for maximizing cash flow over time on a IRR discounted cash flow basis. And so, the fact that we bought longer-term deals in that particular quarter, is more a reflection on what was available to us, and the pricing of those deals versus other deals.

So maybe it was, possibly -- I'm just thinking out loud -- you could have the non--tradeds maybe not being as active, allowed -- provided for less competition on some of those deals. I'm not sure why that is, but again, we haven't changed. We are agnostic as to lease term. We are agnostic to everything except basically cash flow. We believe in the cash flow, and we think our shareholders deserve for us to go out and find the best -- again either on a discount or IR basis, the best cash flow returns we can find per dollar of equity invested.

Okay. Yes, I was talking about the leasing activity, but I imagine you are agnostic there too --

We are, I'm sorry. I was interested -- I was being a politician, I was answering the question I wanted to answer, rather than the one you asked perhaps, but it was not because I was being duplicitous. It was I misunderstood the question.

Sure. It applied anyways. And then, just looking at the temporary leases there, how temporary are they? Is there a path towards making those longer term?

The temporary leases we disclosed are typically less than one year. So those -- sometimes we sign up those leases, and sometimes those turn into long-term leases, and sometimes they don't. They are not included in our retention numbers, but they obviously continue to generate cash flow for us.

Okay. And then, just last question on the joint ventures which you said are de novo. As you are having the discussion, is potentially just selling the entire company on the table? Just curious where your [point there]?

We are not actively seeking a transaction for the Company. Obviously, sometimes those things happen outside of our goal -- outside of our actions. We think we have a very differentiated investment thesis that is worth continuing to execute under.

We are going to go out and find capital to continue to make accretive acquisitions for the benefit of our shareholders. And we think that the existence of STAG as a public company is something that is worthwhile for shareholders to continue to support.

Okay. Thank you.

Thank you, we've reached the end of our question-and-answer session. I would like to turn the floor back over to management for any further or closing comments.

Thank you, and thanks for your help. Thank you again for joining us this morning, and for your insightful questions. We have made significant progress on executing our five-point plan, a plan designed to restore investor confidence in our company. The STAG that exists today, is an improved version of the STAG that's has existed in the entirety of its public life.

Over these five years, we have continuously worked to improve our execution of our relative value investment thesis, and our capital allocation models. We continue to have a strong conviction in the opportunities that lie ahead for our Company. We appreciate your time, and your continued support of STAG. Thank you.

Thank you. That does conclude today's teleconference. You may disconnect your line at this time. Have a wonderful day. We thank you for your participation today.