Stag Industrial, Inc.

earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Zaros, Associate Investor Relations. Thank you, sir. You may begin.

Thank you. Welcome to Stagg Industrial's conference call covering the second quarter of 2023 results. In addition to the press release distributed yesterday, we have posted an unaudited quarterly supplemental information presentation on the company's website at www.staggindustrial.com under the investor relations section. On today's call, the company's prepared remarks and answers to your questions will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. Examples of forward-looking statements include forecasts of core FFO, same-store NOI, G&A, acquisition and disposition volumes, retention rates, and other guidance, leasing prospects, rent collections, industry and economic trends, and other matters. We encourage all listeners to review the more detailed discussion related to these forward-looking statements contained in the company's filings with the SEC and the definitions and reconciliations of non-GAAP measures contained in the supplemental information package available on the company's website. As a reminder, forward-looking statements represent management's estimates as of today. Stagg Industrial assumes no obligation to update any forward-looking statements. On today's call, you'll hear from Bill Crooker, our Chief Executive Officer, and Matt Spenard, our Chief Financial Officer. Also with us here today is Mike Chase, our Chief Investment Officer, and Steve Kimball, EVP of Real Estate Operations. We're available to answer questions specific to their area of focus. I'll now turn the call over to Bill.

Thank you, Steve. Good morning, everybody, and welcome to the second quarter earnings call for Stagg Industrials. We're happy to have you with us today as we discuss our results for the quarter. Our portfolio continues to produce exceptional results as seen by our record leasing spreads this quarter. The industrial sector is benefiting from the secular tailwinds unique to our industry, including the near and on sharing and the continued penetration of e-commerce as a method of consumption. Vacancy rates have crept up to approximately 3.7% nationally. While demand for industrial real estate remains historically strong, it has come off pandemic highs as we enter the new normal. Tenants are taking more time to evaluate their space needs. There are more examples of tenants weighing their supply chain footprint against the associated corporate finance costs of outfitting space. These are large cash outlays, which include items such as material handling equipment and automation systems. Nine to 12 months ago, there was strong demand for recently constructed buildings with large footprints, generally buildings north of 500,000 square feet. In today's environment, the $50 to $100 million investments by tenants to outfit large new spaces is being avoided by contracting with third-party logistics firms to manage supply chains. On the supply side, Deliveries are expected to be approximately 3% of the overall industrial stock this year, with nearly half of those deliveries classified as big box buildings with sizes at or above 500,000 square feet. These deliveries are expected to result in a national vacancy rate of 4.2% by year end. This level of vacancy is still indicative of strong conditions. We continue to expect market rent growth in our portfolio to be in the mid to high single digits this year. Development starts, however, are down approximately 30% since the end of 2022. This lower level of development starts, coupled with continued strong demand, should push vacancy rates lower in the back half of 2024. Moving to our portfolio, we are proud to report cash and gap leasing spreads at high watermarks for STAG. As of July 25th, we have achieved 94.2% of the leasing we expect to accomplish in 2023 at cash spreads of 30.6%. After the slow start to the year, we recently have seen an uptick in development and acquisition opportunities as the capital markets slowly normalize. One area where this has been evident is on the development side. There's been a growing number of opportunities as developers look to de-risk their positions. Financing, supply, and leasing risks are pushing some developers to lock in profits today, thereby foregoing a portion of potential upside in exchange for certainty. We see opportunities ranging from the purchase of full entitled land sites with approval and negotiated construction contracts to completed vacant spec buildings. These projects present very limited construction risk with favorable upside in exchange for capital funding and leasing exposure. Also, STAG can be selective, focusing on developments that demise to smaller spaces that align with leasing demand. On the acquisition side, deal activity is restarted. The bid-ask spread between sellers and buyers has begun to narrow towards levels where transactions can begin to clear. Buyers have greater clarity into their cost of capital. Sellers now understand that prices previously achievable in 2021 are not available to them in the current interest rate and macro environments. The ongoing attractiveness of industrial real estate, given the strength in the underlying fundamentals, further supports the case for capital to be placed in our sector. This has resulted in an uptick in deal flow during Q2 and an expectation of increased transaction activity in the back half of 2023, although unlikely to reach levels seen pre-pandemic this calendar year. This thawing in the acquisition market can be seen by recent marketing and closing of several large portfolios of industrial real estate. something that was absent during the recent period of volatile capital markets. Our acquisition volume for the second quarter totaled $40.7 million. This consisted of two buildings with stabilized cash and straight-line cap rates of 6.2% and 6.3% respectively. In April, Stagg acquired a 100,000-square-foot warehouse distribution facility located in the I-287 exit 10 submarket of central New Jersey for $26.7 million. This acquisition represented an opportunity to acquire a low coverage functional asset in one of the nation's top markets. In May, Stagg acquired a fully occupied 134,000 square foot facility in the airport sub market of Greensboro, North Carolina for $14 million. As of closing, this building is leased for 1.8 years to a tenant who is moving to a larger facility at the end of their term. SAG will have the opportunity to realize a 50% or greater rollup upon the release of the building. With the recent openings in the market of a Toyota EV battery plant and an aerospace manufacturing plant, the building's modern specs and airport-adjacent location leave it well-suited to capture the growing tenant base supporting these plants. Subsequent to quarter end, we acquired six buildings for $70.7 million. On the disposition side, We sold five buildings a quarter for aggregate proceeds of $33.8 million. Three of these buildings were non-core assets. The other two buildings were located in Louisville, Kentucky, sold as a portfolio, resulting in proceeds of $26.8 million and reflecting a 6.2% cash cap rate. Here to date, the aggregate cash cap rate on the company's opportunistic dispositions was 5.5%. Finally, I'm excited to announce that Stagg Industrial was added to the S&P Mid-Cap 400 in May of this year. This is a testament to how the markets have begun to recognize the growth of the company and the evolution of the platform. With that, I will turn it over to Matt, who will cover our remaining results and updates to guidance. Thank you, Bill.