Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-K



ý   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

OR

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                  to                                   .

Commission file number 1-34907

STAG INDUSTRIAL, INC.
(Exact name of registrant as specified in its charter)

Maryland
(State or other jurisdiction
of incorporation or organization)
  27-3099608
(IRS Employer
Identification No.)

99 High Street, 28th Floor
Boston, Massachusetts

(Address of principal executive offices)

 

02110
(Zip Code)

(617) 574-4777
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

         Securities registered pursuant to Section 12(b) of the Act:

Title of each class
  Name of each exchange on which registered
Common Stock, $0.01 par value   New York Stock Exchange
9.0% Series A Cumulative Redeemable Preferred Stock, $0.01 par value   New York Stock Exchange

         Securities registered pursuant to Section 12(g) of the Act: None

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No o

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o    No ý

         Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Check one:

Large accelerated filer o   Accelerated filer ý   Non-accelerated filer o
(Do not check if a
smaller reporting company)
  Smaller reporting company o

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

         The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $361.8 million based on the closing price on the New York Stock Exchange as of June 29, 2012.

         Number of shares of the registrant's common stock outstanding as of March 1, 2013: 42,221,072

         Number of shares of 9.0% Series A Cumulative Redeemable Preferred Stock as of March 1, 2013: 2,760,000

DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the registrant's definitive Proxy Statement with respect to its 2013 Annual Meeting of Stockholders to be filed not later than 120 days after the end of the registrant's fiscal year are incorporated by reference into Part II, Item 5 and Part III, Items 10, 11, 12, 13 and 14 hereof as noted therein.

   


Table of Contents

STAG INDUSTRIAL, INC.

Table of Contents

PART I.

Item 1.

 

Business

  3

Item 1A.

 

Risk Factors

  9

Item 1B.

 

Unresolved Staff Comments

  29

Item 2.

 

Properties

  30

Item 3.

 

Legal Proceedings

  38

Item 4.

 

Mine Safety Disclosures

  38


PART II.

Item 5.

 

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

  38

Item 6.

 

Selected Financial Data

  41

Item 7.

 

Management's Discussion and Analysis of Financial Conditions and Results of Operations

  43

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

  62

Item 8.

 

Financial Statements and Supplementary Data

  64

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

  64

Item 9A.

 

Controls and Procedures

  64

Item 9B.

 

Other Information

  65


PART III.

Item 10.

 

Directors, Executive Officers and Corporate Governance

  66

Item 11.

 

Executive Compensation

  66

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

  66

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

  66

Item 14.

 

Principal Accountant Fees and Services

  66


PART IV.

Item 15.

 

Exhibits and Financial Statement Schedules

  67

Table of Contents

Forward-Looking Statements

        This report contains "forward-looking statements" within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act")). You can identify forward-looking statements by the use of words such as "anticipates," "believes," "estimates," "expects," "intends," "may," "plans," "projects," "seeks," "should," "will," and variations of such words or similar expressions. Our forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by our forward-looking statements are reasonable, we can give no assurance that our plans, intentions, expectations, strategies or prospects will be attained or achieved and you should not place undue reliance on these forward-looking statements. Furthermore, actual results may differ materially from those described in the forward-looking statements and may be affected by a variety of risks and factors including, without limitation:

1


Table of Contents

Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

2


Table of Contents


PART I.

Item 1.    Business

        As used herein, "our company," "we," "our" and "us," refer to STAG Industrial, Inc. and our consolidated subsidiaries and partnerships except where the context otherwise requires. The combined financial information presented for periods on or prior to April 19, 2011 relate solely to the STAG Predecessor Group or our "predecessor business", our "predecessor" for accounting purposes. The combined financial statements for the period April 20, 2011 to December 31, 2012 include the financial information of our company, STAG Industrial Operating Partnership, L.P. (our "operating partnership") and our subsidiaries.

Overview

        STAG Industrial, Inc. is a fully integrated, full-service real estate company focused on the acquisition, ownership and management of single-tenant industrial properties throughout the United States. We were incorporated in Maryland on July 21, 2010 to continue and grow the single-tenant industrial business conducted by our predecessor business. We completed our initial public offering on April 20, 2011.

        As of December 31, 2012, the company owned 172 properties in 31 states with approximately 29.4 million rentable square feet, consisting of 112 warehouse/distribution properties, 39 light manufacturing properties and 21 flex/office properties. As of December 31, 2012, our properties were 95.1% leased to 156 tenants, with no single tenant accounting for more than 2.7% of our total annualized rent and no single industry accounting for more than 10.7% of our total annualized rent. As used herein, the definition of annualized rent is the contractual monthly base rent as of December 31, 2012 multiplied by 12.

        We own our interests in all of our properties and conduct substantially all of our business through our operating partnership. We serve as the sole member of the sole general partner of, and own approximately 85.29% of the outstanding limited partnership interests in, our operating partnership as of December 31, 2012. The remaining 14.71% limited partnership interests in our operating partnership are owned by certain of our executive officers, directors, certain of their affiliates and other outside investors. On April 20, 2011, we closed on our initial public offering ("IPO") of common stock and completed our formation transactions (the "formation transactions").

        We target the acquisition of individual Class B, single-tenant industrial properties predominantly in secondary markets throughout the United States with purchase prices ranging from $5 million to $25 million. We believe, due to observed market inefficiencies, that our focus on owning and expanding a portfolio of such properties will, when compared to other real estate portfolios, generate returns for our stockholders that are attractive in light of the risks associated with these returns because we believe:

3


Table of Contents

For a description of what we consider to be Class A and Class B properties, see "Item 2. Properties" below.

        Reflecting the market inefficiencies we have observed, our target properties are generally leased to:

        We believe the market inefficiently prices our target properties because investors typically either underestimate the probability of tenant retention beyond the primary lease term or overestimate the expected cost of tenant default. Further, we believe our relationships with a national network of commercial real estate brokers and our underwriting processes, utilizing our proprietary model, allow us to acquire properties at a discount to their intrinsic values, where intrinsic values are determined by the properties' future cash flows. We elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the "Code") for our taxable year ended December 31, 2011 and intend to continue to qualify as REIT. So long as we qualify as a REIT, we generally will not be subject to federal income taxes to the extent we currently distribute our income to our stockholders and maintain our qualification as a REIT.

Competitive Strengths

        We believe that our investment strategy and operating model distinguish us from other owners, operators and acquirers of industrial real estate in a number of ways, including:

4


Table of Contents

Our Strategies

        Our primary business objectives are to own and operate a balanced and diversified portfolio of single-tenant industrial properties that maximizes cash flows available for distribution to our stockholders, and to enhance stockholder value over time by achieving sustainable long-term growth in funds from operations ("FFO") per share through the following strategies:

        Our primary investment strategy is to acquire individual Class B, single-tenant industrial properties predominantly in secondary markets throughout the United States through third-party purchases and structured sale-leasebacks featuring high initial yields and strong ongoing cash-on-cash returns. Where appropriate potential returns present themselves, we also may acquire assets in primary markets.

        External Growth through Acquisitions:    Our target acquisitions are predominantly in the $5 million to $25 million range. The competition for our target assets is primarily local investors who are not likely to have ready access to debt or equity capital. We focus our acquisition activities on our core property types: warehouse/distribution facilities and light manufacturing facilities. From time to time, if an attractive opportunity presents itself, we may consider portfolio acquisitions. As of December 31, 2012, we were evaluating approximately $600 million of specific potential acquisitions that we have identified as warranting further investment consideration after an initial review.

        As of December 31, 2012, there were two remaining vacant properties owned by STAG Investments III, LLC ("Fund III"), a privately held fund, and not contributed to our company (the "option properties") as part of our formation transactions. Upon approval of our independent directors, we have the right to acquire any of the option properties individually for a period of up to three months after notification that the property has stabilized, defined as 85% or greater occupancy pursuant to leases at least two years in remaining duration. The right to acquire any of the option properties expires 5 years from the date of the formation transactions.

        Internal Growth through Asset Management:    Our asset management team utilizes our tenant relationships and leasing expertise to maintain occupancy and increase rental rates. It also collaborates with our internal credit function to actively monitor the credit profile of each of our tenants on an ongoing basis. The team's efforts have resulted in our achieving for the years ended December 31, 2012 and December 31, 2011 an 84% and 88% tenant retention rate for those tenants whose leases were scheduled to expire in 2012 and 2011, respectively. As of December 31, 2012, our portfolio had approximately 1.4 million square feet, or 4.9% of our total rentable square feet, available for lease, compared to 1.2 million square feet or 6.8% as of December 31, 2011.

5


Table of Contents

        We blend fundamental real estate analysis with corporate credit analysis in our proprietary model to make a probabilistic assessment of cash flows that will be realized in future periods. For each asset, our analysis focuses on:

        Our main focus is to preserve a flexible capital structure. We will utilize the capital markets through secondary equity offerings including but not limited to "at the market" equity offerings while also obtaining primarily unsecured debt, which is more efficient than secured debt given our granular acquisition strategy.

Regulation

        Our properties are subject to various laws, ordinances and regulations, including regulations relating to common areas and fire and safety requirements. We believe that we and/or our tenants, as applicable, have the necessary permits and approvals to operate each of our properties.

6


Table of Contents

        Our properties must comply with Title III of the Americans with Disabilities Act of 1990, as amended (the "ADA") to the extent that such properties are "public accommodations" as defined under the ADA. Under the ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. The ADA may require removal of structural barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. Although we believe that the properties in our portfolio in the aggregate substantially comply with current requirements of the ADA, and we have not received any notice for correction from any regulatory agency, we have not conducted a comprehensive audit or investigation of all of our properties to determine whether we are in compliance and therefore we may own properties that are not in compliance with the ADA.

        ADA compliance is dependent upon the tenant's specific use of the property, and as the use of a property changes or improvements to existing spaces are made, we will take steps to ensure compliance. Noncompliance with the ADA could result in additional costs to attain compliance, imposition of fines by the U.S. government or an award of damages or attorney's fees to private litigants. The obligation to make readily achievable accommodations is an ongoing one, and we will continue to assess our properties and to make alterations to achieve compliance as necessary.

        Our properties are subject to various federal, state and local environmental laws. Under these laws, courts and government agencies have the authority to require us, as owner of a contaminated property, to clean up the property, even if we did not know of or were not responsible for the contamination. These laws also apply to persons who owned a property at the time it became contaminated, and therefore it is possible we could incur these costs even after we sell some of our properties. In addition to the costs of cleanup, environmental contamination can affect the value of a property and, therefore, an owner's ability to borrow using the property as collateral or to sell the property. Under applicable environmental laws, courts and government agencies also have the authority to require that a person who sent waste to a waste disposal facility, such as a landfill or an incinerator, pay for the clean-up of that facility if it becomes contaminated and threatens human health or the environment. We invest in properties historically used for industrial, light manufacturing and commercial purposes. Certain of our properties are on or are adjacent to or near other properties upon which others, including former owners or tenants of our properties have engaged, or may in the future engage, in activities that may generate or release petroleum products or other hazardous or toxic substances.

        Environmental laws in the United States also require that owners or operators of buildings containing asbestos properly manage and maintain the asbestos, adequately inform or train those who may come into contact with asbestos and undertake special precautions, including removal or other abatement, in the event that asbestos is disturbed during building renovation or demolition. These laws may impose fines and penalties on building owners or operators who fail to comply with these requirements and may allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos. According to Phase I environmental assessments prepared at the time of acquisition, 17 of our properties are known to have asbestos containing materials. No immediate action was recommended to address these instances and, as a result, we do not currently plan to take any actions to address these instances. Additionally, 32 of our properties are suspected of having asbestos containing materials due to the age of the building and observed conditions. No immediate action was recommended to address these instances and, as a result, we do not currently plan to take any actions to address these instances. In the event of a building renovation or demolition, a comprehensive asbestos inspection would be performed to determine proper handling and disposal of any asbestos containing materials.

7


Table of Contents

        Furthermore, various court decisions have established that third parties may recover damages for injury caused by property contamination. For instance, a person exposed to asbestos at one of our properties may seek to recover damages if he or she suffers injury from the asbestos. Lastly, some of these environmental laws restrict the use of a property or place conditions on various activities. An example would be laws that require a business using chemicals to manage them carefully and to notify local officials that the chemicals are being used.

        We could be responsible for any of the costs discussed above. The costs to clean up a contaminated property, to defend against a claim, or to comply with environmental laws could be material and could adversely affect the funds available for distribution to our shareholders. All of our properties were subject to a Phase I or similar environmental assessment by independent environmental consultants at the time of acquisition. We generally expect to continue to obtain a Phase I or similar environmental assessment by independent environmental consultants on each property prior to acquiring it. However, these environmental assessments may not reveal all environmental costs that might have a material adverse effect on our business, assets, results of operations or liquidity and may not identify all potential environmental liabilities.

        In addition, we maintain a portfolio environmental insurance policy that provides coverage for potential environmental liabilities, subject to the policy's coverage conditions and limitations.

        We can make no assurances that future laws, ordinances or regulations will not impose material environmental liabilities on us, or the current environmental condition of our properties will not be affected by tenants, the condition of land or operations in the vicinity of our properties (such as releases from underground storage tanks), or by third parties unrelated to us.

Insurance

        We carry comprehensive general liability, fire, extended coverage and rental loss insurance covering all of the properties in our portfolio under a blanket insurance policy. In addition, we maintain a portfolio environmental insurance policy that provides coverage for potential environmental liabilities, subject to the policy's coverage conditions and limitations. Generally, we do not carry insurance for certain losses, including, but not limited to, losses caused by floods (unless the property is located in a flood plain), earthquakes, acts of war, acts of terrorism or riots. We believe the policy specifications and insured limits are appropriate and adequate given the relative risk of loss, the cost of the coverage and standard industry practice; however, our insurance coverage may not be sufficient to fully cover all of our losses.

Competition

        In acquiring our target properties, we compete with other public industrial property sector REITs, single-tenant REITs, income oriented non-traded REITs, private real estate fund managers and local real estate investors and developers. Local real estate investors and developers historically have represented our dominant competition for deals but they typically do not have ready access to credit. We also face significant competition from owners and managers of competing properties in leasing our properties to prospective tenants and in re-leasing space to existing tenants.

Employees

        As of December 31, 2012, we employed 36 full-time employees. We believe that our relationships with our employees are good. None of our employees are represented by a labor union.

8


Table of Contents

Our Corporate Information

        Our principal executive offices are located at 99 High Street, 28th Floor, Boston, Massachusetts 02110. Our telephone number is (617) 574-4777. Our website is www.stagindustrial.com. The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this report or any other report or document we file with or furnish to the SEC.

How to Obtain Our SEC Filings

        All reports we file with the SEC are available free of charge via EDGAR through the SEC website at www.sec.gov. In addition, the public may read and copy materials we file with the SEC at the SEC's public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the public reference room can be obtained by calling the SEC at 1-800-SEC-0330. Our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and any amendments to any of those reports that we file with the SEC are available free of charge as soon as reasonably practicable through our website at www.stagindustrial.com. The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this report or any other report or document we file with or furnish to the SEC.

Item 1A.    Risk Factors

        The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. The risks and uncertainties described below are not the only risks we face. Additional risks and uncertainties not presently known to us or that we may currently deem immaterial also may impair our business operations. If any of the following risks occur, our business, financial condition, operating results and cash flows could be materially adversely affected.

Risks Related to Our Business and Operations

Our investments are concentrated in the industrial real estate sector, and our business would be adversely affected by an economic downturn in that sector.

        As of December 31, 2012, all of our 172 properties were industrial properties, including 112 warehouse/distribution facilities, 39 light manufacturing facilities and 21 flex/office facilities. This concentration may expose us to the risk of economic downturns in the industrial real estate sector to a greater extent than if our properties were more diversified across other sectors of the real estate industry.

Adverse economic conditions will negatively affect our returns and profitability.

        Our operating results may be affected by market and economic challenges, including the current global economic credit environment and economic uncertainties, which may result from a continued or exacerbated general economic slowdown experienced by the nation as a whole or by the local economies where our properties may be located, or by the real estate industry, including the following:

9


Table of Contents

        Also, to the extent we purchase real estate in an unstable market, we are subject to the risk that if the real estate market ceases to attract the same level of capital investment in the future that it attracts at the time of our purchases, or the number of companies seeking to acquire properties decreases, the value of our investments may not appreciate or may decrease significantly below the amount we pay for these investments. The length and severity of any economic slowdown or downturn cannot be predicted. Our operations could be negatively affected to the extent that an economic slowdown or downturn is prolonged or becomes more severe.

Substantial international, national and local government deficits and the weakened financial condition of these governments may adversely impact our business, financial condition and results of operations.

        The values of, and the cash flows from, the properties we own are affected by developments in global, national and local economies. As a result of the recent severe recession and the significant government interventions, federal, state and local governments have incurred record deficits and assumed or guaranteed liabilities of private financial institutions or other private entities. These increased budget deficits and the weakened financial condition of federal, state and local governments may lead to reduced governmental spending, tax increases, public sector job losses, increased interest rates, currency devaluations, defaults on debt obligations or other adverse economic events, which may directly or indirectly adversely affect our business, financial condition and results of operations.

        There can be no assurance that the market disruptions in Europe, including the increased cost of funding for certain governments and financial institutions, will not spread, nor can there be any assurance that future assistance packages will be available or, even if provided, will be sufficient to stabilize the affected countries and markets in Europe or elsewhere. Risks and ongoing concerns about the debt crisis in Europe could have a detrimental impact on the global economic recovery, financial markets and institutions and the availability of debt financing, which may directly or indirectly adversely affect our business, financial condition and results of operations.

Events or occurrences that affect areas in which our properties are geographically concentrated may impact financial results.

        In addition to general, regional, national and international economic conditions, our operating performance is impacted by the economic conditions of the specific markets in which we have concentrations of properties. We have holdings in the following states, which, as of December 31, 2012, accounted for the percentage of our total annualized rent indicated: North Carolina (11.5%); Ohio (9.6%); Indiana (8.0%); Michigan (7.7%); and South Carolina (5.2%). Our operating performance could be adversely affected if conditions become less favorable in any of the states or regions in which we have a concentration of properties.

We are subject to industry concentrations that make us susceptible to adverse events with respect to certain industries.

        We are subject to certain industry concentrations with respect to our properties, including the following, which, as of December 31, 2012, accounted for the percentage of our total annualized rent indicated: Industrial Equipment, Components & Metals (10.7%); Automotive (10.7%); Food and Beverages (10.4%); Containers & Packaging (8.5%); and Air Freight and Logistics (8.1%). Such industries are subject to specific risks that could result in downturns within the industries. Any downturn in one or more of these industries, or in any other industry in which we may have a significant concentration now or in the future, could adversely affect our tenants who are involved in such industries. If any of these tenants is unable to withstand such downturn or is otherwise unable to compete effectively in its business, it may be forced to declare bankruptcy, fail to meet its rental obligations, seek rental concessions or be unable to enter into new leases, which could materially and adversely affect us.

10


Table of Contents

We are subject to risks involved in single-tenant leases, and the default by one or more tenants could materially and adversely affect us.

        Any of our tenants may experience a downturn in its business at any time that may significantly weaken its financial condition or cause its failure. As a result, such a tenant may decline to extend or renew its lease upon expiration, fail to make rental payments when due or declare bankruptcy. The default, financial distress or bankruptcy of a single tenant could cause interruptions in the receipt of rental revenue and/or result in a vacancy, which is likely to result in the complete reduction in the operating cash flows generated by the property leased to that tenant and may decrease the value of that property. In addition, a majority of our leases generally require the tenant to pay all or substantially all of the operating expenses normally associated with the ownership of the property, such as utilities, real estate taxes, insurance and routine maintenance. Following a vacancy at a single-tenant property, we will be responsible for all of the operating costs at such property until it can be re-let, if at all.

If our tenants are unable to obtain financing necessary to continue to operate their businesses and pay us rent, we could be materially and adversely affected.

        Many of our tenants rely on external sources of financing to operate their businesses. The U.S. financial and credit markets may continue to experience liquidity disruptions, resulting in the unavailability of financing for many businesses. If our tenants are unable to obtain financing necessary to continue to operate their businesses, they may be unable to meet their rent obligations to us or enter into new leases with us or be forced to declare bankruptcy and reject our leases, which could materially and adversely affect us.

We have limited experience operating as a publicly traded REIT, which may affect our ability to successfully operate our business, implement our business strategies or generate sufficient cash flow to make or sustain distributions to our stockholders.

        We have limited experience operating as a publicly traded REIT. We cannot assure you that our past experience will be sufficient to successfully operate our company as a REIT or a publicly traded company, including the requirements to timely meet disclosure requirements and comply with the Sarbanes-Oxley Act of 2002. Failure to maintain REIT status would have an adverse effect on our financial condition, results of operations, cash flow, per share trading price of our securities and ability to satisfy our debt service obligations and to pay distributions to our stockholders. In addition, we are subject to all the risks and uncertainties associated with any new business, including the risk that we will not achieve our investment objectives.

We depend on key personnel, the loss of their full service could adversely affect us.

        Our success depends to a significant degree upon the continued contributions of certain key personnel including, but not limited to, our executive officers, whose continued service is not guaranteed, and each of whom would be difficult to replace. While we have entered into employment contracts with our executive officers, they may nevertheless cease to provide services to us at any time. If any of our key personnel were to cease employment with us, our operating results could suffer. Our ability to retain our management group or to attract suitable replacements should any members of the management group leave is dependent on the competitive nature of the employment market. The loss of services from key members of the management group or a limitation in their availability could adversely impact our financial condition and cash flows. Further, such a loss could be negatively perceived in the capital markets. We have not obtained and do not expect to obtain key man life insurance on any of our key personnel except for Mr. Benjamin S. Butcher, the founder of our predecessor business and our Chief Executive Officer, President and Chairman. The policy has limits in the amount of $5.0 million and covers us in the event of Mr. Butcher's death.

11


Table of Contents

        We also believe that, as we expand, our future success depends, in large part, upon our ability to hire and retain highly skilled managerial, investment, financing, operational and marketing personnel. Competition for such personnel is intense, and we cannot assure you that we will be successful in attracting and retaining such skilled personnel.

Our growth will depend upon future acquisitions of properties, and we may be unable to consummate acquisitions on advantageous terms or acquisitions may not perform as we expect.

        We acquire and intend to continue to acquire primarily generic warehouse/distribution properties, light manufacturing properties and flex/office facilities. The acquisition of properties entails various risks, including the risks that our investments may not perform as we expect. Further, we face competition for attractive investment opportunities from other well-capitalized real estate investors, including both publicly-traded REITs and private institutional investment funds, and these competitors may have greater financial resources than us and a greater ability to borrow funds to acquire properties. This competition will increase as investments in real estate become increasingly attractive relative to other forms of investment. As a result of competition, we may be unable to acquire additional properties as we desire or the purchase price may be significantly elevated. In addition, we expect to finance future acquisitions through a combination of secured and unsecured borrowings, proceeds from equity or debt offerings by us or our operating partnership or its subsidiaries and proceeds from property contributions and divestitures which may not be available and which could adversely affect our cash flows. Any of the above risks could adversely affect our financial condition, results of operations, cash flows and ability to pay distributions on, and the market price of, our securities.

We may be unable to source "limited marketing" deal flow in the future, which could adversely affect our ability to locate and acquire additional properties at attractive prices.

        A key component of our growth strategy is to continue to acquire additional industrial real estate assets. Many of the acquisitions we sourced, based on total purchase price, were acquired before they were widely marketed by real estate brokers, or "limited marketing" transactions. Properties that are acquired by "limited marketing" transactions are typically more attractive to us as a purchaser because of the absence of a formal sales process, which could lead to higher prices. If we cannot obtain "limited marketing" deal flow in the future, our ability to locate and acquire additional properties at attractive prices could be somewhat adversely affected.

The cash available for distribution to stockholders may not be sufficient to pay dividends at expected levels, nor can we assure you of our ability to make distributions in the future.

        Distributions will be authorized and determined by our board of directors in its sole discretion from time to time and will depend upon a number of factors, including:

Consequently, we may not continue our current level of distributions to stockholders, and our distribution levels may fluctuate.

12


Table of Contents

        In addition, some of our distributions may include a return of capital. To the extent that we make distributions in excess of our current and accumulated earnings and profits, such distributions would generally be considered a return of capital for federal income tax purposes to the extent of the holder's adjusted tax basis in its shares. A return of capital is not taxable, but it has the effect of reducing the holder's adjusted tax basis in its investment. To the extent that distributions exceed the adjusted tax basis of a holder's shares, they will be treated as gain from the sale or exchange of such stock. If we borrow to fund distributions, our future interest costs would increase, thereby reducing our earnings and cash available for distribution from what they otherwise would have been.

We have owned our properties for a limited time, and we may not be aware of characteristics or deficiencies involving any one or all of them.

        The majority of our properties have been under management for less than five years. In addition, since the completion of our initial public offering, we have acquired an additional 85 properties totaling approximately 16.3 million rentable square feet. These properties may have characteristics or deficiencies unknown to us that could affect their valuation or revenue potential and such properties may not ultimately perform up to our expectations. We cannot assure you that the operating performance of the properties will not decline under our management.

Risks Related to Our Organization and Structure

Certain of our executive officers and directors have duties to Fund II and Fund III, which may create conflicts of interest and may impede business decisions that could benefit our stockholders.

        Certain of our executive officers and directors also serve on (i) the board of managers and/or management committees of the managers of STAG Investments II, LLC ("Fund II"), a private equity real estate fund that continues to operate as a private, fully invested fund, and (ii) the board of managers and/or management committees of the managers of Fund III, a private equity real estate fund that contributed most of its properties to us in the formation transactions. Our officers and directors may have conflicting duties because they have a duty to both us and to Fund II (which retained ownership of certain of its properties and continues as a private, fully-invested fund until liquidated) and Fund III (which retained ownership of the Option Properties). Prior to the completion of the formation transactions, both of these entities were fully invested and, as a result, will not be making any additional investments in income properties. However, some Fund II properties may be competitive with our current or future properties. It is possible that the executive officers' and board members' fiduciary duty to Fund II and Fund III, including, without limitation, their interests in Fund II and the Option Properties, will conflict with what will be in the best interests of our company.

Our fiduciary duties as sole member of the general partner of our operating partnership could create conflicts of interest, which may impede business decisions that could benefit our stockholders.

        We, as the sole member of the general partner of our operating partnership, have fiduciary duties to the other limited partners in our operating partnership, the discharge of which may conflict with the interests of our stockholders. The limited partners of our operating partnership have agreed that, in the event of a conflict in the fiduciary duties owed by us to our stockholders and, in our capacity as indirect general partner of our operating partnership, to such limited partners, we are under no obligation to give priority to the interests of such limited partners. In addition, those persons holding common units will have the right to vote on certain amendments to the operating partnership agreement (which require approval by a majority in interest of the limited partners, including us) and individually to approve certain amendments that would adversely affect their rights. These voting rights may be exercised in a manner that conflicts with the interests of our stockholders. For example, we are unable to modify the rights of limited partners to receive distributions as set forth in the operating

13


Table of Contents

partnership agreement in a manner that adversely affects their rights without their consent, even though such modification might be in the best interest of our stockholders.

        In addition, conflicts may arise when the interests of our stockholders and the limited partners of our operating partnership diverge, particularly in circumstances in which there may be an adverse tax consequence to the limited partners. Tax consequences to holders of common units upon a sale or refinancing of our properties may cause the interests of our senior management to differ from your own. As a result of unrealized built-in gain attributable to contributed property at the time of contribution, some holders of common units, including our principals, may suffer different and more adverse tax consequences than holders of our securities upon the sale or refinancing of the properties owned by our operating partnership, including disproportionately greater allocations of items of taxable income and gain upon a realization event. As those holders will not receive a correspondingly greater distribution of cash proceeds, they may have different objectives regarding the appropriate pricing, timing and other material terms of any sale or refinancing of certain properties, or whether to sell or refinance such properties at all.

        We may experience conflicts of interest with several members of our senior management team who have or may become limited partners in our operating partnership through the receipt of common units or long-term incentive plan units in our operating partnership ("LTIP units") granted under our 2011 Equity Incentive Plan.

Our growth depends on external sources of capital which are outside of our control, which may affect our ability to seize strategic opportunities, satisfy debt obligations and make distributions to our stockholders.

        In order to maintain our qualification as a REIT, we are generally required under the Code to distribute annually at least 90% of our net taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain. In addition, we will be subject to income tax at regular corporate rates to the extent that we distribute less than 100% of our net taxable income, including any net capital gains. Because of these distribution requirements, we may not be able to fund future capital needs, including any necessary acquisition financing, from operating cash flow. Consequently, we may rely on third-party sources to fund our capital needs. We may not be able to obtain financing on favorable terms or at all. Any additional debt we incur will increase our leverage. Our access to third-party sources of capital depends, in part, on:

        If we cannot obtain capital from third-party sources, we may not be able to acquire properties when strategic opportunities exist, meet the capital and operating needs of our existing properties or satisfy our debt service obligations. Further, in order to meet the REIT distribution requirements and maintain our REIT status and to avoid the payment of income and excise taxes, we may need to borrow funds on a short-term basis even if the then-prevailing market conditions are not favorable for these borrowings. These short-term borrowing needs could result from differences in timing between the actual receipt of cash and inclusion of income for federal income tax purposes or the effect of non-deductible capital expenditures, the creation of reserves, certain restrictions on distributions under loan documents or required debt or amortization payments.

14


Table of Contents

        To the extent that capital is not available to acquire properties, profits may not be realized or their realization may be delayed, which could result in an earnings stream that is less predictable than some of our competitors and result in us not meeting our projected earnings and distributable cash flow levels in a particular reporting period. Failure to meet our projected earnings and distributable cash flow levels in a particular reporting period could have an adverse effect on our financial condition and on the market price of our stock.

STAG Predecessor Group and STAG Industrial, Inc. have experienced historical net losses and accumulated deficits after depreciation and amortization and we may experience future losses.

        STAG Industrial, Inc. had historical net losses attributable to common stockholders for the year ended December 31, 2012 of $12.8 million and for the period from April 20, 2011 to December 31, 2011 of $6.8 million. STAG Predecessor Group had historical net losses of $0.2 million for the period from January 1, 2011 to April 19, 2011 and $2.9 million for the year ended December 31, 2010, respectively. The company would have been profitable had the net losses excluded the non-cash impacts of depreciation and amortization. STAG Predecessor Group had historical accumulated deficits after effects of depreciation and amortization of $14.0 million and $8.3 million as of April 19, 2011 and December 31, 2010 respectively. There can be no assurance that we will not incur net losses in the future after excluding the effects of depreciation and amortization, which could adversely affect our ability to service our indebtedness and our ability to pay dividends or make distributions, any of which could adversely affect the trading price of our stock.

We are subject to financial reporting and other requirements for which our accounting, internal audit and other management systems and resources may not be adequately prepared and we may not be able to accurately report our financial results.

        We are subject to reporting and other obligations under the Exchange Act, including the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. Section 404 requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm addressing these assessments. These reporting and other obligations place significant demands on our management, administrative, operational, internal audit and accounting resources and cause us to incur significant expenses. We may need to upgrade our systems or create new systems; implement additional financial and management controls, reporting systems and procedures; expand our internal audit function; and hire additional accounting, internal audit and finance staff. If we are unable to accomplish these objectives in a timely and effective fashion, our ability to comply with the financial reporting requirements and other rules that apply to reporting companies could be impaired. Any failure to maintain effective internal controls could have a material adverse effect on our business, operating results and price of our securities.

Our charter, the partnership agreement of our operating partnership and Maryland law contain provisions that may delay or prevent a change of control transaction.

        Our charter contains 9.8% ownership limits.    Our charter, subject to certain exceptions, authorizes our directors to take such actions as are necessary and desirable to limit any person to actual or constructive ownership of no more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of our capital stock and no more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of our common stock. In addition, the articles supplementary for our 9.0% Series A Cumulative Redeemable Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock") provide that generally no person may own, or be deemed to own by virtue of the attribution provisions of the Code, either more than 9.8% in value or in number of shares, whichever is more restrictive, of our outstanding Series A Preferred Stock. Our board of directors, in its sole discretion, may exempt a proposed transferee from the ownership limits.

15


Table of Contents

However, our board of directors may not grant an exemption from the ownership limits to any proposed transferee whose ownership, direct or indirect, of more than 9.8% of the value or number of our outstanding shares of our common stock or our Series A Preferred Stock could jeopardize our status as a REIT. The ownership limits contained in our charter and the restrictions on ownership of our common stock may delay or prevent a transaction or a change of control that might be in the best interest of our stockholders.

        Our board of directors may create and issue a class or series of preferred stock without stockholder approval.    Subject to the rights of holders of Series A Preferred Stock to approve the classification or issuance of any class or series of stock ranking senior to the Series A Preferred Stock, our board of directors is empowered under our charter to amend our charter to increase or decrease the aggregate number of shares of our common stock or the number of shares of stock of any class or series that we have authority to issue, to designate and issue from time to time one or more classes or series of preferred stock and to classify or reclassify any unissued shares of our common stock or preferred stock without stockholder approval. Subject to the rights of holders of Series A Preferred Stock discussed above, our board of directors may determine the relative rights, preferences and privileges of any class or series of preferred stock issued. The issuance of preferred stock could also have the effect of delaying or preventing a change of control transaction that might otherwise be in the best interests of our stockholders.

        Certain provisions in the partnership agreement for our operating partnership may delay or prevent unsolicited acquisitions of us.    Provisions in the partnership agreement for our operating partnership may delay or make more difficult unsolicited acquisitions of us or changes in our control. These provisions could discourage third parties from making proposals involving an unsolicited acquisition of us or change of our control, although some stockholders might consider such proposals, if made, desirable. These provisions include, among others:

        Any potential change of control transaction may be further limited as a result of provisions of the partnership unit designation for the LTIP units, which require us to preserve the rights of LTIP unit holders and may restrict us from amending the partnership agreement for our operating partnership in a manner that would have an adverse effect on the rights of LTIP unit holders.

        Certain provisions of Maryland law could inhibit changes in control.    Certain provisions of the Maryland General Corporation Law ("MGCL") may have the effect of inhibiting a third party from making a proposal to acquire us or impeding a change of control under circumstances that might be in the best interest of our stockholders, including:

16


Table of Contents

        We have elected to opt out of these provisions of the MGCL, in the case of the business combination provisions of the MGCL, by resolution of our board of directors, and in the case of the control share provisions of the MGCL, pursuant to a provision in our bylaws. Only upon the approval of our stockholders, our board of directors may by resolution elect to repeal the foregoing opt-outs from the business combination provisions of the MGCL and we may, only upon the approval of our stockholders, by amendment to our bylaws, opt in to the control share provisions of the MGCL in the future.

        Additionally, Title 8, Subtitle 3 of the MGCL, permits our board of directors, without stockholder approval and regardless of what is currently provided in our charter or our bylaws, to implement takeover defenses, some of which (for example, a classified board) we do not currently have. These provisions may have the effect of inhibiting a third party from making an acquisition proposal for our company or of delaying, deferring or preventing a change in control of our company under circumstances that might be in the best interest of our stockholders.

        Our charter, bylaws, the partnership agreement for our operating partnership and Maryland law also contain other provisions that may delay, defer or prevent a transaction or a change of control that might be in the best interest of our stockholders.

Under their employment agreements, our executive officers have the right to terminate their employment and, under certain conditions, receive severance, which may adversely affect us.

        The employment agreements with our executive officers provide that each executive may terminate his or her employment and, under certain conditions, receive severance based on two or three times (depending on the officer) the annual total of salary and bonus and immediate vesting of all outstanding equity-based awards. In the case of certain terminations, they would not be restricted from competing with us after their departure.

Compensation awards to our management may not be tied to or correspond with our improved financial results or the share price of our common stock, which may adversely affect us.

        The compensation committee of our board of directors is responsible for overseeing our compensation and employee benefit plans and practices, including our executive compensation plans and our incentive compensation and equity-based compensation plans. Our compensation committee has significant discretion in structuring compensation packages and may make compensation decisions based on any number of factors. As a result, compensation awards may not be tied to or correspond with improved financial results at our company or the share price of our common stock.

17


Table of Contents

Our board of directors can take many actions without stockholder approval.

        Our board of directors has overall authority to oversee our operations and determine our major corporate policies. This authority includes significant flexibility. For example, our board of directors can do the following:

        Any of these actions could increase our operating expenses, impact our ability to make distributions or reduce the value of our assets without giving you, as a stockholder, the right to vote.

Our rights and the rights of our stockholders to take action against our directors and officers are limited.

        Maryland law provides that a director or officer has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In addition, our charter eliminates our directors' and officers' liability to us and our stockholders for money damages except for liability resulting from actual receipt of an improper benefit or profit in money, property or services or active and deliberate dishonesty established by a final judgment and which is material to the cause of action. Our bylaws require us to indemnify our directors and officers to the maximum extent permitted by Maryland law for liability actually incurred in connection with any proceeding to which they may be made, or threatened to be made, a party, except to the extent that the act or omission of the director or officer was material to the matter giving rise to the proceeding and was either committed in bad faith or was the result of active and deliberate dishonesty, the director or officer actually received an improper personal benefit in money, property or services, or, in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. As a result, we and our stockholders may have more limited rights against our directors and officers than might otherwise exist under common law. In addition, we may be obligated to fund the defense costs incurred by our directors and officers.

18


Table of Contents

The number of shares of our common stock available for future sale, including by our affiliates and other continuing investors, could adversely affect the market price of our common stock, and future sales by us of shares of our common stock may be dilutive to existing stockholders.

        Sales of substantial amounts of shares of our common stock in the public market, or upon exchange of common units or exercise of any options, or the perception that such sales might occur could adversely affect the market price of our common stock. The exchange of common units for common stock, the exercise of any stock options or the vesting of any restricted stock granted under our 2011 Equity Incentive Plan, the issuance of our common stock or common units in connection with property, portfolio or business acquisitions and other issuances of our common stock or common units could have an adverse effect on the market price of the shares of our common stock. Also, continuing investors in our initial public offering and the related formation transactions that hold common units are parties to an agreement that provides for registration rights. These registration rights required us to file a "shelf" registration statement covering all shares of our common stock for which their common units may be redeemed or exchanged pursuant to the partnership agreement of our operating partnership. A shelf registration statement covering these shares has been filed and is currently effective. The existence of shares of our common stock reserved for issuance under our 2011 Equity Incentive Plan or upon exchange of common units may adversely affect the terms upon which we may be able to obtain additional capital through the sale of equity securities. In addition, future sales by us of our common stock may be dilutive to existing stockholders.

Future offerings of debt securities, which would be senior to our common stock upon liquidation, or equity securities, which would dilute our existing stockholders and may be senior to our common stock for the purposes of distributions, may adversely affect the market price of our securities.

        Our common stock is ranked junior to our Series A Preferred Stock. Our outstanding Series A Preferred Stock also has or will have a preference upon our dissolution, liquidation or winding up in respect of assets available for distribution to our stockholders. Holders of our common stock are not entitled to preemptive rights or other protections against dilution. In the future, we may attempt to increase our capital resources by making additional offerings of debt or equity securities, including commercial paper, medium-term notes, senior or subordinated notes and classes of preferred or common stock. Upon liquidation, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common stock. Additional equity offerings may dilute the holdings of our existing stockholders or reduce the market price of our securities or both. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future offerings reducing the market price of our securities and diluting their proportionate ownership.

The market price and trading volume of our common stock may be volatile.

        The market price of our common stock may be volatile. In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. If the market price of our common stock declines significantly, you may be unable to resell your shares at or above the price at which they traded when you acquired them. We cannot assure you that the market price of our common stock will not fluctuate or decline significantly in the future. Some of the factors that could negatively affect the market price of our common stock or result in fluctuations in the market price or trading volume of our common stock include:

19


Table of Contents

General Real Estate Risks

Our performance and value are subject to general economic conditions and risks associated with our real estate assets.

        The investment returns available from equity investments in real estate depend on the amount of income earned and capital appreciation generated by the properties, as well as the expenses incurred in connection with the properties. If our properties do not generate income sufficient to meet operating expenses, including debt service and capital expenditures, then our ability to pay distributions to our stockholders could be adversely affected. In addition, there are significant expenditures associated with an investment in real estate (such as mortgage payments, real estate taxes and maintenance costs) that generally do not decline when circumstances reduce the income from the property. Income from and the value of our properties may be adversely affected by:

20


Table of Contents

        In addition, periods of economic slowdown or recession, rising interest rates or declining demand for real estate, or public perception that any of these events may occur, would result in a general decrease in rents or an increased occurrence of defaults under existing leases, which would adversely affect our financial condition and results of operations. Future terrorist attacks may result in declining economic activity, which could reduce the demand for, and the value of, our properties. To the extent that future attacks impact our tenants, their businesses similarly could be adversely affected, including their ability to continue to honor their existing leases.

        For these and other reasons, we cannot assure you that we will be profitable or that we will realize growth in the value of our real estate properties.

Actions by our competitors may decrease or prevent increases in the occupancy and rental rates of our properties.

        We compete with other owners, operators and developers of real estate, some of which own properties similar to ours in the same markets and submarkets in which our properties are located. If our competitors offer space at rental rates below current market rates or below the rental rates we currently charge our tenants, we may lose potential tenants, and we may be pressured to reduce our rental rates below those we currently charge in order to retain tenants when our tenants' leases expire. As a result, our financial condition, cash flows, cash available for distribution, trading price of our securities and ability to satisfy our debt service obligations could be materially adversely affected.

A significant portion of our properties have leases that expire in the next three years and we may be unable to renew leases, lease vacant space or re-lease space as leases expire, which could adversely affect our results of operations, cash flows, cash available for distribution, and the value of our securities.

        Our results of operations, cash flows, cash available for distribution, and the value of our securities would be adversely affected if we are unable to lease, on economically favorable terms, a significant amount of space in our operating properties. As of December 31, 2012, leases with respect to 30.9% of our total annualized rent will expire on or before December 31, 2015. We cannot assure you that expiring leases will be renewed or that our properties will be re-leased at base rental rates equal to or above the current average base rental rates. In addition, the number of vacant or partially vacant industrial properties in a market or submarket could adversely affect our ability to re-lease the space at attractive rental rates.

A property that incurs a vacancy could be difficult to sell or re-lease, which could adversely affect our results of operations, cash flows, cash available for distribution, and the value of our securities.

        A property may incur a vacancy either by the continued default of a tenant under its lease or the expiration of one of our leases. In addition, certain of the properties we acquire may have some level of vacancy at the time of closing. Certain of our properties may be specifically suited to the particular needs of a tenant. We may have difficulty obtaining a new tenant for any vacant space we have in our properties. If the vacancy continues for a long period of time, we may suffer reduced revenue resulting in less cash available to be distributed to stockholders. In addition, the resale value of a property could be diminished because the market value of a particular property will depend principally upon the value of the leases of such property.

21


Table of Contents

We may not have funding for future tenant improvements, which could adversely affect our results of operations, cash flows, cash available for distribution, and the value of our securities.

        When a tenant at one of our properties does not renew its lease or otherwise vacates its space in one of our buildings, it is likely that, in order to attract one or more new tenants, we will be required to expend funds to construct new tenant improvements in the vacated space. Except with respect to our current reserves for capital expenditures, tenant improvements and leasing commissions, we cannot assure you that we will have adequate sources of funding available to us for such purposes in the future.

Bankruptcy laws will limit our remedies if a tenant becomes bankrupt and rejects the lease and we may be unable to collect balances due on our leases.

        If a tenant becomes bankrupt or insolvent, that could diminish the income we receive from that tenant's leases. Our tenants may experience downturns in their operating results due to adverse changes to their business or economic conditions, and those tenants that are highly leveraged may have a higher possibility of filing for bankruptcy or insolvency. We may not be able to evict a tenant solely because of its bankruptcy. On the other hand, a bankruptcy court might authorize the tenant to terminate its leases with us. If that happens, our claim against the bankrupt tenant for unpaid future rent would be an unsecured prepetition claim subject to statutory limitations, and therefore such amounts received in bankruptcy are likely to be substantially less than the remaining rent we otherwise were owed under the leases. In addition, any claim we have for unpaid past rent could be substantially less than the amount owed. If the lease for such a property is rejected in bankruptcy, our revenue would be reduced and could adversely impact our ability to pay distributions to stockholders.

That real estate investments are not as liquid as other types of assets may reduce economic returns to investors.

        Real estate investments are not as liquid as other types of investments, and this lack of liquidity may limit our ability to react promptly to changes in economic or other conditions. In addition, significant expenditures associated with real estate investments, such as mortgage payments, real estate taxes and maintenance costs, are generally not reduced when circumstances cause a reduction in income from the investments. In addition, we intend to comply with the safe harbor rules relating to the number of properties that can be disposed of in a year, the tax bases and the costs of improvements made to these properties, and other items that enable a REIT to avoid punitive taxation on the sale of assets. Thus, our ability at any time to sell assets or contribute assets to property funds or other entities in which we have an ownership interest may be restricted. This lack of liquidity may limit our ability to vary our portfolio promptly in response to changes in economic or other conditions and, as a result, could adversely affect our financial condition, results of operations, cash flows and our ability to pay distributions on, and the market price of, our securities.

Acquired properties may be located in new markets where we may face risks associated with investing in an unfamiliar market.

        We have acquired, and may continue to acquire, properties in markets that are new to us. When we acquire properties located in these markets, we may face risks associated with a lack of market knowledge or understanding of the local economy, forging new business relationships in the area and unfamiliarity with local government and permitting procedures.

Uninsured losses relating to real property may adversely affect your returns.

        We attempt to ensure that all of our properties are adequately insured to cover casualty losses. However, there are certain losses, including losses from floods, earthquakes, acts of war, acts of

22


Table of Contents

terrorism or riots, that are not generally insured against or that are not generally fully insured against because it is not deemed economically feasible or prudent to do so. In addition, changes in the cost or availability of insurance could expose us to uninsured casualty losses. In the event that any of our properties incurs a casualty loss that is not fully covered by insurance, the value of our assets will be reduced by the amount of any such uninsured loss, and we could experience a significant loss of capital invested and potential revenue in these properties and could potentially remain obligated under any recourse debt associated with the property. Moreover, we, as the indirect general partner of our operating partnership, generally will be liable for all of our operating partnership's unsatisfied recourse obligations, including any obligations incurred by our operating partnership as the general partner of joint ventures. Any such losses could adversely affect our financial condition, results of operations, cash flows and ability to pay distributions on, and the market price of, our securities. In addition, we may have no source of funding to repair or reconstruct the damaged property, and we cannot assure you that any such sources of funding will be available to us for such purposes in the future. We evaluate our insurance coverage annually in light of current industry practice through an analysis prepared by outside consultants.

Contingent or unknown liabilities could adversely affect our financial condition.

        As part of the formation transactions, we assumed existing liabilities of contributed operating companies and liabilities in connection with contributed properties, some of which may be unknown or unquantifiable. Unknown liabilities might include liabilities for cleanup or remediation of undisclosed environmental conditions beyond the scope of our environmental insurance coverage, claims of tenants, vendors or other persons dealing with the entities prior to our initial public offering, tax liabilities, and accrued but unpaid liabilities whether incurred in the ordinary course of business or otherwise. In addition, we may in the future acquire properties, or may have previously owned properties, subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities. As a result, if a liability were asserted against us based on ownership of any of these entities or properties, then we might have to pay substantial sums to settle it, which could adversely affect our cash flows.

Environmentally hazardous conditions may adversely affect our operating results.

        Under various federal, state and local environmental laws, a current or previous owner or operator of real property may be liable for the cost of removing or remediating hazardous or toxic substances on such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Even if more than one person may have been responsible for the contamination, each person covered by the environmental laws may be held responsible for all of the clean-up costs incurred. In addition, third parties may sue the owner or operator of a site for damages based on personal injury, natural resources or property damage or other costs, including investigation and clean-up costs, resulting from the environmental contamination. The presence of hazardous or toxic substances on one of our properties, or the failure to properly remediate a contaminated property, could give rise to a lien in favor of the government for costs it may incur to address the contamination, or otherwise adversely affect our ability to sell or lease the property or borrow using the property as collateral. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated. A property owner who violates environmental laws may be subject to sanctions which may be enforced by governmental agencies or, in certain circumstances, private parties. In connection with the acquisition and ownership of our properties, we may be exposed to such costs. The cost of defending against environmental claims, of compliance with environmental regulatory requirements or of remediating any contaminated property could materially adversely affect our business, assets or results of operations and, consequently, amounts available for distribution to our stockholders.

23


Table of Contents

        Environmental laws in the United States also require that owners or operators of buildings containing asbestos properly manage and maintain the asbestos, adequately inform or train those who may come into contact with asbestos and undertake special precautions, including removal or other abatement, in the event that asbestos is disturbed during building renovation or demolition. These laws may impose fines and penalties on building owners or operators who fail to comply with these requirements and may allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos. Some of our properties contain asbestos-containing building materials.

        We invest in properties historically used for industrial, light manufacturing and commercial purposes. Some of these properties contain, or may have contained, underground storage tanks for the storage of petroleum products and other hazardous or toxic substances. All of these operations create a potential for the release of petroleum products or other hazardous or toxic substances. Some of our properties are adjacent to or near other properties that have contained or currently contain underground storage tanks used to store petroleum products or other hazardous or toxic substances. In addition, certain of our properties are on or are adjacent to or near other properties upon which others, including former owners or tenants of our properties, have engaged, or may in the future engage, in activities that may release petroleum products or other hazardous or toxic substances.

        From time to time, we may acquire properties, or interests in properties, with known adverse environmental conditions where we believe that the environmental liabilities associated with these conditions are quantifiable and that the acquisition will yield a superior risk-adjusted return. In such an instance, we underwrite the costs of environmental investigation, clean-up and monitoring into the cost. Further, in connection with property dispositions, we may agree to remain responsible for, and to bear the cost of, remediating or monitoring certain environmental conditions on the properties.

        Preliminary assessments of environmental conditions at a property that meet certain specifications are often referred to as "Phase I environmental site assessments" or "Phase I environmental assessments." They are intended to discover and evaluate information regarding the environmental condition of the surveyed property and surrounding properties. Phase I environmental assessments generally include an historical review, a public records review, an investigation of the surveyed site and surrounding properties, and preparation and issuance of a written report, but do not include soil sampling or subsurface investigations and typically do not include an asbestos survey. Material environmental conditions, liabilities or compliance concerns may arise after the environmental assessment has been completed. Moreover, there can be no assurance that:

Compliance or failure to comply with the Americans with Disabilities Act and other similar regulations could result in substantial costs.

        Under the ADA, places of public accommodation must meet certain federal requirements related to access and use by disabled persons. Noncompliance could result in the imposition of fines by the federal government or the award of damages to private litigants. If we are required to make unanticipated expenditures to comply with the ADA, including removing access barriers, then our cash flows and the amounts available for distributions to our stockholders may be adversely affected. While we believe that our properties are currently in material compliance with these regulatory requirements, the requirements may change or new requirements may be imposed that could require significant unanticipated expenditures by us that will affect our cash flows and results of operations.

24


Table of Contents

Three of our properties are subject to a ground lease that exposes us to the loss of such property upon breach or termination of the ground lease and may limit our ability to sell the property.

        We own three of our properties through a leasehold interest in the land underlying the building and we may acquire additional buildings in the future that are subject to similar ground leases. As lessee under a ground lease, we are exposed to the possibility of losing the property upon expiration, or an earlier breach by us, of the ground lease, which may have an adverse effect on our business, financial condition and results of operations, our ability to make distributions to our stockholders, and the trading price of our securities.

        In the future, our ground leases may contain certain provisions that may limit our ability to sell certain of our properties. In addition, in the future, in order to assign or transfer our rights and obligations under certain of our ground leases, we may be required to obtain the consent of the landlord which, in turn, could adversely impact the price realized from any such sale.

        We also own two properties that benefit from payment in lieu of tax ("PILOT") programs and to facilitate such tax treatment our ownership in these properties is structured as a leasehold interest with the relevant municipality serving as lessor. With respect to such arrangements, we have the right to purchase the fee interest in the property for a nominal purchase price, so the risk factors set forth above for traditional ground leases are mitigated by our ability to convert such leasehold interests to fee interests. In the event of such a conversion of our ownership interests, however, any preferential tax treatment offered by the PILOT programs will be lost.

We may be unable to sell a property if or when we decide to do so, including as a result of uncertain market conditions, which could adversely affect the return on your investment.

        We expect to hold the various real properties in which we invest until such time as we decide that a sale or other disposition is appropriate given our investment objectives. Our ability to dispose of properties on advantageous terms depends on factors beyond our control, including competition from other sellers and the availability of attractive financing for potential buyers of our properties. We cannot predict the various market conditions affecting real estate investments which will exist at any particular time in the future. Due to the uncertainty of market conditions which may affect the future disposition of our properties, we cannot assure you that we will be able to sell our properties at a profit in the future. Accordingly, the extent to which you will receive cash distributions and realize potential appreciation on our real estate investments will be dependent upon fluctuating market conditions.

        Furthermore, we may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure you that we will have funds available to correct such defects or to make such improvements.

If we sell properties and provide financing to purchasers, defaults by the purchasers would adversely affect our cash flows.

        If we decide to sell any of our properties, we presently intend to use our best efforts to sell them for cash. However, in some instances we may sell our properties by providing financing to purchasers. If we provide financing to purchasers, we will bear the risk that the purchaser may default, which could negatively impact our cash distributions to stockholders and result in litigation and related expenses. Even in the absence of a purchaser default, the distribution of the proceeds of sales to our stockholders, or their reinvestment in other assets, will be delayed until the promissory notes or other property we may accept upon a sale are actually paid, sold, refinanced or otherwise disposed of.

25


Table of Contents

Risks Related to Our Debt Financings

Our operating results and financial condition could be adversely affected if we are unable to make required payments on our debt.

        Our charter and bylaws do not limit the amount or percentage of indebtedness that we may incur, and we are subject to risks normally associated with debt financing, including the risk that our cash flows will be insufficient to meet required payments of principal and interest. There can be no assurance that we will be able to refinance any maturing indebtedness, that such refinancing would be on terms as favorable as the terms of the maturing indebtedness or that we will be able to otherwise obtain funds by selling assets or raising equity to make required payments on maturing indebtedness.

        In particular, loans obtained to fund property acquisitions may be secured by first mortgages on such properties. If we are unable to make our debt service payments as required, a lender could foreclose on the property or properties securing its debt. This could cause us to lose part or all of our investment, which in turn could cause the value of our stock to decrease and negatively impact our ability to pay distributions. Certain of our existing and secured future indebtedness is and may be cross-collateralized and, consequently, a default on this indebtedness could cause us to lose part or all of our investment in multiple properties.

Increases in interest rates could increase the amount of our debt payments and adversely affect our ability to make distributions to our stockholders.

        As of December 31, 2012, we had total outstanding debt of approximately $479.2 million and we expect that we will incur additional indebtedness in the future. Interest we pay reduces our cash available for distributions. Since we have incurred and may continue to incur variable rate debt, increases in interest rates raise our interest costs, which reduces our cash flows and our ability to make distributions to you. If we are unable to refinance our indebtedness at maturity or meet our payment obligations, the amount of our distributable cash flows and our financial condition would be adversely affected, and we may lose the property securing such indebtedness. In addition, if we need to repay existing debt during periods of rising interest rates, we could be required to liquidate one or more of our investments in properties at times which may not permit realization of the maximum return on such investments.

Covenants in our mortgage loans, our unsecured credit facility and unsecured term loans and any future debt instruments could limit our flexibility, prevent us from paying distributions, and adversely affect our financial condition or our status as a REIT.

        The terms of certain of our mortgage loans require us to comply with loan-to-collateral-value ratios, debt service coverage ratios and, in the case of an event of default, limitations on the ability of our subsidiaries that are borrowers under our mortgage loans to make distributions to us or our other subsidiaries. In addition, our unsecured credit facility and unsecured term loans require us to comply with loan-to-collateral-value ratios, debt service coverage ratios, leverage ratios, recourse indebtedness thresholds, fixed charge coverage ratios and tangible net worth thresholds and limits. Our existing loan covenants and our unsecured credit facility and unsecured term loans covenants may reduce flexibility in our operations, and breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness even if we have satisfied our payment obligations. In addition, upon a default, our unsecured credit facility and unsecured term loans will limit, among other things, our ability to pay dividends, even if we are otherwise in compliance with our financial covenants. Other indebtedness that we may incur in the future may contain financial or other covenants more restrictive than those in our unsecured credit facility and unsecured term loans.

        As of December 31, 2012, we had certain secured loans that are cross-collateralized by multiple properties. If we default on any of these loans we may then be required to repay such indebtedness,

26


Table of Contents

together with applicable prepayment charges, to avoid foreclosure on all cross-collateralized properties within the applicable pool. Moreover, our unsecured credit facility and unsecured term loans contain, and future secured corporate credit facilities may contain, certain cross-default provisions which are triggered in the event that our other material indebtedness is in default. These cross-default provisions may require us to repay or restructure the facilities in addition to any mortgage or other debt that is in default. If our properties were foreclosed upon, or if we are unable to refinance our indebtedness at maturity or meet our payment obligations, the amount of our distributable cash flows and our financial condition would be adversely affected.

        We are a holding company and conduct all of our operations through our operating partnership. We do not have, apart from our ownership of our operating partnership, any independent operations. As a result, we will rely on distributions from our operating partnership to pay any dividends we might declare on our securities. We will also rely on distributions from our operating partnership to meet our debt service and other obligations, including our obligations to make distributions required to maintain our REIT status. The ability of subsidiaries of our operating partnership to make distributions to our operating partnership, and the ability of our operating partnership to make distributions to us in turn, will depend on their operating results and on the terms of any loans that encumber the properties owned by them. Such loans may contain lockbox arrangements, reserve requirements, financial covenants and other provisions that restrict the distribution of funds. In the event of a default under these loans, the defaulting subsidiary would be prohibited from distributing cash. For example, our subsidiaries are party to mortgage loans that prohibit, in the event of default, their distribution of any cash to a related party, including our operating partnership. As a result, a default under any of these loans by the borrower subsidiaries could cause us to have insufficient cash to make the distributions required to maintain our REIT status.

If we enter into financing arrangements involving balloon payment obligations, it may adversely affect our ability to make distributions.

        Some of our financing arrangements require us to make a lump-sum or "balloon" payment at maturity. Our ability to make a balloon payment at maturity is uncertain and may depend upon our ability to obtain additional financing or our ability to sell the property. At the time the balloon payment is due, we may or may not be able to refinance the existing financing on terms as favorable as the original loan or sell the property at a price sufficient to make the balloon payment. The effect of a refinancing or sale could affect the rate of return to stockholders and the projected time of disposition of our assets. In addition, payments of principal and interest made to service our debts may leave us with insufficient cash to pay the distributions that we are required to pay to maintain our qualification as a REIT.

If mortgage debt or unsecured debt is unavailable at reasonable rates, we may not be able to finance or refinance our properties, which could reduce the number of properties we can acquire and the amount of cash distributions we can make.

        If mortgage debt or unsecured debt is unavailable at reasonable rates, we may not be able to finance the purchase of properties. In addition, we run the risk of being unable to refinance mortgage debt or unsecured debt when the loans come due or of being unable to refinance such debt on favorable terms. If interest rates are higher when we refinance such debt, our income could be reduced. We may be unable to refinance such debt at appropriate times, which may require us to sell properties on terms that are not advantageous to us or could result in the foreclosure of any mortgaged properties. If any of these events occur, our cash flows would be reduced. This, in turn, would reduce cash available for distribution to you and may hinder our ability to raise more capital by issuing more stock or by borrowing more money.

27


Table of Contents

Our hedging strategies may not be successful in mitigating our risks associated with interest rates and could reduce the overall returns on your investment.

        We use various derivative financial instruments to provide a level of protection against interest rate risks, but no hedging strategy can protect us completely. These instruments involve risks, such as the risk that the counterparties may fail to honor their obligations under these arrangements, that these arrangements may not be effective in reducing our exposure to interest rate changes and that a court could rule that such agreements are not legally enforceable. These instruments may also generate income that may not be treated as qualifying REIT income for purposes of the 75% or 95% REIT income tests. In addition, the nature and timing of hedging transactions may influence the effectiveness of our hedging strategies. Poorly designed strategies or improperly executed transactions could actually increase our risk and losses. Moreover, hedging strategies involve transaction and other costs. We cannot assure you that our hedging strategy and the derivatives that we use will adequately offset the risk of interest rate volatility or that our hedging transactions will not result in losses that may reduce the overall return on your investment.

U.S. Federal Income Tax Risks

Failure to qualify as a REIT would reduce our net earnings available for investment or distribution.

        Our qualification as a REIT will depend upon our ability to meet requirements regarding our organization and ownership, distributions of our income, the nature and diversification of our income and assets and other tests imposed by the Code. If we fail to qualify as a REIT for any taxable year after electing REIT status, we will be subject to federal income tax on our taxable income at regular corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year in which we failed to qualify as a REIT. Losing our REIT status would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, dividends to stockholders would no longer qualify for the dividends-paid deduction and we would no longer be required to make distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax.

Even if we qualify as a REIT for federal income tax purposes, we may be subject to other tax liabilities that reduce our cash flow and our ability to make distributions to our stockholders.

        Even if we qualify as a REIT for federal income tax purposes, we may be subject to some federal, state and local taxes on our income or property. For example:

28


Table of Contents

        We intend to make distributions to our stockholders to comply with the REIT requirements of the Code.

REIT distribution requirements could adversely affect our ability to execute our business plan.

        From time to time, we may generate taxable income greater than our income for financial reporting purposes, or our taxable income may be greater than our cash flow available for distribution to stockholders. If we do not have other funds available in these situations, we could be required to borrow funds, sell investments at disadvantageous prices, make taxable distributions of our stock or debt securities or find another alternative source of funds to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs or reduce the value of our equity. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.

To maintain our REIT status, we may be forced to forego otherwise attractive opportunities, which may delay or hinder our ability to meet our investment objectives and reduce our stockholders' overall return.

        To qualify as a REIT, we must satisfy certain tests on an ongoing basis concerning, among other things, the sources of our income, nature of our assets and the amounts we distribute to our stockholders. We may be required to make distributions to stockholders at times when it would be more advantageous to reinvest cash in our business or when we do not have funds readily available for distribution. Compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits and the value of our stockholders' investment.

Recharacterization of sale-leaseback transactions may cause us to lose our REIT status.

        In certain circumstances, we expect to purchase real properties and lease them back to the sellers of such properties. While we intend to structure any such sale-leaseback transaction such that the lease will be characterized as a "true lease" for tax purposes, thereby allowing us to be treated as the owner of the property for federal income tax purposes, we cannot assure you that the Internal Revenue Service ("IRS") will not challenge such characterization. In the event that any such sale-leaseback transaction is challenged and recharacterized as a financing transaction or loan for federal income tax purposes, deductions for depreciation and cost recovery relating to such property would be disallowed. If a sale-leaseback transaction were so recharacterized, we might fail to satisfy the REIT qualification "asset tests" or "income tests" and, consequently, lose our REIT status effective with the year of recharacterization. Alternatively, the amount of our REIT taxable income could be recalculated which might also cause us to fail to meet the distribution requirement for a taxable year.

We may be subject to adverse legislative or regulatory tax changes affecting REITs that could have a negative effect on us.

        The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury. Changes to the tax laws, with or without retroactive application, could adversely affect our stockholders or us. We cannot predict how changes in the tax laws might affect our stockholders or us. New legislation, Treasury Regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to qualify as a REIT or the federal income tax consequences of such qualification.

Item 1B.    Unresolved Staff Comments

        None.

29


Table of Contents

Item 2.    Properties

        Our target properties fit into two general categories:

        We target Class B properties, as compared to Class A properties. The distinction between Class A industrial and Class B industrial properties is subjective. However, we consider Class A and Class B industrial properties to be as follows:

Our definition of Class A and Class B may be different from those used by other companies.

        As of December 31, 2012, we owned the properties listed below. Except as otherwise noted in the footnotes, we own fee simple interests in all of the properties.

State
  City   Number of
Properties
  Asset Type(12)   Total
Rentable
Square
Feet
 

Alabama

                     

  Phenix City(9)     1   Warehouse / Distribution     117,568  

Arkansas

                     

  Rogers(3)     1   Warehouse / Distribution     400,000  

Connecticut

                     

  Avon(3)     1   Light Manufacturing     78,400  

  East Windsor(11)     1   Warehouse / Distribution     145,000  

Delaware

                     

  Newark(3)     1   Flex / Office     28,653  

  Newark(3)     1   Flex / Office     24,012  

Florida

                     

  Daytona Beach     1   Light Manufacturing     142,857  

  Orlando(3)     1   Warehouse / Distribution     155,000  

  Pensacola(3)     1   Flex / Office     30,620  

  Pensacola(3)     1   Flex / Office     7,409  

  Tavares(3)     1   Light Manufacturing     148,298  

30


Table of Contents

State
  City   Number of
Properties
  Asset Type(12)   Total
Rentable
Square
Feet
 

Georgia

                     

  Atlanta(3)     1   Warehouse / Distribution     407,981  

  Conyers(4)     1   Warehouse / Distribution     226,256  

  Dallas(3)     1   Warehouse / Distribution     92,807  

  LaGrange(3)     1   Warehouse / Distribution     249,716  

  Smyrna(3)     1   Warehouse / Distribution     102,000  

  Statham(3)     1   Warehouse / Distribution     225,680  

Idaho

                     

  Pocatello(3)     1   Flex / Office     43,353  

Illinois

                     

  Gurnee(3)     1   Warehouse / Distribution     223,760  

  Montgomery(3)     1   Warehouse / Distribution     584,301  

  Woodstock(3)     1   Light Manufacturing     129,803  

Indiana

                     

  Albion(3)     8   Light Manufacturing     319,513  

  Elkhart(3)     1   Warehouse / Distribution     18,000  

  Elkhart     1   Warehouse / Distribution     150,715  

  Franklin(3)     1   Warehouse / Distribution     703,496  

  Goshen(4)     1   Warehouse / Distribution     366,000  

  Lafayette(9)     1   Warehouse / Distribution     71,400  

  Lafayette(9)     1   Warehouse / Distribution     120,000  

  Lafayette(9)     1   Warehouse / Distribution     275,000  

  Marion(9)     1   Warehouse / Distribution     249,600  

  Portage(2)     1   Warehouse / Distribution     212,000  

  South Bend(3)     1   Warehouse / Distribution     225,000  

Iowa

                     

  Sergeant Bluff(3)     1   Flex / Office     148,131  

Kansas

                     

  Kansas City(9)     1   Light Manufacturing     56,580  

  Parsons(9)     1   Light Manufacturing     120,000  

  Wichita(9)     1   Warehouse / Distribution     80,850  

  Wichita(9)     1   Warehouse / Distribution     120,000  

  Wichita(9)     1   Warehouse / Distribution     44,760  

  Wichita(9)     1   Warehouse / Distribution     47,700  

Kentucky

                     

  Danville(3)     1   Warehouse / Distribution     757,047  

  Georgetown(4)     1   Warehouse / Distribution     97,500  

  Louisville(4)     1   Warehouse / Distribution     191,820  

  Louisville(4)     1   Warehouse / Distribution     306,000  

  Bardstown(3)     1   Warehouse / Distribution     102,318  

Maine

                     

  Belfast(3)     5   Flex / Office     318,979  

  Lewiston(3)     1   Flex / Office     60,000  

  Portland(10)     1   Warehouse / Distribution     100,600  

Maryland

                     

  Sparks     2   Flex / Office     34,800  

31


Table of Contents

State
  City   Number of
Properties
  Asset Type(12)   Total
Rentable
Square
Feet
 

Massachusetts

                     

  Chicopee(3)     1   Warehouse / Distribution     217,000  

  Malden(3)     2   Light Manufacturing     109,943  

  Norton(6)     1   Warehouse / Distribution     200,000  

Michigan

                     

  Auburn Hills     1   Warehouse / Distribution     87,932  

  Chesterfield(3)     1   Warehouse / Distribution     68,300  

  Chesterfield(3)     1   Warehouse / Distribution     49,612  

  Chesterfield(3)     1   Warehouse / Distribution     49,849  

  Chesterfield(3)     1   Warehouse / Distribution     311,042  

  Holland(3)     1   Warehouse / Distribution     307,576  

  Holland(9)     1   Warehouse / Distribution     195,000  

  Holland(3)     1   Light Manufacturing     198,822  

  Lansing(4)     1   Warehouse / Distribution     231,000  

  Lansing(3)     1   Warehouse / Distribution     129,325  

  Lansing(9)     1   Warehouse / Distribution     250,100  

  Novi(9)     1   Warehouse / Distribution     120,800  

  Sterling Heights(9)     1   Warehouse / Distribution     108,000  

  Walker(4)     1   Warehouse / Distribution     210,000  

Minnesota

                     

  Alexandria(3)     1   Light Manufacturing     172,170  

  Rogers(4)     1   Warehouse / Distribution     386,724  

Mississippi

                     

  Jackson(3)     1   Flex / Office     11,600  

  Jackson(3)     1   Flex / Office     39,909  

Missouri

                     

  St. Louis(5)     1   Warehouse / Distribution     305,550  

  Kansas City(3)     1   Warehouse / Distribution     226,576  

  O'Fallon(4)     1   Warehouse / Distribution     77,000  

  Hazelwood     1   Warehouse / Distribution     249,441  

New Jersey

                     

  Lopatcong(3)     1   Warehouse / Distribution     87,500  

  Piscataway(3)     1   Warehouse / Distribution     228,000  

New York

                     

  Buffalo(3)     1   Warehouse / Distribution     117,000  

  Cheektowaga(3)     1   Warehouse / Distribution     121,760  

  Farmington(1)(3)     1   Warehouse / Distribution     149,657  

  Gloversville(9)     1   Warehouse / Distribution     50,000  

  Gloversville(9)     1   Warehouse / Distribution     101,589  

  Gloversville(9)     1   Flex / Office     26,529  

  Gloversville(9)     1   Warehouse / Distribution     59,965  

  Johnstown(9)     1   Warehouse / Distribution     52,500  

  Johnstown(9)     1   Warehouse / Distribution     60,000  

  Johnstown(9)     1   Light Manufacturing     42,325  

  Johnstown(9)     1   Warehouse / Distribution     57,102  

32


Table of Contents

State
  City   Number of
Properties
  Asset Type(12)   Total
Rentable
Square
Feet
 

North Carolina

                     

  Charlotte(4)     1   Warehouse / Distribution     491,025  

  Charlotte(4)     1   Warehouse / Distribution     465,323  

  Creedmoor(3)     1   Warehouse / Distribution     243,048  

  Huntersville(3)     1   Warehouse / Distribution     185,570  

  Jefferson(3)     2   Light Manufacturing     103,577  

  Lexington(3)     1   Warehouse / Distribution     201,800  

  Mebane(3)     1   Warehouse / Distribution     223,340  

  Mebane(3)     1   Light Manufacturing     202,691  

  Mooresville(4)     1   Warehouse / Distribution     300,000  

  Newton(3)     1   Warehouse / Distribution     187,200  

  Pineville(3)     1   Light Manufacturing     75,400  

  Rural Hall(3)     1   Warehouse / Distribution     250,000  

  Smithfield(3)     1   Warehouse / Distribution     191,450  

Ohio

                     

  Bellevue(3)     1   Warehouse / Distribution     181,838  

  Boardman(3)     1   Warehouse / Distribution     175,900  

  Boardman(3)     1   Light Manufacturing     95,000  

  Canton     1   Warehouse / Distribution     448,000  

  Cincinnati(8)     1   Flex / Office     114,532  

  Dayton     1   Flex / Office     113,000  

  Gahanna(7)     1   Warehouse / Distribution     383,000  

  Salem(3)     1   Light Manufacturing     251,000  

  North Jackson(4)     1   Warehouse / Distribution     307,315  

  Seville(3)     2   Warehouse / Distribution     345,000  

  Streetsboro(4)     1   Warehouse / Distribution     343,416  

  Toledo(3)     1   Warehouse / Distribution     177,500  

  Twinsburg(3)     1   Warehouse / Distribution     120,774  

Oregon

                     

  Gresham(4)     1   Warehouse / Distribution     420,690  

  Salem(4)     1   Light Manufacturing     108,000  

  Salem(4)     1   Light Manufacturing     47,900  

Pennsylvania

                     

  O'Hara Township(9)     1   Warehouse / Distribution     887,084  

  Warrendale(3)     1   Warehouse / Distribution     148,065  

  Pittsburgh(3)     1   Flex / Office     53,183  

  Muhlenberg Township(3)     1   Warehouse / Distribution     394,289  

South Carolina

                     

  Duncan(3)     1   Warehouse / Distribution     474,000  

  Duncan(3)     1   Warehouse / Distribution     313,380  

  Edgefield(3)     1   Light Manufacturing     126,190  

  Greenwood(9)     1   Light Manufacturing     104,955  

  Greenwood(9)     1   Light Manufacturing     70,100  

  Simpsonville(3)     1   Warehouse / Distribution     204,952  

  Simpsonville(3)     1   Warehouse / Distribution     207,042  

  Spartanburg(3)     4   Warehouse / Distribution     409,600  

  Ware Shoals(9)     1   Light Manufacturing     20,514  

33


Table of Contents

State
  City   Number of
Properties
  Asset Type(12)   Total
Rentable
Square
Feet
 

South Dakota

                     

  Rapid City(3)     1   Flex / Office     137,000  

Tennessee

                     

  Cleveland(4)     1   Warehouse / Distribution     151,704  

  Jackson     1   Warehouse / Distribution     250,000  

  Madison(4)     1   Warehouse / Distribution     418,406  

  Portland(3)(1)     1   Warehouse / Distribution     414,043  

  Vonore(4)     1   Warehouse / Distribution     342,700  

Texas

                     

  Arlington(3)     1   Warehouse / Distribution     94,132  

  Arlington(3)     1   Warehouse / Distribution     196,000  

  El Paso(2)     1   Warehouse / Distribution     269,245  

  Fort Worth(4)     1   Warehouse / Distribution     101,500  

  Round Rock     1   Light Manufacturing     79,180  

  Waco(2)     1   Warehouse / Distribution     66,400  

Virginia

                     

  Buena Vista(3)     1   Light Manufacturing     172,759  

  Lexington(3)     1   Warehouse / Distribution     15,085  

  Fairfield(3)     1   Light Manufacturing     75,221  

  Harrisonburg(3)     1   Warehouse / Distribution     357,673  

  Independence(9)     1   Warehouse / Distribution     120,000  

Wisconsin

                     

  Appleton     1   Light Manufacturing     145,519  

  Chippewa Falls     1   Light Manufacturing     77,700  

  Chippewa Falls     1   Light Manufacturing     19,700  

  De Pere(3)     1   Warehouse / Distribution     200,000  

  Mayville(3)     1   Light Manufacturing     339,179  

  Milwaukee(3)     2   Warehouse / Distribution     117,564  

  Milwaukee(3)     1   Light Manufacturing     270,000  

  Sun Prairie(3)     1   Warehouse / Distribution     427,000  
                   

        172         29,352,834  
                   

(1)
Subject to PILOT program.

(2)
Subject to ground lease.

(3)
This property is part of the borrowing base for our unsecured credit facility and unsecured term loans as of March 4, 2013.

(4)
The acquisition loan facilities with Connecticut General Life Insurance Company ("CIGNA") are collateralized by this property.

(5)
The Union Fidelity Life Insurance Co. loan is collateralized by this property.

(6)
The Webster Bank, N.A. loan with an August 4, 2016 maturity is collateralized by this property.

(7)
The Sun Life Assurance Company of Canada (U.S.) loan is collateralized by this property.

(8)
The parking lot utilized by the tenant adjacent to the property is subject to a ground lease.

(9)
The Wells Fargo Bank, N.A. loan is collateralized by this property.

(10)
The Webster Bank, N.A. loan with a May 29, 2017 maturity is collateralized by this property.

(11)
The Webster Bank, N.A. loan with a May 31, 2017 maturity is collateralized by this property.

(12)
Flex / Office are properties that are generally 50,000 to 200,000 square feet in size and used for office space, light manufacturing, research and development and warehousing.

34


Table of Contents

        The following table sets forth information relating to diversification by property type in our portfolio based on total annualized rent as of December 31, 2012.

Property Type
  Total
Number
of
Properties
  Occupancy(1)   Total
Rentable
Square
Feet
  Percentage of
Total
Rentable
Square
Feet
  Total
Annualized
Rent
  Annualized
Rent
Per Leased
Square Foot
  Percentage of
Total
Annualized
Rent
 

Warehouse/Distribution

    112     95.9 %   24,257,828     82.6 % $ 82,374,711   $ 3.54     77.8 %

Light Manufacturing

    39     91.1 %   3,903,296     13.3 %   12,619,992     3.55     11.9 %

Flex/Office

    21     92.4 %   1,191,710     4.1 %   10,893,179     9.90     10.3 %
                               

Total/Weighted Average

    172     95.1 %   29,352,834     100.0 % $ 105,887,882   $ 3.79     100.0 %
                               

(1)
Calculated as the average economic occupancy weighted by each property's rentable square footage.

        The following table sets forth information relating to geographic diversification by state in our portfolio based on total annualized rent as of December 31, 2012.

 
  Total
Number
of
Properties
  Occupancy(1)   Total
Rentable
Square
Feet
  Percentage of
Total
Rentable
Square
Feet
  Total
Annualized
Rent
  Annualized
Rent
Per Leased
Square Foot
  Percentage of
Total
Annualized
Rent
 

North Carolina

    14     100.0 %   3,120,424     10.6 % $ 12,177,219   $ 3.90     11.5 %

Ohio

    14     93.2 %   3,056,275     10.4 %   10,194,703   $ 3.58     9.6 %

Indiana

    18     97.5 %   2,710,724     9.2 %   8,532,726   $ 3.23     8.0 %

Michigan

    14     95.2 %   2,317,358     7.9 %   8,158,457   $ 3.70     7.7 %

South Carolina

    12     100.0 %   1,930,733     6.6 %   5,502,743   $ 2.85     5.2 %

Pennsylvania

    4     100.0 %   1,482,621     5.1 %   5,495,028   $ 3.71     5.2 %

Wisconsin

    9     95.0 %   1,596,662     5.4 %   4,645,744   $ 3.06     4.4 %

Tennessee

    5     84.1 %   1,576,853     5.4 %   4,405,011   $ 3.32     4.2 %

Illinois

    3     100.0 %   937,864     3.2 %   4,196,996   $ 4.48     4.0 %

Kentucky

    5     96.4 %   1,454,685     5.0 %   3,940,097   $ 2.81     3.7 %

All Others

    74     91.1 %   9,168,635     31.2 %   38,639,158   $ 6.23     36.5 %
                               

    172     95.1 %   29,352,834     100.0 % $ 105,887,882   $ 3.79     100.0 %
                               

(1)
Calculated as the average economic occupancy weighted by each property's rentable square footage.

35


Table of Contents

        The following table sets forth information relating to tenant diversification by industry in our portfolio based on total annualized rent as of December 31, 2012.

Industry
  Total
Number
of
Leases(1)
  Total Leased
Square Feet
  Percentage of
Leased Square
Feet
  Total
Annualized
Rent
  Percentage of
Total
Annualized
Rent
 

Industrial Equipment, Component & Metals

    25     2,771,282     9.9 % $ 11,358,097     10.7 %

Automotive

    18     2,954,023     10.6 %   11,312,622     10.7 %

Food & Beverages

    12     3,088,777     11.1 %   10,977,068     10.4 %

Containers & Packaging

    13     2,405,847     8.6 %   8,996,233     8.5 %

Air Freight & Logistics

    14     2,523,262     9.1 %   8,590,746     8.1 %

Business Services

    9     1,127,760     4.0 %   6,962,772     6.6 %

Building Materials

    11     1,714,381     6.1 %   6,169,195     5.8 %

Retail

    7     1,681,342     6.0 %   5,266,385     5.0 %

Aerospace & Defense

    12     1,131,999     4.1 %   5,009,076     4.7 %

Office Supplies

    7     1,723,742     6.2 %   4,918,346     4.7 %

Personal Products

    5     1,313,966     4.7 %   4,781,987     4.5 %

Healthcare

    8     1,035,824     3.7 %   4,259,182     4.0 %

Finance

    2     387,227     1.4 %   3,250,177     3.1 %

Technology

    7     848,423     3.0 %   2,761,373     2.6 %

Household Durables

    4     760,064     2.7 %   2,672,763     2.5 %

Media & Entertainment

    3     1,016,876     3.7 %   2,551,017     2.4 %

Non-Profit/Government

    6     196,413     0.7 %   1,824,644     1.7 %

Education

    4     109,771     0.4 %   963,657     0.9 %

Recreational Goods

    2     121,776     0.4 %   255,146     0.2 %

Other

    8     996,048     3.6 %   3,007,396     2.9 %
                       

Total/Weighted Average

    177     27,908,803     100.0 % $ 105,887,882     100.0 %
                       

(1)
A single lease may cover space in more than one building.

Tenants

        Our portfolio of properties has a stable and diversified tenant base. As of December 31, 2012, our properties were 95.1% leased to 156 tenants in a variety of industries, with no single tenant accounting for more than 2.7% and no single industry accounting for more than 10.7% of our total annualized rent. Our 10 largest tenants account for 19.0% of our annualized rent. We intend to continue to maintain a diversified mix of tenants to limit our exposure to any single tenant or industry. As of December 31, 2012, 53% of our tenants (or parents thereof) were publicly rated and 31% were investment grade rated.

36


Table of Contents

        The following table sets forth information about the 10 largest tenants in our portfolio based on total annualized rent as of December 31, 2012.

Tenants
  Number
of
Properties
  Total Leased
Square Feet
  Percentage of
Total
Leased Square
Feet
  Total
Annualized
Rent
  Percentage of
Total
Annualized
Rent
 

International Paper Company

    2     573,323     2.1 % $ 2,888,631     2.7 %

Bank of America, N.A. 

    5     318,979     1.1 %   2,345,891     2.2 %

Spencer Gifts, LLC

    1     491,025     1.8 %   2,060,586     1.9 %

Armacell, LLC

    3     518,838     1.9 %   1,989,527     1.9 %

Stream International Inc. 

    1     148,131     0.5 %   1,888,670     1.8 %

Archway Marketing Serv., Inc. 

    1     386,724     1.4 %   1,857,989     1.8 %

American Beverage Corp

    1     613,200     2.2 %   1,839,600     1.7 %

Cequent Performance Products. 

    2     591,000     2.1 %   1,796,839     1.7 %

Caterpillar Logistics, Inc

    2     415,620     1.5 %   1,775,982     1.7 %

Captive Plastics, Inc

    2     315,500     1.1 %   1,718,182     1.6 %
                       

Total

    20     4,372,340     15.7 % $ 20,161,897     19.0 %
                       

        As of December 31, 2012, our weighted average in-place remaining lease term was approximately 5.1 years. For the year ended December 31, 2012, we have achieved an 84% tenant retention rate for those tenants whose leases were scheduled to expire in 2012. The following table sets forth a summary schedule of lease expirations for leases in place as of December 31, 2012, plus available space, for each of the 9 calendar years beginning with 2012 and thereafter in our portfolio (dollars in thousands, except per square foot data). The information set forth in the table assumes that tenants exercise no renewal options and no early termination rights.

Year Lease of Expiration
  Number of
Leases
Expiring
  Total
Rentable
Square Feet
  Percentage of
Total Expiring
Square Feet
  Total
Annualized
Rent
  Percentage of
Total
Annualized
Rent
  Total
Annualized
Rent per
Leased Square
Foot
 

Available

    0     1,444,031                          

MTM(1)

    3     2,105     0.0 % $ 13,640     0.0 % $ 6.48  

2012(2)

    2     160,078     0.5 %   759,487     0.7 % $ 4.74  

2013

    15     1,576,990     5.4 %   5,698,980     5.4 % $ 3.61  

2014

    26     4,018,903     13.7 %   15,435,811     14.6 % $ 3.84  

2015

    27     3,393,468     11.6 %   10,795,932     10.2 % $ 3.18  

2016

    22     3,756,119     12.8 %   14,904,857     14.1 % $ 3.97  

2017

    27     4,767,570     16.2 %   17,436,096     16.5 % $ 3.66  

2018

    13     2,552,444     8.7 %   10,343,713     9.7 % $ 4.05  

2019

    6     1,344,645     4.6 %   5,898,260     5.6 % $ 4.39  

2020

    6     700,842     2.4 %   3,085,055     2.9 % $ 4.40  

Thereafter

    30     5,635,639     19.2 %   21,516,051     20.3 % $ 3.82  
                           

Total/Weighted Average

    177     29,352,834     95.1 % $ 105,887,882     100.0 % $ 3.79  
                           

(1)
Month-to-month leases.

(2)
Two leases containing 160,078 square feet expired on December 31, 2012. These leases are considered occupied on December 31, 2012; therefore, the expirations will not factor into period ending occupancy until 2013.

37


Table of Contents

Item 3.    Legal Proceedings

        From time to time, we are a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business. We are not currently a party, as plaintiff or defendant, to any legal proceedings which, individually or in the aggregate, would be expected to have a material effect on our business, financial condition or results of operations if determined adversely to our company.

Item 4.    Mine Safety Disclosures

        Not applicable.


PART II.

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

        Information about our equity compensation plans and other related stockholder matters is incorporated by reference to our definitive Proxy Statement for our 2013 Annual Stockholders' Meeting.

Market Information

        Our common stock has been listed on the NYSE since April 15, 2011 and is traded under the symbol "STAG." The closing share price for our common stock on March 4, 2013, as reported by the NYSE, was $21.81. The following table sets forth, for the periods indicated, the high and low sale prices in dollars on the NYSE for our common stock as well as the dividends declared per share of common stock.

 
  High   Low   Dividends per common share  

Quarter ended December 31, 2012

  $ 19.07   $ 16.01   $ 0.27  

Quarter ended September 30, 2012

  $ 16.50   $ 14.04   $ 0.27  

Quarter ended June 30, 2012

  $ 15.07   $ 12.34   $ 0.27  

Quarter ended March 31, 2012

  $ 14.17   $ 11.44   $ 0.26  

Quarter ended December 31, 2011

  $ 11.95   $ 9.80   $ 0.26  

Quarter ended September 30, 2011

  $ 12.81   $ 9.55   $ 0.26  

Period April 15, 2011 to June 30, 2011(1)

  $ 12.98   $ 10.52   $ 0.2057 (2)

(1)
Information is provided only for the period from April 15, 2011 to June 30, 2011, as shares of our common stock did not begin trading publicly until April 15, 2011. Our common stock began trading on April 15, 2011; however, the initial public offering closed on April 20, 2011.

(2)
The $0.26 per share dividend was pro-rated to $0.2057 per share for the portion of the quarter that we were a public company.

Holders of Our Common Stock

        As of March 4, 2013, we had approximately 32 stockholders of record. This figure does not reflect the beneficial ownership of shares held in the nominee name.

38


Table of Contents

Dividends

        To maintain our qualification as a REIT, we must make annual distributions to our stockholders of at least 90% of our taxable net income (not including net capital gains). We have adopted a policy of paying regular quarterly dividends on our common stock, and we have adopted a policy of paying regular quarterly distributions on the common units of our operating partnership. Cash distributions have been paid on our common stock and common units since our initial public offering. Dividends are declared at the discretion of our board of directors and depend on actual and anticipated cash from operations, our financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and other factors our board of directors may consider relevant.

Common Units and Recent Sales of Unregistered Securities

        During the year ended December 31, 2012, we issued an aggregate of 1,861,831 shares of common stock in connection with the redemption of 1,861,831 common units of limited partnership held by certain limited partners of our operating partnership. The shares of common stock issued upon redemption of common units of limited partnership interest were registered with the SEC on our Registration Statement on Form S-3 (No. 333-181291), which was declared effective on May 18, 2012.

        On June 15, 2012, in connection with our acquisition of six industrial properties representing approximately 750,000 square feet, our operating partnership issued 15,789 common units to Columbus Nova Real Estate Acquisition Group, Inc. The issuance of the common units was effected in reliance upon an exemption from registration provided by Section 4(2) under the Securities Act of 1933, as amended. The company relied on the exemption based on representations given by the holders of the common units.

39


Table of Contents

Performance Graph

        The following graph provides a comparison of the cumulative total return on our common stock with the cumulative total return on the Standard & Poor's 500 Index, the MSCI US REIT Index, and the FTSE NAREIT Equity Industrial Index. The MSCI US REIT Index represents performance of publicly traded REITs while the FTSE NAREIT Equity Industrial Index represents only the performance of our peers, publicly traded industrial REITs. Stockholders' returns over the indicated period are based on historical data and should not be considered indicative of future stockholder returns. The graph covers the period from April 15, 2011 to December 31, 2012 and assumed that $100 was invested in STAG Industrial, Inc. common stock and in each index on April 15, 2011 and that all dividends were reinvested.


Cumulative Total Return
Based upon an initial investment of $100 on April 15, 2011 with dividends reinvested

GRAPHIC

        The actual returns shown on the graph above are as follows:

Index
  4/15/2011   6/30/2011   9/30/2011   12/31/2011   3/30/2012   6/29/2012   9/28/2012   12/31/2012  

STAG Industrial, Inc. 

  $ 100.00   $ 103.80   $ 88.60   $ 101.89   $ 126.38   $ 134.48   $ 152.64   $ 171.27  

S&P 500

  $ 100.00   $ 100.49   $ 86.55   $ 96.78   $ 108.98   $ 105.97   $ 112.70   $ 112.25  

MSCI US REIT Index

  $ 100.00   $ 103.20   $ 87.38   $ 99.67   $ 109.42   $ 112.52   $ 111.56   $ 113.18  

FTSE NAREIT Equity Industrial Index

  $ 100.00   $ 99.53   $ 70.83   $ 83.12   $ 101.92   $ 97.27   $ 101.72   $ 105.47  

        This performance graph shall not be deemed "filed" for purposes of Section 18 of the Exchange Act, or incorporated by reference into any filing by us under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

40


Table of Contents

Item 6.    Selected Financial Data

        The following sets forth selected financial and operating data for our company on a historical consolidated basis. The following data should be read in conjunction with the Consolidated and Combined Financial Statements and Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Annual Report on Form 10-K. The company's selected historical Consolidated Balance Sheet information as of December 31, 2012 and December 31, 2011, and STAG Predecessor Group's (as hereafter defined) historical Combined Statements of Operations data for the periods from January 1, 2011 to April 19, 2011 and the year ended December 31, 2010, and STAG Industrial, Inc.'s historical Consolidated Statement of Operations data for the year ended December 31, 2012 and the period from April 20, 2011 to December 31, 2011, have been derived from the audited financial statements of STAG Industrial, Inc. and STAG Predecessor Group. The selected historical Combined Balance Sheet information as of December 31, 2010, 2009 and 2008, and the historical Combined Statements of Operations data for the years ended December 31, 2010, 2009, and 2008, have been derived from the

41


Table of Contents

audited Combined Financial Statements of the STAG Predecessor Group. The results of operations for all periods presented have been adjusted to reflect discontinued operations:

 
   
   
  STAG Predecessor Group  
 
  STAG Industrial, Inc.    
  Year ended December 31,  
 
  Year ended
December 31,
2012
  Period from
April 20, 2011 to
December 31, 2011
  Period from
January 1, 2011 to April 19, 2011
  2010   2009   2008  

Statement of Operations Data:

                                     

Revenue

                                     

Total revenue

  $ 85,487   $ 42,112   $ 7,707   $ 25,919   $ 27,356   $ 28,536  
                           

Expenses

                                     

Property

    12,888     7,204     2,067     6,122     7,213     5,494  

General and administrative

    14,549     8,365     484     874     981     1,015  

Property acquisition costs

    4,218     1,088                  

Depreciation and amortization

    43,275     21,958     2,345     8,931     9,640     11,491  

Loss on impairment

    622                     3,728  

Other expenses

    339     294                  
                           

Total expenses

    75,891     38,909     4,896     15,927     17,834     21,728  
                           

Other income (expense)

                                     

Interest income

    19     28     1     16     66     140  

Interest expense

    (16,110 )   (11,841 )   (3,825 )   (12,817 )   (12,913 )   (13,694 )

Gain (loss) on interest rate swaps

    215     2,179     762     (282 )   (1,720 )   (1,275 )

Formation transaction costs

        (3,674 )                

Offering costs

    (68 )   (78 )                

Loss on extinguishment of debt

    (929 )                      
                           

Total other income (expense)

    (16,873 )   (13,386 )   (3,062 )   (13,083 )   (14,567 )   (14,829 )
                           

Net loss from continuing operations

  $ (7,277 ) $ (10,183 ) $ (251 ) $ (3,091 ) $ (5,045 ) $ (8,021 )
                           

Income (loss) attributable to discontinued operations

    (2,922 )   956     22     145     (515 )   337  
                           

Net loss

  $ (10,199 ) $ (9,227 ) $ (229 ) $ (2,946 ) $ (5,560 ) $ (7,684 )
                           

Less: preferred stock dividends

    6,210     1,018                          

Less: amount allocated to unvested restricted stockholders

    122                              

Less: loss attributable to noncontrolling interest

    (3,720 )   (3,396 )                        
                                   

Net loss attributable to the common stockholders

  $ (12,811 ) $ (6,849 )                        
                                   

Loss from continuing operations attributable to the common stockholders

  $ (0.42 ) $ (0.48 )                        

Income (loss) attributable to discontinued operations per share

    (0.09 )   0.04                          
                                   

Net loss per share attributable to the common stockholders

  $ (0.51 ) $ (0.44 )                        
                                   

Balance Sheet Data (End of Period):

                                     

Rental property, before accumulated depreciation

  $ 816,227   $ 502,258   $   $ 210,186   $ 210,009   $ 208,948  

Rental property, after accumulated depreciation

    770,052     472,254         190,925     195,383     200,268  

Total assets

    1,005,124     624,514         211,004     220,116     229,731  

Debt

    479,215     296,779         207,550     212,132     216,178  

Total liabilities

    515,664     314,605         219,340     221,637     223,171  

Equity (deficit)

    489,460     309,909         (8,336 )   (1,521 )   6,560  

Other Data (unaudited):

                                     

Dividend declared per common share

  $ 1.07   $ 0.7257   $   $   $   $  

Cash flow provided by operating activities

  $ 48,011   $ 14,666   $ 2,359   $ 9,334   $ 8,365   $ 8,431  

Cash flow used in investing activities

    (417,203 )   (114,458 )   (581 )   (2,088 )   (2,040 )   (411 )

Cash flow (used in) provided by financing activities

    371,700     116,013     (3,070 )   (8,451 )   (6,921 )   (8,524 )

42


Table of Contents

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

        The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this report. The combined financial information presented for periods on or prior to April 19, 2011 relate solely to the STAG Predecessor Group. The consolidated financial statements for the period April 20, 2011 to December 31, 2011 and the year ended December 31, 2012 include the financial information of our company, our operating partnership and our subsidiaries. Where the "company" is referenced in comparisons of financial results between the year ended December 31, 2012 and 2011 and any quarter or period ended in 2010, the financial information for such quarter or period ended in 2010 or prior to April 19, 2011 relates solely to the STAG Predecessor Group, notwithstanding "company" being the reference.

Overview

        We are a fully-integrated, full-service real estate company focused on the acquisition, ownership and management of single- tenant industrial properties throughout the United States.

        As of December 31, 2012, we owned 172 properties in 31 states with approximately 29.4 million rentable square feet, consisting of 112 warehouse/distribution properties, 39 light manufacturing properties and 21 flex/office properties, and our properties were 95.1% leased to 156 tenants, with no single tenant accounting for more than 2.7% of our total annualized rent and no single industry accounting for more than 10.7% of our total annualized rent.

        We were formed as a Maryland corporation on July 21, 2010 and our operating partnership, of which we, through our wholly owned subsidiary, STAG Industrial GP, LLC, are the sole general partner, was formed as a Delaware limited partnership on December 21, 2009. On April 20, 2011, we closed on formation transactions and became a public company. At December 31, 2012, we owned a 85.29% limited partnership interest in our operating partnership. We are organized and conduct our operations to qualify as a REIT under the Code, and generally are not subject to federal income tax to the extent we distribute our income to our stockholders and maintain our qualification as a REIT.

Factors That May Influence Future Results of Operations

        The lack of speculative development generally across the country and specifically in our markets may improve occupancy levels and rental rates in our owned portfolio. In addition, our acquisition activity is expected to enhance our overall financial performance. The continuation of low interest rates combined with the availability of attractively priced properties should allow us to deploy our capital on an attractive "spread investing" basis. In general, the economic environment for our tenants appears to be improving due in particular to the increasing availability of financing accessible by mid-sized companies.

        We receive income primarily from rental revenue from our properties. The amount of rental revenue generated by the properties in our portfolio depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space. As of December 31, 2012, our properties were approximately 95.1% leased. The amount of rental revenue generated by us also depends on our ability to maintain or increase rental rates at our properties. Future economic downturns or regional downturns affecting our submarkets that impair our ability to renew or re-lease space and the ability of our tenants to fulfill their lease commitments, as in the case of tenant bankruptcies, could adversely affect our ability to maintain or increase rental rates at our properties.

43


Table of Contents

        Certain leases entered into by us contain tenant concessions. Any such rental concessions are accounted for on a straight line basis over the term of the lease.

        On October 9, 2012, we acquired 31 industrial properties representing 4.3 million square feet for a purchase price of $127.6 million from Fund II, a related party of our company through common mannagement. On October 31, 2012, we acquired one additional industrial property from Fund II for a purchase price of $5.0 million. We expect the addition of the 32 properties will impact our overall performance in future periods. Additionally, during the year ended December 31, 2012 we recognized asset management fee income of $1.1 million related to the management services our subsidiary, STAG Industrial Management, LLC, performed for Fund II. The asset management fee will decrease in future periods as a result of the sale of the Fund II assets to our company.

        Our ability to re-lease space subject to expiring leases will impact our results of operations and is affected by economic and competitive conditions in our markets and by the desirability of our individual properties. As of December 31, 2012, we had approximately 1.4 million rentable square feet of currently available space in our properties. For the year ended December 31, 2012, we have achieved an 84% tenant retention rate for those tenants whose leases were scheduled to expire in 2012.

        The properties in our portfolio are located in markets throughout the United States. Positive or negative changes in economic or other conditions, adverse weather conditions and natural disasters in these markets may affect our overall performance.

        Our rental expenses generally consist of utilities, real estate taxes, management fees, insurance and site repair and maintenance costs. For the majority of our tenants, our rental expenses are controlled, in part, by the triple net provisions in tenant leases. In our triple net leases, the tenant is responsible for all aspects of and costs related to the property and its operation during the lease term, including utilities, taxes, insurance and maintenance costs. However, we also have modified gross leases and gross leases in our property portfolio. The terms of those leases vary and on some occasions we may absorb property related expenses of our tenants. In our modified gross leases, we are responsible for some property related expenses during the lease term, but the cost of most of the expenses is passed through to the tenant for reimbursement to us. In our gross leases, we are responsible for all aspects of and costs related to the property and its operation during the lease term. Our overall performance will be impacted by the extent to which we are able to pass-through rental expenses to our tenants.

Critical Accounting Policies

        The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. We base our estimates on historical experience and on various other assumptions believed to be reasonable under the circumstances. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied resulting in a different presentation of our financial statements. From time to time, we evaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current information. Below is a discussion of accounting policies that we consider critical

44


Table of Contents

in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain.

        The adoption of new accounting pronouncements did not have a material impact on our operating results or financial position during the year ended Decemember 31, 2012.

        The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Rental Property and Depreciation

        Real estate investments are carried at cost less accumulated depreciation and amortization. The cost of real estate includes the purchase price of the property and leasehold improvements. Expenditures for maintenance and repairs are expensed as incurred. Significant renovations and betterments that extend the economic useful lives of assets are capitalized.

        We evaluate the carrying value of all tangible and intangible real estate assets held for use for possible impairment when an event or change in circumstance has occurred that indicates their carrying value may not be recoverable. The evaluation includes estimating and reviewing anticipated future undiscounted cash flows to be derived from the asset and the ultimate sale of the asset. If such cash flows are less than the asset's carrying value, an impairment charge is recognized to the extent by which the asset's carrying value exceeds the estimated fair value. Estimating future cash flows is highly subjective and such estimates could differ from actual results.

        For properties considered held for sale, we cease depreciating the properties and value the properties at the lower of depreciated cost or fair value, less costs to dispose. We classify properties as held for sale when all criteria within the FASB's Accounting Standard Codification ("ASC") 360, Property, Plant and Equipment are met.

        We present qualifying assets and liabilities and the results of operations that have been sold, or otherwise qualify as "held for sale," as discontinued operations in all periods presented if the property operations are expected to be eliminated and we will not have significant continuing involvement following the sale. The components of the property's net income (loss) are reflected as discontinued operations include operating results, depreciation and interest expense (if the property is subject to a secured loan).

        Expenditures for tenant improvements, leasehold improvements and leasing commissions are capitalized and amortized or depreciated over the shorter of their useful lives or the terms of each specific lease. Depreciation expense is computed using the straight-line method based on the following useful lives:

Buildings

  40 years

Building and land improvements

  5 - 20 years

Tenant improvements

  Shorter of useful life or terms of related lease

        We evaluate acquisitions to determine if the acquisition represents an asset acquisition or business combination, and we account for all business combinations in accordance with ASC 805, Business Combinations. Upon acquisition of a property, we allocate the purchase price of the property based

45


Table of Contents

upon the fair value of the assets and liabilities acquired, which generally consist of land, buildings, tenant improvements and intangible assets including in-place leases, above market and below market leases and tenant relationships, as well as the fair value of debt assumed. We allocate the purchase price to the fair value of the tangible assets of an acquired property by valuing the property as if it were vacant. Acquired above and below market leases are valued based on the present value of the difference between prevailing market rates and the in-place rates measured over a period equal to the remaining term of the lease for above market leases and the initial term plus the term of any below market fixed rate renewal options for below market leases that are considered bargain renewal options. The above market lease values are amortized as a reduction of rental income over the remaining term of the respective leases, and the below market lease values are amortized as an increase to rental income over the remaining initial terms plus the terms of any below market fixed rate renewal options that are considered bargain renewal options of the respective leases.

        The purchase price is further allocated to in-place lease values and tenant relationships based on our evaluation of the specific characteristics of each tenant's lease and our overall relationship with the respective tenant. The value of in-place lease intangibles and tenant relationships, which are included as components of deferred leasing intangibles, are amortized over the remaining lease term (and expected renewal periods of the respective lease for tenant relationships) as adjustments to depreciation and amortization expense. If a tenant terminates its lease, the unamortized portion of leasing commissions, above and below market leases, the in-place lease value and tenant relationships are immediately written off.

        In determining the fair value of the debt assumed, we discount the spread between the future contractual interest payments and hypothetical future interest payments on mortgage debt based on a current market rate. The associated fair market value debt adjustment is amortized through interest expense over the life of the debt.

        Using information available at the time of acquisition, we allocate the total consideration to tangible assets and liabilities and identified intangible assets and liabilities. We may adjust the preliminary purchase price allocations after obtaining more information about asset valuations and liabilities assumed.

Tenant Accounts Receivable, net

        Tenant accounts receivable, net on the Consolidated Balance Sheets, includes both tenant accounts receivable, net and accrued rental income, net. We provide an allowance for doubtful accounts against the portion of tenant accounts receivable that is estimated to be uncollectible.

        We accrue rental revenue earned, but not yet receivable, in accordance with GAAP. We maintain an allowance for estimated losses that may result from those revenues. If a tenant fails to make contractual payments beyond any allowance, we may recognize additional bad debt expense in future periods equal to the amount of unpaid rent and accrued rental revenue.

Goodwill

        The excess of the cost of an acquired business over the net of the amounts assigned to assets acquired (including identified intangible assets) and liabilities assumed is recorded as goodwill. Goodwill represents amounts allocated to the assembled workforce from the acquired management company. Goodwill has an indeterminate life and is not amortized, but is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired. We take a qualitative approach to consider whether an impairment of goodwill exists prior to quantitatively determining the fair value of the reporting unit in step one of the impairment test.

46


Table of Contents

Use of Derivative Financial Instruments

        We follow ASC 815, Derivatives and Hedging for disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain our objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

        We record all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. We may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or we elect not to apply hedge accounting

        In accordance with the FASB's fair value measurement guidance, we made an accounting policy election to measure the credit risk of our derivative financial instruments that are subject to master netting arrangements on a net basis by counterparty portfolio. Credit risk is the risk of failure of the counterparty to perform under the terms of the contract. We minimize the credit risk in an interest rate swap by entering into transactions with high-quality counterparties. Our exposure to credit risk at any point is generally limited to amounts recorded as assets or liabilities on the Consolidated Balance Sheets.

Fair Value of Financial Instruments

        Financial instruments include cash and cash equivalents, restricted cash, tenant accounts receivable, interest rate swaps, accounts payable, other accrued expenses, unsecured credit facility, unsecured term loans and mortgage notes payable. The fair values of the cash and cash equivalents, restricted cash, tenant accounts receivable, accounts payable and other accrued expenses approximate their carrying or contract values because of the short term maturity of these instruments.

        We adopted the fair value measurement provisions for its financial instruments recorded at fair value. The guidance establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

Revenue Recognition

        All current leases are classified as operating leases and rental revenue is recognized on a straight-line basis over the term of the lease when collectability is reasonably assured. Differences between rental revenue earned and amounts due under the lease are charged or credited, as applicable,

47


Table of Contents

to accrued rental revenue. Additional rents from expense reimbursements for insurance, real estate taxes and certain other expenses are recognized in the period in which the related expenses are incurred.

        Early lease termination fees are recorded in rental income on a straight-line basis from the notification date of such termination to the then remaining (not the original) lease term, if any, or upon collection if collection is not reasonably assured.

        We earn revenue from asset management fees, which are included in our Consolidated Statements of Operations in other income. We recognize revenue from asset management fees when the related fees are earned and are realized or realizable.

        By the terms of their leases, certain tenants are obligated to pay directly the costs of their properties' insurance, real estate taxes and certain other expenses and these costs are not reflected in our Consolidated and Combined Financial Statements. To the extent any tenant responsible for these costs under its respective lease defaults on its lease or it is deemed probable that the tenant will fail to pay for such costs, we would record a liability for such obligation. We do not recognize recovery revenue related to leases where the tenant has assumed the cost for real estate taxes, insurance, ground lease payments, and certain other expenses.

Gain on Sales of Real Estate

        Gain on sales of real estate is recognized pursuant to the provisions included in ASC 360-20, Real Estate Sales. The specific timing of the sale is measured against various criteria in ASC 360-20 related to the terms of the transaction and continuing involvement in the form of management or financial assistance associated with the properties. If the sales criteria for the full accrual method are not met, we defer some or all of the gain recognition and accounts for the continued operations of the property by applying the finance, leasing, profit sharing, deposit, installment or cost recovery methods, as appropriate, until the sales criteria are met.

Income Taxes

        Prior to the IPO, our predecessor was comprised primarily of limited partnerships and limited liability companies. Under applicable federal and state income tax rules, the allocated share of net income or loss from the limited partnerships and limited liability companies was reportable in the income tax returns of the respective partners and members.

        We elected to be taxed as a REIT under the Code commencing with our taxable year ended December 31, 2011 and intend to continue to qualify as a REIT. As a REIT, we are required to distribute at least 90% of its REIT taxable income to its stockholders and meet the various other requirements imposed by the Code relating to such matters as operating results, asset holdings, distribution levels and diversity of stock ownership. We are generally not subject to corporate level income tax on the earnings distributed currently to its stockholders that we derive from its REIT qualifying activities. If we fail to qualify as a REIT in any taxable year, and are unable to avail itself of certain savings provisions set forth in the Code, all of our taxable income would be subject to federal income tax at regular corporate rates, including any applicable alternative minimum tax.

        We will not be required to make distributions with respect to income derived from the activities conducted through subsidiaries that we elect to treat as taxable REIT subsidiaries ("TRS") for federal income tax purposes. Certain activities that we undertake must be conducted by a TRS, such as performing non-customary services for our tenants and holding assets that we cannot hold directly. A TRS is subject to federal and state income taxes.

        We currently have no liabilities for uncertain tax positions.

48


Table of Contents

Historical Results of Operations of STAG Industrial, Inc. and STAG Predecessor Group (dollars in thousands)

        Within the following Historical Results of Operations, the years ended December 31, 2012 and 2011 consists of STAG Predecessor Group's operations for the period January 1, 2011 to April 19, 2011 and our operations for the period April 20, 2011 to December 31, 2011 and the year ended December 31, 2012.

        The following table summarizes our results of operations for the years ended December 31, 2012 and 2011 (dollars in thousands). Because we did not exist before April 20, 2011, and because, as a result of our formation transactions, our company is substantially different from STAG Predecessor Group, we believe this comparison is not meaningful to an analysis of our operations:

 
  Years Ended
December 31,
   
   
 
 
  2012   2011   Change   % Change  

Revenue

                         

Rental income

  $ 75,390   $ 43,219   $ 32,171     74.4 %

Tenant recoveries

    8,785     5,686     3,099     54.5 %

Other income

    1,312     914     398     43.5 %
                   

Total revenue

    85,487     49,819     35,668     71.6 %
                   

Expenses

                         

Property

    5,998     4,778     1,220     25.5 %

General and administrative

    14,549     8,687     5,862     67.5 %

Real estate taxes and insurance

    6,890     4,493     2,397     53.3 %

Asset management fees

        162     (162 )   (100.0 )%

Property acquisition costs

    4,218     1,088     3,130     287.7 %

Depreciation and amortization

    43,275     24,303     18,972     78.1 %

Loss on impairment

    622         622     100.0 %

Other expenses

    339     294     45     15.3 %
                   

Total expenses

    75,891     43,805     32,086     73.2 %
                   

Other income (expense)

                         

Interest income

    19     29     (10 )   (34.5 )%

Interest expense

    (16,110 )   (15,666 )   (444 )   2.8 %

Gain (loss) on interest rate swaps

    215     2,941     (2,726 )   (92.7 )%

Formation transactions costs

        (3,674 )   3,674     (100.0 )%

Offering costs

    (68 )   (78 )   10     (12.8 )%

Loss on extinguishment of debt

    (929 )       (929 )   100.0 %
                   

Total other income (expense)

    (16,873 )   (16,448 )   (425 )   2.6 %
                   

Discontinued operations

                         

Income attributable to discontinued operations

    797     649     148     22.8 %

Loss on impairment attributable to discontinued operations

    (3,941 )       (3,941 )   100.0 %

Gain on sales of real estate

    222     329     (107 )   (32.5 )%
                   

Total income (loss) attributable to discontinued operations

    (2,922 )   978     (3,900 )   (398.8 )%
                   

Net loss

  $ (10,199 ) $ (9,456 ) $ (743 )   7.9 %
                   

Less: loss attributable to noncontrolling interest

    (3,720 )   (3,396 )   (324 )   9.5 %
                   

Net loss attributable to STAG Industrial, Inc

  $ (6,479 ) $ (6,060 ) $ (419 )   6.9 %
                   

49


Table of Contents

        Total revenue consists primarily of rental income from our properties, lease termination fees, tenant reimbursements for insurance, real estate taxes and certain other expenses, and asset management fees.

        Total revenue increased by $35.7 million, or 71.6%, to $85.5 million for the year ended December 31, 2012 compared to $49.8 million for the year ended December 31, 2011. The increase was primarily attributable to additional revenue from the properties contributed to us as part of the formation transactions and the acquisitions of 85 properties since the formation transactions. Of the $35.7 million increase in revenue, $32.2 million relates to base rental income, $3.1 million relates to tenant recoveries, and $0.4 million relates to an increase in other income, including asset management fee income.

        Total expenses increased by $32.1 million, or 73.2%, to $75.9 million for the year ended December 31, 2012 compared to $43.8 million for the year ended December 31, 2011. The increase was primarily attributable to additional expense from the properties contributed to us as part of the formation transactions and the acquisitions of 85 properties since the formation transactions. General and administrative expenses increased $5.9 million due to the inclusion of salary and other compensation costs following the formation transactions and other administrative costs of being a public company. Additionally, depreciation and amortization increased $19.0 million as a result of the properties acquired in the formation transactions and 85 properties acquired since the formation transactions which increased the depreciable asset base.

        Total other income (expense) consists of interest income, interest expense, gain on interest rate swaps, formation transaction costs, offering costs, and loss on extinguishment of debt. Interest expense includes interest paid and accrued during the period as well as adjustments related to amortization of financing costs and amortization of fair market value adjustments associated with the assumption of debt.

        Total other expense increased $0.4 million, or 2.6%, to $16.9 million for the year ended December 31, 2012 compared to $16.4 million for the year ended December 31, 2011. The increase in other expense was primarily a result of the gain on interest rate swaps decreased by $2.7 million from $2.9 million for the year ended December 31, 2011 to $0.2 million for year ended December 31, 2012 due to the expiration of the related interest rate swap on January 31, 2012. Additionally, the loss on extinguishment of debt of $0.9 million recognized during the year ended December 31, 2012 related to write-off of deferred financing fees in connection with the pay-off of the Wells Fargo Master Loan and the termination of the secured credit facility (as defined below) contributed to the increase in total other expenses. The increase was partially offset by the decrease in formation transaction costs of $3.7 million, which was a one-time expense associated with the initial public offering of the company in 2011.

        Total income (loss) attributable to discontinued operations reflects the results of operations and gain on sale of real estate related to the sale of non-strategic properties located in Amesbury, MA, Youngstown, OH and Great Bend, KS. The total income attributable to discontinued operations decreased by $3.9 million primarily due to the loss on impairment of $3.9 million that was recognized prior to the sale of Great Bend, KS, which closed on November 30, 2012. The property and intangibles were tested for impairment as of September 30, 2012 utilizing a probability weighted recovery analysis

50


Table of Contents

of certain scenarios, and it was determined that the carrying value of the property and intangibles were not recoverable from the estimated future undiscounted cash flows. Accordingly as of September 30, 2012, the property and intangibles were written down to their estimated fair value based on pricing obtained from third party market participants.

        Net loss increased by $0.7 million, or 7.9%, to $10.2 million for the year ended December 31, 2012 compared to $9.5 million for the year ended December 31, 2011. The increase is primarily attributable to the operations of the properties contributed to us as part of the formation transactions and the acquisitions of 85 properties since the formation transactions resulting in greater depreciation and amortization. The increase is also attributable to the aforementioned factors above.

        Within the following Historical Results of Operations, the year ended December 31, 2011 consists of STAG Predecessor Group's operations for the period January 1, 2011 to April 19, 2011 and our operations for the period April 20, 2011 to December 31, 2011. The year ended December 31, 2010 consists of STAG Predecessor Group's operations (dollars in thousands). Because we did not exist before April 20, 2011, and because, as a result of our formation transactions, our company is substantially different from STAG Predecessor Group, we believe this comparison is not meaningful to an analysis of our operations:

 
  Years Ended
December 31,
   
   
 
 
  2011   2010   Change   % Change  

Revenue

                         

Rental income

  $ 43,219   $ 22,234   $ 20,985     94.4 %

Tenant recoveries

    5,686     3,685     2,001     54.3 %

Other income

    914         914     100.0 %
                   

Total revenue

    49,819     25,919     23,900     92.2 %
                   

Expenses

                         

Property

    4,778     3,407     1,371     40.2 %

General and administrative

    8,687     330     8,357     2532.4 %

Real estate taxes and insurance

    4,493     2,715     1,778     65.5 %

Asset management fees

    162     544     (382 )   (70.2 )%

Property acquisition costs

    1,088         1,088     100.0 %

Depreciation and amortization

    24,303     8,931     15,372     172.1 %

Other expenses

    294         294     100.0 %
                   

Total expenses

    43,805     15,927     27,878     175.0 %
                   

Other income (expense)

                         

Interest income

    29     16     13     81.3 %

Interest expense

    (15,666 )   (12,817 )   (2,849 )   22.2 %

Gain (loss) on interest rate swaps

    2,941     (282 )   3,223     (1142.9 )%

Formation transactions costs

    (3,674 )       (3,674 )   100.0 %

Offering costs

    (78 )       (78 )   100.0 %
                   

Total other income (expense)

    (16,448 )   (13,083 )   (3,365 )   25.7 %
                   

Discontinued operations

                         

Income attributable to discontinued operations

    649     145     504     347.6 %

Gain on sale of real estate

    329         329     100.0 %
                   

Total income attributable to discontinued operations

    978     145     833     574.5 %
                   

Net loss

  $ (9,456 ) $ (2,946 ) $ (6,510 ) $ 221.0 %
                   

Less: loss attributable to noncontrolling interest

    (3,396 )       (3,396 )   100.0 %
                   

Net loss attributable to STAG Industrial, Inc

  $ (6,060 ) $ (2,946 ) $ (3,114 )   105.7 %
                   

51


Table of Contents

        Total revenue increased by $23.9 million, or 92.2%, to $49.8 million for the year ended December 31, 2011 compared to $25.9 million for the year ended December 31, 2010. The increase was primarily attributable to additional revenue from properties contributed to our company as part of the formation transactions as well as the acquisitions of 15 properties during the period April 20, 2011 to December 31, 2011. Rental income increased by $21.0 million, or 94.4%, to $43.2 million for the year ended December 31, 2011 compared to $22.2 million for the year ended December 31, 2010.

        Total expenses increased by $27.9 million, or 175%, to $43.8 million for the year ended December 31, 2011 compared to $15.9 million for the year ended December 31, 2010. For year ended December 31, 2010, we reported the results only of STAG Predecessor Group. The increase was primarily attributable to additional expense from properties contributed to our company as part of the formation transactions as well as the acquisitions of 15 properties during the period April 20, 2011 to December 31, 2011. General and administrative expenses increased due to the inclusion of salary and other compensation costs as well as office expenses following the formation transactions. Additionally, depreciation and amortization increased as a result of the properties acquired in the formation transactions and 15 properties acquired since the formation transactions resulted in an increased asset base.

        Total other income (expense) consists of interest income, interest expense, gain on interest rate swaps, formation transaction costs, and offering costs. Interest expense includes interest paid and accrued during the period as well as adjustments related to amortization of financing costs and amortization of fair market value adjustments associated with the assumption of debt.

        Total other expense increased $3.4 million, or 25.7%, to $16.4 million for the year ended December 31, 2011 compared to $13.1 million for the year ended December 31, 2010. The increase was primarily attributable to $3.7 million of formation transaction costs incurred in connection with the formation transactions and increased interest expense of $2.8 million related to the additions of encumbered properties related to the formation transactions and the acquisition of 15 properties during the period April 20, 2011 to December 31, 2011. The increase was partially offset by an increase in gain on interest rate swaps of $3.2 million.

        Total income attributable to discontinued operations reflects the results of operations and gain on sale of real estate related to the sale of non-strategic properties located in Amesbury, MA and Youngstown, OH and Great Bend, KS. The total net income attributable to discontinued operations increased $0.8 million or 574.5% to $1.0 million for the year ended December 31, 2011 compared to $0.1 million for the year ended December 31, 2010. The increase was primarily the result of the operations related to properties sold in 2011 and 2012 as well as the gain on sale of $0.3 million being recognized during the year ended December 31, 2011.

        Net loss increased by $6.5 million, or 221.0%, to $9.5 million for the year ended December 31, 2011 compared to $2.9 million for the year ended December 31, 2010. The increase is primarily attributable to the operations of the properties contributed to us as part of the formation transactions and the acquisitions of 15 properties since the formation transactions resulting in greater depreciation and amortization. The increase is also attributable to the aforementioned factors above.

52


Table of Contents

Cash Flows

        The following table summarizes our cash flows for the year ended December 31, 2012 and 2011 (inclusive of STAG Predecessor Group from the period January 1, 2011 to April, 19, 2011 and STAG Industrial, Inc. from the period April 20, 2011 to December 31, 2011) (dollars in thousands). Because we did not exist before April 20, 2011, and because, as a result of our formation transactions, our company is substantially different from STAG Predecessor Group, we believe this comparison is not meaningful to an analysis of our operations:

 
  Years Ended December 31,    
   
 
 
  2012   2011   Change   % Change  

Cash provided by operating activities

  $ 48,011   $ 17,025   $ 30,986     182.0 %

Cash used in investing activities

    (417,203 )   (115,039 )   (302,164 )   262.7 %

Cash provided by financing activities

    371,700     112,943     258,757     229.1 %

        Net cash provided by operating activities.    Net cash provided by operating activities increased $31.0 million to $48.0 million for the year ended December 31, 2012 compared to $17.0 million for the year ended December 31, 2011. The increase in cash provided by operating activities was primarily attributable to the net changes in current assets and liabilities due in large part to the formation transactions and the acquisition of 70 properties during the year ended December 31, 2012.

        Net cash used in investing activities.    Net cash used in investing activities increased by $302.2 million to $417.2 million for the year ended December 31, 2012 compared to $115.0 million for the year ended December 31, 2011. The change is primarily attributable to additions of 70 properties during the year ended December 31, 2012.

        Net cash provided by financing activities.    Net cash provided by financing activities increased $258.8 million to $371.7 million for the year ended December 31, 2012 compared to $112.9 million for the year ended December 31, 2011. The change is primarily attributable to the net proceeds from our sale of common stock, the unsecured credit facility and unsecured term loan (as defined below), and the CMBS Loan (as defined below).

        The following table summarizes our cash flows for the year ended December 31, 2011 (inclusive of STAG Predecessor Group from the period January 1, 2011 to April, 19, 2011 and STAG Industrial, Inc. from the period April 20, 2011 to December 31, 2011) compared to STAG Predecessor Group's combined cash flows for year ended December 31, 2010 (dollars in thousands). Because we did not exist before April 20, 2011, and because, as a result of our formation transactions, our company is substantially different from STAG Predecessor Group, we believe this comparison is not meaningful to an analysis of our operations:

 
  Years Ended
December 31,
   
   
 
 
  2011   2010   Change   % Change  

Cash provided by operating activities

  $ 17,025   $ 9,334   $ 7,691     82.4 %

Cash used in investing activities

    (115,039 )   (2,088 )   (112,951 )   5,409.5 %

Cash provided by (used in) financing activities

    112,943     (8,451 )   121,394     (1,436.4 )%

        Net cash provided by operating activities.    Net cash provided by operating activities increased $7.7 million to $17.0 million for the year ended December 31, 2011 compared to $9.3 million for the year ended December 31, 2010. The increase in cash provided by operating activities was primarily

53


Table of Contents

attributable to the net changes in current assets and liabilities due in large part to the formation transactions and the acquisition of 15 properties during the period April 20, 2011 to December 31, 2011.

        Net cash used in investing activities.    Net cash used in investing activities increased by $113.0 million to $115.0 million for the year ended December 31, 2011 compared to $2.1 million for the year ended December 31, 2010. The change is primarily attributable to additions of 15 properties during the period April 20, 2011 to December 31, 2011.

        Net cash provided by (used in) financing activities.    Net cash provided by (used in) financing activities increased $121.4 million to $112.9 million for the year ended December 31, 2011 compared to $(8.5) million for the year ended December 31, 2010. The change is primarily attributable to the net proceeds from our initial public offering, the Series A Preferred Stock offering, mortgage notes and the secured credit facility offset by the repayment of mortgage notes payable with offering proceeds.

Off Balance Sheet Arrangements

        As of December 31, 2012, we had no off-balance sheet arrangements other than those disclosed in the table under "—Liquidity and Capital Resources—Contractual Obligations" below.

Liquidity and Capital Resources

        Our short-term liquidity requirements consist primarily of funds to pay for operating expenses as analyzed in our cash flows from operating activities in the consolidated and combined statements of cash flows and other expenditures directly associated with our properties, including:

        In addition, we require funds for future dividends and distributions to be paid to our common and preferred stockholders and common unit holders in our operating partnership. The table below sets forth the dividends that have been declared by our board of directors on our common stock during the year ended December 31, 2012:

Amount Declared During Quarter Ended in 2012
  Declaration Date   Per Share   Date Paid  

December 31

    November 2, 2012   $ 0.27     January 15, 2013  

September 30

    August 2, 2012     0.27     October 15, 2012  

June 30

    May 15, 2012     0.27     July 13, 2012  

March 31

    March 6, 2012     0.26     April 13, 2012  
                   

Total 2012

        $ 1.07        

        On April 20, 2011, we closed on our IPO of common stock and completed our formation transactions (the "formation transactions"), which included the issuance of 13,750,000 shares of our common stock for $13.00 per share, for net proceeds of approximately $166.3 million, reflecting gross proceeds of $178.8 million net of underwriting discounts of approximately $12.5 million. In connection with the exercise of the underwriters' overallotment option, on May 13, 2011, we issued an additional 2,062,500 shares of common stock at $13.00 per share, for net proceeds of approximately $24.9 million, reflecting gross proceeds of $26.8 million net of underwriters' discount and offering costs of approximately $1.9 million.

        On November 2, 2011, we completed an underwritten public offering of 2,760,000 shares of the Series A Preferred Stock (including 360,000 shares issued pursuant to the full exercise of the underwriters' overallotment option) at a price to the public of $25.00 per share for gross proceeds of

54


Table of Contents

$69.0 million. After deducting underwriting discounts and offering expenses of $2.7 million, net proceeds amounted to approximately $66.3 million. We pay cumulative dividends on the Series A Preferred Stock at a rate of 9.0% per annum of the $25.00 liquidation preference per share (equivalent to the fixed annual rate of $2.25 per share). Dividends on the Series A Preferred Stock are payable quarterly in arrears on or about the last day of March, June, September and December of each year. The Series A Preferred Stock ranks senior to our common stock with respect to dividend rights and rights upon our liquidation, dissolution or winding-up. We used the net proceeds to repay our indebtedness under the secured credit facility, to fund acquisitions, and for general corporate purposes. The table below sets forth the dividends that have been declared by our board of directors on our Series A Preferred Stock during the year ended December 31, 2012:

Amount Declared During Quarter Ended in 2012
  Declaration Date   Per Share   Date Paid  

December 31

    November 2, 2012   $ 0.5625     December 31, 2012  

September 30

    August 2, 2012     0.5625     October 1, 2012  

June 30

    May 15, 2012     0.5625     July 2, 2012  

March 31

    March 6, 2012     0.5625     April 2, 2012  
                   

Total 2012

        $ 2.25        

        On May 29, 2012, we completed an underwritten public offering of 8,337,500 shares of common stock (including 1,087,500 shares issued pursuant to the full exercise of the underwriters' overallotment option) at a public offering price of $12.88 per share. We received net proceeds of $102.8 million, reflecting gross proceeds of $107.4 million, net of underwriting discounts of $4.6 million. We also incurred direct offering costs of $0.5 million and indirect costs of $0.1 million in connection with the offering.

        On August 15, 2012, we completed an underwritten public offering of 9,200,000 of shares of common stock (including 1,200,000 shares issued pursuant to the full exercise of the underwriters' overallotment option) at a public offering price of $14.15 per share. We received net proceeds of $124.6 million, reflecting gross proceeds of $130.2 million, net of underwriting discounts of $5.5 million. We also incurred direct offering costs of $0.2 million in connection with the offering.

        On December 14, 2012, we established an "at the market" ("ATM") stock offering program through which we may sell from time to time up to an aggregate of $75.0 million of our common stock through sales agents. Between December 14, 2012 and December 31, 2012, under the program we issued an aggregate of 298,000 shares of common stock. As of December 31, 2012, we have received net proceeds of approximately $5.3 million, reflecting gross proceeds of approximately $5.4 million, net of sales agents' fees of approximately $0.1 million. We also incurred direct offering costs of $0.2 million in connection with the this program.

        Subsequent to year end, on January 22, 2013, we completed an underwritten public offering of 6,284,152 shares of common stock (including 819,672 shares issued pursuant to the full exercise of the underwriters' overallotment option) at a price of $18.30 per share. We received net proceeds of $110.1 million, reflecting gross proceeds of $115.0 million net of the underwriters discount of $4.9 million.

        We believe that our liquidity needs will be satisfied through cash flows generated by operations, financing activities and selective property sales. Rental revenue, expense recoveries from tenants, and other income from operations are our principal sources of cash that we use to pay operating expenses, debt service, recurring capital expenditures and the minimum distributions required to maintain our REIT qualification. We seek to increase cash flows from our properties by maintaining quality standards for our properties that promote high occupancy rates and permit increases in rental rates while reducing tenant turnover and controlling operating expenses. We believe that our revenue,

55


Table of Contents

together with proceeds from property sales and debt financings, will continue to provide funds for our short-term liquidity needs.

        Our long-term liquidity needs consist primarily of funds necessary to pay for acquisitions, non-recurring capital expenditures and scheduled debt maturities. We intend to satisfy our long-term liquidity needs through cash flow from operations, long-term secured and unsecured borrowings, and issuance of equity securities, or, in connection with acquisitions of additional properties, the issuance of common units in our operating partnership, property dispositions, and joint venture transactions.

        The following table sets forth certain information with respect to the indebtedness outstanding as of December 31, 2012 (dollars in thousands):

Loan
  Principal   Fixed/Floating   Rate   Maturity  

Sun Life Assurance Company of Canada (U.S.)

  $ 4,079 (1) Fixed     6.05 %   Jun-1-2016  

Webster Bank N.A

    5,984 (2) Fixed     4.22 %   Aug-4-2016  

Unsecured Credit Facility

    99,300 (3) Variable     LIBOR + 1.65 %   Sept-10-2016  

Union Fidelity Life Insurance Co. 

    6,898 (4) Fixed     5.81 %   Apr-30-2017  

Webster Bank N.A

    3,203 (5) Fixed     3.66 %   May-29-2017  

Webster Bank N.A

    3,450 (6) Fixed     3.64 %   May-31-2017  

Unsecured Term Loan

    150,000 (7) Variable     LIBOR + 1.65 %   Sept-10-2017  

CIGNA-1 Facility(8)

    59,645   Fixed     6.50 %   Feb-1-2018  

CIGNA-2 Facility(9)

    60,863   Fixed     5.75 %   Feb-1-2018  

CIGNA-3 Facility(10)

    17,097   Fixed     5.88 %   Oct-1-2019  

Wells Fargo Bank N.A(11)

    68,696   Fixed     4.31 %   Dec-1-2022  
                     

Total/Weighted Average

  $ 479,215         3.69 %(12)      
                     

(1)
Principal outstanding includes an unamortized fair market value premium of $0.2 million as of December 31, 2012, which is not included in the calculation of the weighted average interest rate. The loan is collateralized by the Gahanna, Ohio property

(2)
We entered into this loan with Webster Bank, National Association ("Webster Bank") with an outstanding principal amount of $6.2 million on August 4, 2011 in connection with the acquisition of the property located in Norton, MA, which property is collateral for the loan.

(3)
The spread over LIBOR is based on the company's consolidated leverage ratio and will range between 1.65% and 2.25%.

(4)
Principal outstanding includes an unamortized fair market value premium of $0.2 million as of December 31, 2012, which is not included in the calculation of the weighted average interest rate. The loan is collateralized by the St. Louis, Missouri property.

(5)
We entered into this loan Webster Bank with an outstanding principal amount of $3.25 million on May 29, 2012 in connection with the acquisition of the property located in Portland, ME, which property is collateral for the loan.

(6)
We entered into the loan Webster Bank with an outstanding principal amount of $3.5 million on May 31, 2012 in connection with the acquisition of a property located in East Windsor, CT, which property is collateral for the loan.

(7)
The spread over LIBOR is based on the company's consolidated leverage ratio and will range between 1.65% and 2.25%. The company swapped LIBOR for a fixed rate for $100.0 million of the $150.0 capacity on the unsecured term loan. The swaps were effective beginning on October 10, 2012.

56


Table of Contents

(8)
Acquisition loan facility with Connecticut General Life Insurance Company ("CIGNA") that was originally entered into in July 2010 (the "CIGNA-1 facility"), which loan has various property as collateral, (which has no remaining borrowing capacity).

(9)
Acquisition loan facility with CIGNA that was originally entered into in October 2010 (the "CIGNA-2 facility"), which loan has various property as collateral. As of December 31, 2012, we had approximately $2.9 million of borrowing capacity under the CIGNA-2 facility, subject to customary terms and conditions, including underwriting.

(10)
Acquisition loan facility with CIGNA that was originally entered into in July 2011 (the "CIGNA-3 facility"), which loan has various property as collateral. As of December 31, 2012, we had approximately $47.9 million of borrowing capacity under the CIGNA-3 facility, subject to customary terms and conditions, including underwriting.

(11)
On November 8, 2012, certain of the company's subsidiaries entered into a $68.8 million non-recourse secured loan facility with Wells Fargo ("CMBS Loan"), which loan has various property as collateral.

(12)
The weighted average interest rate was calculated using the swapped rate for the $100 million unsecured term loan.

        We regularly pursue new financing opportunities to ensure an appropriate balance sheet position. As a result of these dedicated efforts, we are comfortable with our ability to meet future debt maturities and property acquisition funding needs. We believe that our current balance sheet is in an adequate position at the date of this filing, despite possible volatility in the credit markets. Additionally, subsequent to December 31, 2012 on January 22, 2013, we paid down the unsecured credit facility in full with the proceeds from our January 22, 2013 common offering.

        The CIGNA-1, CIGNA-2 and CIGNA-3 facilities contain provisions that cross-default the loans and cross-collateralize the 21 properties that are collateralized by each of the loans. In addition, each of the CIGNA-1, CIGNA-2 and CIGNA-3 facilities requires a 62.5% loan to value (including all acquisition costs) and a debt service coverage ratio of 1.5x, each measured at acquisition, but not as continuing covenants.

        The CMBS Loan agreement is a commercial mortgage backed security that provides for a secured loan. The CMBS Loan is collateralized by first mortgages on 28 of our properties located in eight states. Wells Fargo has the right to securitize any portion or all of the CMBS Loan in a single asset securitization or a pooled loan securitization, which it completed on December 19, 2012. The operating partnership guarantees the obligations under the loan.

        Our debt is subject to certain financial and other covenants. As of December 31, 2012, we were in compliance with the financial covenants in our loan agreements.

        Unsecured Credit Facility and Unsecured Term Loan:    On September 10, 2012, we closed a credit agreement ("credit agreement") for an unsecured corporate revolving credit facility with Bank of America, N.A. as administrative agent and Merrill Lynch, Pierce, Fenner & Smith Incorporated as lead arranger. The unsecured credit facility provides for a senior unsecured revolving credit facility of up to $200.0 million, with a sublimit of $10.0 million for swing line loans and $10.0 million for letters of credit (the "unsecured credit facility"). Additionally, the unsecured credit facility has an accordion feature that allows us to request an increase in its borrowing capacity to $300.0 million, subject to the satisfaction of certain conditions. The unsecured credit facility will mature on September 10, 2016, subject to a one-year extension option which we may exercise at our election, pursuant to certain terms and conditions, including the payment of an extension fee, contained in the credit agreement. Proceeds from the unsecured credit facility have been and will be used for property acquisitions, working capital requirements and other general corporate purposes. We currently do not intend to use this facility to repay our existing debt obligations upon maturity. The unsecured credit facility replaces our prior

57


Table of Contents

$100.0 million secured corporate revolving credit facility (the "secured credit facility"), which was scheduled to mature on April 20, 2014. The credit agreement also provides for a $150.0 million, five-year unsecured term loan with a maturity date of September 10, 2017 (the "unsecured term loan").

        The amount available for us to borrow under the unsecured credit facility is based on (a) the lesser of (i) 60.0% of the Borrowing Base Values (as defined in the credit agreement) of our properties that form the borrowing base of the unsecured credit facility, and (ii) the amount that would create a debt service coverage ratio of not less than 1.6 based on a 30-year amortization period, less (b) any other unsecured indebtedness (as defined in the credit agreement) then outstanding.

        As of December 31, 2012, $99.3 million was outstanding under the unsecured credit facility and approximately $40.4 million of borrowing capacity was available. As of December 31, 2012, $150.0 million was outstanding under the unsecured term loan.

        Amounts outstanding under the unsecured credit facility and the unsecured term loan bear interest at a floating rate equal to, at our election, the one month LIBOR rate or the Base Rate (each as defined in the credit agreement) plus a spread. The spread depends upon our leverage ratio and ranges from 1.65% to 2.25% for one month—LIBOR rate based borrowings and from 0.65% to 1.25% for Base Rate based borrowings. At December 31, 2012, the spread on the unsecured credit facility and unsecured term loan was 1.65%. We also will pay certain customary fees and expense reimbursements, including an unused fee equal to 0.35% of the unused balance of the unsecured credit facility if usage is less than 50% of the capacity and 0.25% if usage is greater than or equal to 50%.

        Wells Fargo Unsecured Term Loan:    On February 14, 2013, we entered into a seven-year term loan agreement ("loan agreement") with Wells Fargo Bank, National Association and certain other lenders. The loan agreement provides for an unsecured loan in the original principal amount of up to $150 million (the "Wells Fargo unsecured term loan"). Additionally, the Wells Fargo unsecured term loan has a feature that allows us to request an increase in total commitments of up to $250 million, subject to certain conditions. Unless otherwise terminated pursuant to the terms of the loan agreement, the Wells Fargo unsecured term loan will mature on February 14, 2020.

        The amount available for us to borrow under the Wells Fargo unsecured term loan is based on (a) the lesser of (i) 60% of the Borrowing Base Values (as defined in the loan agreement) of our properties that form the borrowing base of the Wells Fargo unsecured term loan, and (ii) the amount that would create a debt service coverage ratio of not less than 1.6 based on a 30-year amortization, less (b) any other unsecured indebtedness (as defined in the loan agreement) then outstanding. We borrowed $25 million under the Wells Fargo unsecured term loan at closing.

        Borrowings under Wells Fargo unsecured term loan bear interest at a floating rate equal to, at our election, the Eurodollar Rate or the Base Rate (each as defined in the loan agreement) plus a spread. The spread depends upon our leverage ratio and ranges from 2.15% to 2.70% for Eurodollar Rate based borrowings and from 1.15% to 1.70% for Base Rate based borrowings. At closing, the spread on the Wells Fargo unsecured term loan was 2.15%.

        Financial Covenants:    Our ability to borrow under the unsecured credit facility and unsecured term loan and the Wells Fargo unsecured term loan is subject to our ongoing compliance with a number of customary financial covenants, including:

58


Table of Contents

        If a default or event of default occurs and is continuing, we may be precluded from paying certain distributions (other than those required to allow us to qualify and maintain our status as a REIT) under the terms of the unsecured credit facility and unsecured term loan and the Wells Fargo unsecured term loan.

        Events of Default:    The credit agreement and the loan agreement contain customary events of default, including but not limited to non-payment of principal, interest, fees or other amounts, defaults in the compliance with the covenants contained in the documents evidencing the unsecured credit facility and the Wells Fargo unsecured term loan, cross-defaults to other material debt and bankruptcy or other insolvency events.

        The company and certain of our subsidiaries guarantee the obligations under the credit agreement and the loan agreement.

        The following table reflects our contractual obligations as of December 31, 2012, specifically our obligations under long-term debt agreements and ground lease agreements (dollars in thousands):

 
  Payments by Period  
Contractual Obligations(1)(2)
  Total   2013   2014 - 2015   2016 - 2017   Thereafter  

Principal payments(5)

  $ 478,821   $ 4,219   $ 9,135   $ 278,083   $ 187,384  

Interest payments—fixed rate debt(3)(4)

    82,243     14,614     28,531     25,908     13,190  

Operating lease and ground leases(3)

    5,542     165     330     337     4,710  

Other(3)

    655     148     297     210     0  
                       

Total

  $ 567,261   $ 19,146   $ 38,293   $ 304,538   $ 205,284  
                       

(1)
From time-to-time in the normal course of our business, we enter into various contracts with third parties that may obligate us to make payments, such as maintenance agreements at our properties. Such contracts, in the aggregate, do not represent material obligations, are typically short-term and cancellable within 90 days and are not included in the table above.

(2)
The terms of the loan agreements for each of the CIGNA-1, CIGNA-2 and CIGNA-3 facilities also stipulate that general reserve escrows be funded monthly in an amount equal to eight basis points of the principal of the loans outstanding at the time. The funding of these reserves is not included in the table above.

(3)
Not included in our Consolidated Balance Sheets.

(4)
Amounts include interest rate payments on the $100.0 million of the $150.0 million unsecured term loan that have been swapped to a fixed rate.

(5)
The $99.3 million outstanding on the unsecured credit facility is assumed to be paid in full at maturity in 2016 for the purposes of this table.

Interest Rate Risk

        ASC 815, Derivatives and Hedging, requires us to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value and the changes in fair value must be reflected as income or expense. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive loss, which is a component of equity. The ineffective portion of a derivative's change in fair value is immediately recognized in earnings. As of December 31, 2011, we had approximately $134.1 million of

59


Table of Contents

mortgage debt subject to an interest rate swap with such interest rate swap liability having an approximate $0.2 million net fair value. STAG Predecessor Group and the other entities that contributed to our formation transactions did not designate the hedges at the time of inception as it was prior to our IPO and reporting in conformity with GAAP. Therefore, our investment in the interest rate swap through its expiration on January 31, 2012 did not qualify as an effective hedge for accounting purposes, and as such, changes in the swaps' fair market values were being recorded in earnings through the maturity on January 31, 2012.

        On September 14, 2012, we commenced a program of utilizing designated derivatives to hedge the variable cash flows associated with a portion of the unsecured term loan. We entered into seven interest rate swap agreements for notional amounts varying from $10.0 million to $25.0 million with a total notional amount of $100.0 million with an effective date of October 10, 2012. The swaps convert the one-month LIBOR rate on $100 million of the $150 million unsecured term loan due on September 10, 2017, from a variable rate of one-month LIBOR plus a spread of 1.65% to 2.25% based on our consolidated leverage ratio to a fixed rates between 0.727% and 0.7975% plus a spread of 1.65% to 2.25% based on our consolidated leverage ratio. As of December 31, 2012, the spread on the unsecured term loan was 1.65%.

        As of December 31, 2012, we had $249.3 million of debt with interest at a variable rate. Of the $249.3 million of variable rate debt, the $100.0 of the $150.0 million unsecured term loan has been fixed with swaps plus a spread of 1.65% to 2.25% based on our consolidated leverage ratio. The remaining $99.3 million of variable rate debt is related to the unsecured credit facility and the remaining $50.0 million of variable rate debt released to the unsecured term loan, which are both currently priced at one-month LIBOR plus 1.65%. To the extent interest rates increase, interest costs on our variable rate debt also will increase, which could adversely affect our cash flow and our ability to pay principal and interest on our debt and our ability to make distributions to our security holders. From time to time, we may enter into interest rate swap agreements and other interest rate hedging contracts, including swaps, caps and floors. In addition, an increase in interest rates could decrease the amounts third-parties are willing to pay for our assets, thereby limiting our ability to change our portfolio promptly in response to changes in economic or other conditions.

Inflation

        The majority of our leases is either triple net or provides for tenant reimbursement for costs related to real estate taxes and operating expenses. In addition, most of the leases provides for fixed rent increases. We believe that inflationary increases may be at least partially offset by the contractual rent increases and tenant payment of taxes and expenses described above. We do not believe that inflation has had a material impact on our historical financial position or results of operations.

Non-GAAP Financial Measures

        In this report, we disclose and discuss FFO, which meets the definition of a "non-GAAP financial measure" set forth in Item 10(e) of Regulation S-K promulgated by the SEC. As a result we are required to include in this report a statement of why management believes that presentation of this measure provides useful information to investors.

        FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance, and we believe that to understand our performance further, FFO should be compared with our reported net income or net loss and considered in addition to cash flows in accordance with GAAP, as presented in our Consolidated and Combined Financial Statements.

60


Table of Contents

        We calculate FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts ("NAREIT"). FFO represents net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales of depreciable operating property, impairment write-downs of depreciable real estate, real estate related depreciation and amortization (excluding amortization of deferred financing costs and fair market value of debt adjustment) and after adjustments for unconsolidated partnerships and joint ventures.

        Management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs.

        However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary maintain the operating performance of our properties, all of which have real economic effects and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. Other equity REITs may not calculate FFO in accordance with the NAREIT definition as we do, and, accordingly, our FFO may not be comparable to such other REITs' FFO. FFO should not be used as a measure of our liquidity, and is not indicative of funds available for our cash needs, including our ability to pay dividends.

        The following table sets forth a reconciliation of our FFO attributable to common stockholders and unit holders for the period presented to net loss, the nearest GAAP equivalent (in thousands):

 
  The Company   The Company   Predecessor  
 
  Year
ended
December 31, 2012
  Period from
April 20, 2011 to
December 31, 2011
  Period from
January 1, 2011 to
April 19, 2011
 

Net loss

  $ (10,199 ) $ (9,227 ) $ (229 )

Depreciation and amortization

    43,471     22,794     2,459  

Loss on impairment

    4,563          

Gain on sales of real estate

    (222 )   (329 )    
               

FFO

  $ 37,613   $ 13,238   $ 2,230  
               

Preferred stock dividends

    (6,210 )   (1,018 )    

Amount allocated to unvested restricted stockholders

    (122 )        
               

FFO attributable to common stockholders and unit holders

  $ 31,281   $ 12,220   $ 2,230  
               

61


Table of Contents

Item 7A.    Quantitative and Qualitative Disclosures about Market Risk

        Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. The primary market risk we are exposed to is interest rate risk. We have used derivative financial instruments to manage, or hedge, interest rate risks related to our borrowings, primarily through interest rate swaps.

        As of December 31, 2012, we had $99.3 million of borrowings outstanding under the unsecured credit facility and $150.0 million of borrowings outstanding under the unsecured term loan bearing interest at a variable rate. Of the $150.0 million outstanding under the unsecured term loan, $100.0 million was subject to interest rate swaps effective October 10, 2012. To the extent we undertake variable rate indebtedness, if interest rates increase, then so will the interest costs on our unhedged variable rate debt, which could adversely affect our cash flow and our ability to pay principal and interest on our debt and our ability to make distributions to our security holders. Further, rising interest rates could limit our ability to refinance existing debt when it matures or significantly increase our future interest expense. From time to time, we enter into interest rate swap agreements and other interest rate hedging contracts, including swaps, caps and floors. While these agreements are intended to lessen the impact of rising interest rates on us, they also expose us to the risk that the other parties to the agreements will not perform, we could incur significant costs associated with the settlement of the agreements, the agreements will be unenforceable and the underlying transactions will fail to qualify as highly-effective cash flow hedges under guidance included in ASC 815, Derivatives and Hedging. In addition, an increase in interest rates could decrease the amounts third-parties are willing to pay for our assets, thereby limiting our ability to change our portfolio promptly in response to changes in economic or other conditions. If interest rates increased by 100 basis points and assuming we had outstanding balances of $99.3 million on the unsecured credit facility and $50.0 million on the unsecured term loan (the portion not subject to interest rate swaps) for the entire year ended December 31, 2012, our interest expense would have increased by $1.5 million for the year ended December 31, 2012.

        As of December 31, 2012, approximately $329.9 million of our consolidated borrowings bore interest at fixed rates (including $100.0 million of swapped interest rates under the unsecured term loan), as shown in the table below (dollars in thousands):

 
  2013   2014   2015   2016   2017   Thereafter   Total   Fair
Value
 
 
  (dollars in thousands)
 

Secured mortgage notes payable

                                                 

Fixed rate(1)

    4,219     4,447     4,688     13,277     115,506     187,384     329,521     342,175  

Average interest rate on fixed rate debt

    5.25 %   5.26 %   5.27 %   5.03 %   2.74 %   5.52 %   4.52 %      

Variable rate

                99,300     50,000         149,300     149,300  
                                   

Total debt

    4,219     4,447     4,688     112,577     165,506     187,384     478,821     491,475  
                                   

(1)
Amounts include variable interest rate payments on the $100.0 million of the $150.0 million unsecured term loan that have been swapped to a fixed rate.

62


Table of Contents

        As of December 31, 2012, we were party to the interest rate swaps shown in the table below (dollars in thousands) with a total fair value liability of $0.5 million.

Derivative Instrument
  Trade Date   Notional
Amount
  Fixed Interest
Rate
  Variable Interest
Rate
  Maturity Date

Interest rate swap

    Sept-14-2012   $ 10,000     0.7945 % One-month LIBOR   September 10, 2017

Interest rate swap

    Sept-14-2012   $ 10,000     0.7945 % One-month LIBOR   September 10, 2017

Interest rate swap

    Sept-14-2012   $ 10,000     0.7945 % One-month LIBOR   September 10, 2017

Interest rate swap

    Sept-14-2012   $ 10,000     0.7945 % One-month LIBOR   September 10, 2017

Interest rate swap

    Sept-14-2012   $ 10,000     0.7975 % One-month LIBOR   September 10, 2017

Interest rate swap

    Sept-20-2012   $ 25,000     0.7525 % One-month LIBOR   September 10, 2017

Interest rate swap

    Sept-24-2012   $ 25,000     0.727 % One-month LIBOR   September 10, 2017

        We record all derivatives on the balance sheet at fair value. The fair value of the swap depends heavily on the current market fixed rate, the corresponding term structures of variable rates and the expectation of changes in future variable rates. As expectations of future variable rates increase, the market value of the interest rate swap increases. As of December 31, 2012, all of our interest rate swaps were effectively hedged; therefore, the changes in the fair value of derivatives was recorded in accumulated other comprehensive loss and will be subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the year ended December 31, 2012, we did not record any hedge ineffectiveness related to the hedged derivatives.

        No assurance can be given that our hedging activities will have the desired beneficial effect on our results of operations or financial condition.

        Interest risk amounts are our management's estimates and were determined by considering the effect of hypothetical interest rates on our financial instruments. These analyses do not consider the effect of any change in overall economic activity that could occur in that environment. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.

63


Table of Contents

Item 8.    Consolidated and Combined Financial Statements and Supplementary Data

        The required response under this Item is submitted in a separate section of this report. See Index to Consolidated and Combined Financial Statements on page F-1.

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        None.

Item 9A.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

        As required by SEC Rule 13a-15(b), we have carried out an evaluation, under the supervision of and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of December 31, 2012. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures for the periods covered by this report were effective to provide reasonable assurance that information required to be disclosed by our company in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management's Report on Internal Control Over Financial Reporting

        Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2012.

        The effectiveness of our internal control over financial reporting as of December 31, 2012 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which appears on page F-2 of this Annual Report on Form 10-K.

Changes in Internal Controls

        There was no change to our internal control over financial reporting during the fourth quarter ended December 31, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

64


Table of Contents

Item 9B.    Other Information

        As of the quarter ended December 31, 2012, all items required to be disclosed under Form 8-K were reported under Form 8-K.

Additional Material Federal Income Tax Considerations

        The following is a summary of additional material federal income tax considerations with respect to the ownership of our stock. This summary supplements and should be read together with the discussion under "Material Federal Income Tax Considerations" in the prospectus dated May 16, 2012 and filed as part of a registration statement on Form S-3 (No. 333-181290).

        Pursuant to recently enacted legislation, as of January 1, 2013, (1) the maximum tax rate on "qualified dividend income" received by U.S. stockholders taxed at individual rates is 20%, (2) the maximum tax rate on long-term capital gain applicable to U.S. stockholders taxed at individual rates is 20%, and (3) the highest marginal individual income tax rate is 39.6%. Pursuant to such legislation, the backup withholding rate remains at 28%. We urge you to consult your tax advisors regarding the impact of this legislation on the purchase, ownership and sale of our stock.

        For payments after December 31, 2013, a U.S. withholding tax at a 30% rate will be imposed on dividends paid on our stock received by U.S. stockholders who own their stock through foreign accounts or foreign intermediaries if certain disclosure requirements related to U.S. accounts or ownership are not satisfied. In addition, if those disclosure requirements are not satisfied, a U.S. withholding tax at a 30% rate will be imposed on proceeds from the sale of our stock received after December 31, 2016 by U.S. stockholders who own their stock through foreign accounts or foreign intermediaries. We will not pay any additional amounts in respect of any amounts withheld.

        For payments after December 31, 2013, a U.S. withholding tax at a 30% rate will be imposed on dividends paid on our stock received by certain non-U.S. stockholders if they held our stock through foreign entities that fail to meet certain disclosure requirements related to U.S. persons that either have accounts with such entities or own equity interests in such entities. In addition, if those disclosure requirements are not satisfied, a U.S. withholding tax at a 30% rate will be imposed on proceeds from the sale of our stock received after December 31, 2016 by certain non-U.S. stockholders. If payment of withholding taxes is required, non-U.S. stockholders that are otherwise eligible for an exemption from, or reduction of, U.S. withholding taxes with respect of such dividends and proceeds will be required to seek a refund from the Internal Revenue Service to obtain the benefit or such exemption or reduction. We will not pay any additional amounts in respect of any amounts withheld.

65


Table of Contents


PART III.

Item 10.    Directors, Executive Officers and Corporate Governance

        The information required by Item 10 will be included in the Proxy Statement to be filed relating to our 2013 Annual Meeting of Stockholders and is incorporated herein by reference.

Item 11.    Executive Compensation

        The information required by Item 11 will be included in the Proxy Statement to be filed relating to our 2013 Annual Meeting of Stockholders and is incorporated herein by reference.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

        The information required by Item 12 will be included in the Proxy Statement to be filed relating to our 2013 Annual Meeting of Stockholders and is incorporated herein by reference.

Item 13.    Certain Relationships and Related Transactions, and Director Independence

        The information required by Item 13 will be included in the Proxy Statement to be filed relating to our 2013 Annual Meeting of Stockholders and is incorporated herein by reference.

Item 14.    Principal Accountant Fees and Services

        The information required by Item 14 will be included in the Proxy Statement to be filed relating to our 2013 Annual Meeting of Stockholders and is incorporated herein by reference.

66


Table of Contents


PART IV.

Item 15.    Exhibits and Financial Statement Schedules

        The following exhibits are filed as part of this report:

Exhibit
Number
  Description of Document
  3.1   Articles of Amendment and Restatement of STAG Industrial, Inc. (including all articles of amendment and articles supplementary)
  3.2   Amended and Restated Bylaws of STAG Industrial, Inc.(4)
  4.1   Form of Common Stock Certificate of STAG Industrial, Inc.(1)
  4.2   Form of Certificate for the 9.0% Series A Cumulative Redeemable Preferred Stock of STAG Industrial, Inc.(10)
  10.1   Amended and Restated Agreement of Limited Partnership of STAG Industrial Operating Partnership, L.P.(5)
  10.2   First Amendment to the Amended and Restated Agreement of Limited Partnership of STAG Industrial Operating Partnership, L.P.(9)
  10.3   2011 Equity Incentive Plan(3)*
  10.4   2011 Outperformance Program(7)*
  10.5   Form of LTIP Unit Agreement(3)*
  10.6   Employment Agreement with Benjamin S. Butcher, dated April 20, 2011(5)*
  10.7   Employment Agreement with Gregory W. Sullivan, dated April 20, 2011(5)*
  10.8   Employment Agreement with Stephen C. Mecke, dated April 20, 2011(5)*
  10.9   Employment Agreement with Kathryn Arnone, dated April 20, 2011(5)*
  10.10   Employment Agreement with David G. King, dated April 20, 2011(5)*
  10.11   Form of Indemnification Agreement between STAG Industrial, Inc. and its directors and officers(2)*
  10.12   Registration Rights Agreement, dated April 20, 2011, by and among STAG Industrial, Inc., STAG Industrial Operating Partnership, L.P. and the persons named therein(5)
  10.13   Voting Agreement, dated April 20, 2011, by and among STAG Industrial, Inc., STAG Industrial Operating Partnership, L.P. and the persons named therein(5)
  10.14   Contribution Agreement, by and among STAG Industrial, Inc., STAG Industrial Operating Partnership, L.P., and STAG Investments III, LLC, as amended(10)
  10.15   Contribution Agreement, by and among STAG Industrial, Inc., STAG Industrial Operating Partnership, L.P., and STAG Investments IV, LLC, as amended(10)
  10.16   Contribution Agreement, by and among STAG Industrial, Inc., STAG Industrial Operating Partnership, L.P., Net Lease Aggregation Funds, LLC, Innovative Promotions LLC, Gregory W. Sullivan and Roseview Capital Partners LLC, as amended(10)

67


Table of Contents

Exhibit
Number
  Description of Document
  10.17   Contribution Agreement, by and among STAG Industrial, Inc., STAG Industrial Operating Partnership, L.P., BSB STAG III, LLC, STAG III Employees, LLC, Benjamin S. Butcher, NED STAG III Residual LLC, Gregory W. Sullivan and Roseview Capital Partners LLC, as amended(10)
  10.18   Contribution Agreement, by and among STAG Industrial, Inc., STAG Industrial Operating Partnership, L.P. and STAG GI Investments, LLC, as amended(10)
  10.19   Purchase Option Agreement, dated April 20, 2011, by STAG Investments III, LLC in favor of STAG Industrial Operating Partnership, L.P.(5)
  10.20   Master Loan Agreement, dated as of July 9, 2010, by and among STAG GI Investments Holdings, LLC and Connecticut General Life Insurance Company(1)
  10.21   Master Loan Agreement, dated as of October 12, 2010, by and among STAG GI Investments Holdings, LLC and Connecticut General Life Insurance Company(6)
  10.22   Master Loan Agreement, dated as of July 8, 2011, by and among STAG GI Investments Holdings, LLC and Connecticut General Life Insurance Company(6)
  10.23   Services Agreement between STAG Industrial Management, LLC and STAG Manager II, LLC(5)
  10.24   Services Agreement between STAG Industrial Management, LLC and STAG Manager III, LLC(5)
  10.25   Services Agreement between STAG Industrial Management LLC and STAG Manager, LLC(5)
  10.26   Credit Agreement by and among STAG Industrial Operating Partnership, L.P., STAG Industrial, Inc., Bank of America, N.A. and the other lenders party thereto and Merrill Lynch, Pierce, Fenner and Smith Incorporated as lead arranger(5)
  10.27   First Amendment to Credit Agreement, dated as of September 30, 2011, by and among STAG Industrial Operating Partnership, L.P., STAG Industrial, Inc., Bank of America, N.A. and the other lenders party thereto(10)
  10.28   Second Amendment to Credit Agreement, dated as of October 17, 2011, by and among STAG Industrial Operating Partnership, L.P., STAG Industrial, Inc., Bank of America, N.A. and the other lenders party thereto(8)
  10.29   Credit Agreement, dated as of September 10, 2012, by and among STAG Industrial Operating Partnership, L.P., STAG Industrial, Inc., Bank of America, N.A. and the other lenders party thereto (11)
  10.30   First Amendment to Credit Agreement, dated as of February 13, 2013, by and among STAG Industrial Operating Partnership, L.P., STAG Industrial, Inc., Bank of America, N.A. and the other lenders party thereto
  10.31   Real Estate Purchase and Sale Agreement, dated as of August 9, 2012, among STAG Industrial Holdings, LLC and the sellers identified therein, as amended (11)
  10.32   Loan Agreement, dated as of November 8, 2012, by and among Borrowers (as defined therein) and Wells Fargo Bank, National Association, as Lender (12)
  10.33   Term Loan Agreement, dated as of February 14, 2013, by and among STAG Industrial Operating Partnership, L.P., STAG Industrial, Inc., Wells Fargo Securities, LLC and the other lenders party thereto (13)
  12.1   Computation of ratios of earnings to fixed charges and preferred stock dividends
  21.1   Subsidiaries of STAG Industrial, Inc.
  23.1   Consent of PricewaterhouseCoopers LLP
  24.1   Power of Attorney (included on signature page)
  31.1   Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  31.2   Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

68


Table of Contents

Exhibit
Number
  Description of Document
  32.1   Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  101   The following materials from STAG Industrial, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2012 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated and Combined Statements of Operations, (iii) the Consolidated and Combined Statements of Comprehensive Loss, (vi) the Consolidated and Combined Statements of Equity, (v) the Consolidated and Combined Statements of Cash Flows, and (vi) related notes to these consolidated and combined financial statements.
      As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

*
Represents management contract or compensatory plan or arrangement.

(1)
Incorporated by reference to STAG Industrial, Inc.'s Registration Statement on Form S-11/A (File No. 333-168368) filed with the Securities and Exchange Commission on September 24, 2010.

(2)
Incorporated by reference to STAG Industrial, Inc.'s Registration Statement on Form S-11/A (File No. 333-168368) filed with the Securities and Exchange Commission on February 16, 2011.

(3)
Incorporated by reference to STAG Industrial, Inc.'s Registration Statement on Form S-11/A (File No. 333-168368) filed with the Securities and Exchange Commission on April 5, 2011.

(4)
Incorporated by reference to STAG Industrial, Inc.'s Registration Statement on Form S-11/A (File No. 333-168368) filed with the Securities and Exchange Commission on April 8, 2011.

(5)
Incorporated by reference to STAG Industrial, Inc.'s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 21, 2011.

(6)
Incorporated by reference to STAG Industrial, Inc.'s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 15, 2011.

(7)
Incorporated by reference to STAG Industrial, Inc.'s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 23, 2011.

(8)
Incorporated by reference to STAG Industrial, Inc.'s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 21, 2011.

(9)
Incorporated by reference to STAG Industrial, Inc.'s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 2, 2011.

(10)
Incorporated by reference to STAG Industrial, Inc.'s Registration Statement on Form S-11/A (File No. 333-177131) filed with the Securities and Exchange Commission on October 26, 2011.

(11)
Incorporated by reference to STAG Industrial, Inc.'s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 8, 2012.

(12)
Incorporated by reference to STAG Industrial, Inc.'s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 13, 2012.

(13)
Incorporated by reference to STAG Industrial, Inc.'s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 20, 2013.

69


Table of Contents


SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

    STAG INDUSTRIAL, INC.

Dated: March 6, 2013

 

By:

 

/s/ BENJAMIN S. BUTCHER

Benjamin S. Butcher
Chairman, Chief Executive Officer and President

        KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and directors of STAG Industrial, Inc., hereby severally constitute Benjamin S. Butcher and Gregory W. Sullivan, and each of them singly, our true and lawful attorneys with full power to them, and each of them singly, to sign for us and in our names in the capacities indicated below, the Form 10-K filed herewith and any and all amendments to said Form 10-K, and generally to do all such things in our names and in our capacities as officers and directors to enable STAG Industrial, Inc. to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to said Form 10-K and any and all amendments thereto.

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and dates indicated.

Date
 
Signature
 
Title

 

 

 

 

 
March 6, 2013   /s/ BENJAMIN S. BUTCHER

Benjamin S. Butcher
  Chairman, Chief Executive Officer (principal executive officer) and President

March 6, 2013

 

/s/ F. ALEXANDER FRASER

F. Alexander Fraser

 

Director

March 6, 2013

 

/s/ JEFFREY D. FURBER

Jeffrey D. Furber

 

Director

March 6, 2013

 

/s/ LARRY T. GUILLEMETTE

Larry T. Guillemette

 

Director

March 6, 2013

 

/s/ FRANCIS X. JACOBY III

Francis X. Jacoby III

 

Director

March 6, 2013

 

/s/ CHRISTOPHER P. MARR

Christopher P. Marr

 

Director

March 6, 2013

 

/s/ HANS S. WEGER

Hans S. Weger

 

Director

March 6, 2013

 

/s/ GREGORY W. SULLIVAN

Gregory W. Sullivan

 

Chief Financial Officer, Executive Vice President and Treasurer (principal financial and accounting officer)

70


Table of Contents


INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firm

  F-2

Consolidated Balance Sheets as of December 31, 2012 and 2011 for STAG Industrial, Inc.

  F-4

Consolidated and Combined Statements of Operations for STAG Industrial, Inc. for the Year ended December 31, 2012 and the Period from April 20, 2011 to December 31, 2011 and STAG Predecessor Group for the Period from January 1, 2011 to April 19, 2011, and for the Year ended December 31, 2010

  F-5

Consolidated and Combined Statements of Comprehensive Loss for the Year ended December 31, 2012 and the Period from April 20, 2011 to December 31, 2011 and STAG Predecessor Group for the Period from January 1, 2011 to April 19, 2011, and for the Year ended December 31, 2010

  F-6

Consolidated and Combined Statements of Equity for STAG Industrial, Inc. for the Year ended December 31, 2012 and the Period from April 20, 2011 to December 31, 2011 and STAG Predecessor Group for the Period from January 1, 2011 to April 19, 2011 and for the Year ended December 31, 2010

  F-7

Consolidated and Combined Statements of Cash Flows for STAG Industrial, Inc. for the Year ended December 31, 2012 and the Period from April 20, 2011 to December 31, 2011 and STAG Predecessor Group for the Period from January 1, 2011 to April 19, 2011 and the Year ended December 31, 2010

  F-8

Notes to Consolidated and Combined Financial Statements

  F-9

Financial Statement Schedule—Schedule II

  F-53

Financial Statement Schedule—Schedule III

  F-54

F-1


Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of STAG Industrial, Inc.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive loss, equity and cash flows present fairly, in all material respects, the financial position of STAG Industrial, Inc. and its subsidiaries at December 31, 2012 and 2011, and the results of their operations and their cash flows for the year ended December 31, 2012 and for the period from April 20, 2011 to December 31, 2011 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedules, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedules, and on the Company's internal control over financial reporting based on our audits (which was an integrated audit in 2012). We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 6, 2013

F-2


Table of Contents


Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of STAG Industrial, Inc.

In our opinion, the accompanying combined statements of operations, comprehensive loss, owner's deficit and cash flows for the period from January 1, 2011 to April 19, 2011 and for the year ended December 31, 2010 present fairly, in all material respects, the results of operations and cash flows of STAG Predecessor Group for the period from January 1, 2011 to April 19, 2011 and the year ended December 31,2010 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules for the period from January 1, 2011 to April 19, 2011 and for the year ended December 31, 2010 listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related combined financial statements. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 9, 2012, except for the Combined Statements of Comprehensive Loss and the effects of discontinued operations described in Note 3 to the combined financial statements, as to which the date is March 6, 2013

F-3


Table of Contents


Part I. Financial Information

Item 1.    Financial Statements


STAG Industrial, Inc.

Consolidated Balance Sheets

(in thousands, except share data)

 
  December 31, 2012   December 31, 2011  

Assets

             

Rental Property:

             

Land

  $ 104,656   $ 70,870  

Buildings

    654,518     394,822  

Tenant improvements

    34,900     25,056  

Building and land improvements

    22,153     11,510  

Less: accumulated depreciation

    (46,175 )   (30,004 )
           

Total rental property, net

    770,052     472,254  

Cash and cash equivalents

    19,006     16,498  

Restricted cash

    5,497     6,611  

Tenant accounts receivable, net

    9,351     5,592  

Prepaid expenses and other assets

    1,556     1,355  

Deferred financing fees, net

    4,704     2,634  

Leasing commissions, net

 </