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TABLE OF CONTENTS
INDEX TO FINANCIAL STATEMENTS

Table of Contents

Filed Pursuant to Rule 424(b)(4)
Registration No. 333-168368

PROSPECTUS

13,750,000 Shares

LOGO

Common Stock



        STAG Industrial, Inc. is a newly formed, self-administered and self-managed full-service real estate company focused on the acquisition, ownership and management of single-tenant industrial properties throughout the United States. Upon completion of our formation transactions and this offering, our portfolio will consist of 91 properties in 26 states with approximately 13.9 million rentable square feet.

        This is our initial public offering. We are selling 13,750,000 shares of our common stock.

        The initial public offering price of our common stock is $13.00 per share. Currently, no public market exists for the shares. Our shares of common stock have been approved for listing on the New York Stock Exchange under the symbol "STIR."

        We intend to elect and qualify to be taxed as a real estate investment trust for U.S. federal income tax purposes ("REIT") commencing with our taxable year ending December 31, 2011. To assist us in qualifying as a REIT, shareholders are generally restricted from owning more than 9.8% in value or in number of shares, whichever is more restrictive, of our outstanding shares of common stock or of our outstanding shares of capital stock. Our charter contains additional restrictions on the ownership and transfer of shares of our common stock. See "Description of Stock—Restrictions on Ownership and Transfer of Stock."

        Investing in our common stock involves risks that are described in the "Risk Factors" section beginning on page 22 of this prospectus.



 
  Per share   Total  

Public offering price

  $ 13.00   $ 178,750,000  

Underwriting discount

  $ 0.91   $ 12,512,500  

Proceeds, before expenses, to us

  $ 12.09   $ 166,237,500  

        The underwriters also may purchase up to an additional 2,062,500 shares from us, at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover overallotments, if any.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

        The shares will be ready for delivery on or about April 20, 2011.



BofA Merrill Lynch           J.P. Morgan   UBS Investment Bank




RBC Capital Markets

 

Evercore Partners

 

Keefe, Bruyette & Woods

 

RBS



The date of this prospectus is April 15, 2011.


GRAPHIC


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TABLE OF CONTENTS

 
  Page

PROSPECTUS SUMMARY

  1

RISK FACTORS

  22

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

  48

USE OF PROCEEDS

  50

DISTRIBUTION POLICY

  52

CAPITALIZATION

  56

DILUTION

  57

SELECTED FINANCIAL INFORMATION

  59

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  62

MARKET OVERVIEW

  84

BUSINESS

  95

MANAGEMENT

  116

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  130

STRUCTURE AND FORMATION OF OUR COMPANY

  134

POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

  143

PRINCIPAL SHAREHOLDERS

  147

DESCRIPTION OF STOCK

  149

CERTAIN PROVISIONS OF MARYLAND LAW AND OF OUR CHARTER AND BYLAWS

  154

SHARES ELIGIBLE FOR FUTURE SALE

  161

OUR OPERATING PARTNERSHIP AND THE PARTNERSHIP AGREEMENT

  163

U.S. FEDERAL INCOME TAX CONSIDERATIONS

  167

ERISA CONSIDERATIONS

  192

UNDERWRITING

  196

LEGAL MATTERS

  204

EXPERTS

  204

WHERE YOU CAN FIND MORE INFORMATION

  205

INDEX TO FINANCIAL STATEMENTS

  F-1



        You should rely only on the information contained in this prospectus, any free writing prospectus prepared by us or information to which we have referred you. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus and any free writing prospectus prepared by us is accurate only as of their respective dates or on the date or dates which are specified in those documents. Our business, financial condition, results of operations and prospects may have changed since those dates. We will update this prospectus as required by law.



        We use market data and industry forecasts and projections in this prospectus. We have obtained substantially all of the information under "Prospectus Summary—Market Overview" and under "Market Overview" from market research prepared or obtained by CB Richard Ellis—Econometric

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Advisors ("CBRE-EA") in connection with this offering. Such information is included herein in reliance on CBRE-EA's authority as an expert on such matters. See "Experts." In addition, CBRE-EA in some cases has obtained market data and industry forecasts and projections from publicly available information and industry publications. These sources generally state that the information they provide has been obtained from sources believed to be reliable, but that the accuracy and completeness of the information are not guaranteed. The forecasts and projections are based on industry surveys and the preparers' experience in the industry, and there is no assurance that any of the projections or forecasts will be achieved. We believe that the surveys and market research others have performed are reliable, but we have not independently verified this information.



        In this prospectus:

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PROSPECTUS SUMMARY

        The following summary highlights information contained elsewhere in this prospectus. You should read carefully the entire prospectus, including "Risk Factors," our financial statements, pro forma financial information, and related notes appearing elsewhere in this prospectus, before making a decision to invest in our common stock.

        Unless indicated otherwise, the information included in this prospectus assumes no exercise of the underwriters' option to purchase up to 2,062,500 additional shares of our common stock to cover overallotments, if any.

        The historical operations described in this prospectus refer to the historical operations of STAG Industrial, Inc. and our predecessor business. We have generally described the business operations in this prospectus as if the historical operations of our predecessor business were conducted by us.

Overview

        STAG Industrial, Inc. is a newly formed, self-administered and self-managed full-service real estate company focused on the acquisition, ownership and management of single-tenant industrial properties throughout the United States. We will continue and grow the single-tenant industrial business conducted by our predecessor business. Benjamin S. Butcher, the Chairman of our board of directors and our Chief Executive Officer and President, together with an affiliate of New England Development, LLC ("NED"), a real estate development and management company, formed our predecessor business, which commenced active operations in 2004.

        Upon completion of our formation transactions and this offering, our portfolio will consist of 91 properties in 26 states with approximately 13.9 million rentable square feet. As of December 31, 2010, our properties were 89.7% leased to 70 tenants, with no single tenant accounting for more than 5.5% of our total annualized rent and no single industry accounting for more than 14.7% of our total annualized rent.

        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 our focus on owning and expanding a portfolio of such properties will generate returns for our shareholders that are attractive in light of the risks associated with these returns because:

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For a description of what we consider to be Class A and Class B properties, see "Business—Our Properties."

        Our target properties are generally leased to:

        We believe the market inefficiently prices our target properties because investors underestimate the probability of tenant retention beyond the primary lease term, or overestimate the expected cost of tenant default. Further, we believe our underwriting processes, utilizing our proprietary model, allows us to acquire properties at a discount to their intrinsic values, where intrinsic values are determined by the properties' future cash flows.

        We were incorporated on July 21, 2010 under the laws of the State of Maryland. We intend to elect and qualify to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"), for the year ending December 31, 2011, and generally will not be subject to U.S. federal taxes on our income to the extent we currently distribute our income to our shareholders and maintain our qualification as a REIT. We are structured as an umbrella partnership REIT ("UPREIT") and will own substantially all of our assets and conduct substantially all of our business through our operating partnership. 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 prospectus or any other report or document we file with or furnish to the Securities and Exchange Commission (the "SEC").

Competitive Strengths

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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 shareholders, and to enhance shareholder 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.

        We believe secondary markets tend to have less occupancy and rental rate volatility and less buyer competition compared with primary markets. As of December 31, 2010, our properties had an average annualized rent of $4.05 per rentable square foot of leased space.

        The performance of single-tenant properties tends to be binary in nature—either a tenant is paying rent or the owner is paying the entire carrying cost of the property. We believe that this binary nature frequently causes the market to inefficiently price our target assets. In an attempt to avoid this binary risk and paying the entire carrying cost of a vacant property, potential investors in single-tenant properties may turn to the application of rigid decision rules that would induce buyers of single-tenant properties to avoid acquisitions where the tenant does not have an investment grade rating or where the remaining primary lease term is less than an arbitrary number such as 12 years. By adhering to such inflexible decision rules, other investors may miss attractive opportunities that we can identify and acquire.

        We further believe that our method of using and applying the results of our due diligence and our ability to understand and underwrite risk allows us to exploit this market inefficiency. Lastly, we believe that the systematic aggregation of individual properties will result in a diversified portfolio that mitigates the risk of any single property and will produce sustainable returns which are attractive in light of the associated risks. A diversified portfolio with low correlated risk—essentially a "virtual industrial park"—facilitates debt financing and mitigates individual property ownership risk.

        External Growth through Acquisitions:    Our target acquisitions will be predominantly in secondary markets across the United States, in the $5 million to $25 million range. Where appropriate potential returns present themselves, we also may acquire assets in primary markets. We will continue to develop our large existing network of relationships with real estate and financial intermediaries. These individuals and companies give us access to significant deal flow—both those broadly marketed and those exposed through only limited marketing. We believe that a significant portion of the 13.8 billion square feet of industrial space in the United States falls within our target investment criteria and that there will be ample supply of suitable acquisition opportunities.

        Internal Growth through Asset Management:    Our asset management team will seek to maximize cash flows by maintaining high retention rates and leasing vacant space, managing operating expenses and maintaining our properties. We seek to accomplish these objectives by improving the overall performance and positioning of our assets by utilizing our tenant relationships and leasing expertise to maintain occupancy and increase rental rates. Our asset management team collaborates with our internal credit function to actively monitor the credit profile of each of our tenants on an ongoing basis. Additionally, we work with national and local brokerage companies to market and lease available properties on advantageous terms. During the period from March 3, 2004 to March 31, 2011, the

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management company achieved a lease renewal rate of 73.3%. As of December 31, 2010, our portfolio had approximately 1,434,217 square feet, or 10.3% of our total rentable square feet, available for lease.

        We believe that our market knowledge, systems and processes allow us to analyze efficiently the risks in an asset's ability to produce cash flow going forward. 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:

        We intend to preserve a flexible capital structure and to utilize primarily debt secured by pools of properties. We have executed a loan agreement with several financial institutions establishing a $100 million secured corporate revolving credit facility (subject to increase to $200 million under certain circumstances). The credit facility is being held in escrow and will be available upon the closing of this offering and satisfaction of other customary closing conditions. In addition, in connection with our formation transactions, we will be assuming an existing secured acquisition credit facility from STAG GI that currently has $30.4 million of borrowing capacity and a commitment letter for an additional $65 million secured acquisition credit facility. We expect to fund property acquisitions initially through a combination of any cash available from offering proceeds, our credit facilities and traditional mortgage financing. Where possible, we also anticipate using common units of limited partnership interest in our operating partnership ("common units") to acquire properties from existing owners seeking a tax-deferred transaction. We intend to meet our long-term liquidity needs through cash provided by operations and use of other financing methods as available from time to time including, but not limited to, secured and unsecured debt, perpetual and non-perpetual preferred stock, additional common equity issuances, letters of credit and other arrangements. In addition, we may invest in properties subject to existing mortgages or similar liens.

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Our Properties

        The following tables portray the property type, geographic, and industry diversity of our properties and tenants, respectively, as of December 31, 2010:

Property Type
  Total Number
of Properties
  Occupancy(1)   Total Rentable
Square Feet
  Percentage of
Total Rentable
Square Feet
  Total
Annualized
Rent per
Leased Square
Foot
  Total
Annualized
Rent
  Percentage of
Total
Annualized
Rent
 
 
   
   
   
   
   
  (dollars in
thousands)

   
 

Warehouse/Distribution

    44     89.5 %   9,940,194     71.6 % $ 3.42   $ 30,376     60.2 %

Flex/Office

    21     89.1 %   1,243,221     9.0 %   9.92     10,993     21.8 %

Manufacturing

    26     90.6 %   2,693,679     19.4 %   3.71     9,059     18.0 %
                               

Total/Weighted Average

    91     89.7 %   13,877,094     100 % $ 4.05   $ 50,428     100 %
                               

 

State
  Total Number
of Properties
  Occupancy(1)   Total Rentable
Square Feet
  Percentage of
Total Rentable
Square Feet
  Total Annualized
Rent per
Leased Square
Foot
  Total
Annualized
Rent
  Percentage of
Total
Annualized
Rent
 
 
   
   
   
   
   
  (dollars in
thousands)

   
 

North Carolina

    9     100.0 %   2,241,973     16.2 % $ 3.85   $ 8,636     17.1 %

Ohio

    11     75.0 %   2,160,330     15.6 %   3.94     6,386     12.7 %

Wisconsin

    6     98.9 %   1,299,262     9.4 %   2.83     3,636     7.2 %

Michigan

    7     93.8 %   1,195,201     8.6 %   2.75     3,080     6.1 %

Tennessee

    3     100.0 %   912,810     6.6 %   3.29     2,999     5.9 %

Maine

    6     100.0 %   378,979     2.7 %   7.33     2,778     5.5 %

Indiana

    11     89.9 %   854,228     6.2 %   3.44     2,645     5.2 %

Minnesota

    2     100.0 %   558,894     4.0 %   4.25     2,374     4.7 %

Kentucky

    2     97.3 %   868,503     6.3 %   2.71     2,290     4.5 %

Florida

    4     56.6 %   329,184     2.4 %   9.91     1,846     3.7 %

New Jersey

    2     100.0 %   315,500     2.3 %   5.45     1,718     3.4 %

Massachusetts

    3     58.5 %   187,983     1.4 %   7.19     790     1.6 %

All Others

    25     81.5 %   2,574,247     18.3 %   5.36     11,250     22.4 %
                               

Total/Weighted Average

    91     89.7 %   13,877,094     100 % $ 4.05   $ 50,428     100 %
                               

(1)
Calculated as the average occupancy weighted by each property's rentable square footage. A few properties have more than one tenant.

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

Containers & Packaging

    8     1,975,891     15.9 % $ 7,416     14.7 %

Business Services

    5     759,960     6.1 %   4,933     9.8 %

Personal Products

    6     1,734,489     13.9 %   4,788     9.5 %

Industrial Equipment, Components & Metals

    7     824,318     6.6 %   3,600     7.1 %

Aerospace & Defense

    6     665,930     5.4 %   3,562     7.1 %

Automotive

    5     1,059,280     8.5 %   3,539     7.0 %

Retail

    3     1,069,729     8.6 %   3,483     6.9 %

Food & Beverages

    3     925,700     7.4 %   3,306     6.6 %

Technology

    6     678,850     5.5 %   3,157     6.3 %

Finance

    2     387,227     3.1 %   3,115     6.2 %

Office Supplies

    4     1,254,836     10.1 %   2,999     5.9 %

Healthcare

    3     192,230     1.5 %   1,380     2.7 %

Government

    4     62,041     0.5 %   1,309     2.6 %

Air Freight & Logistics

    3     242,292     1.9 %   1,098     2.2 %

Education

    3     108,846     0.9 %   1,092     2.2 %

Other

    5     501,258     4.1 %   1,651     3.2 %
                       

Total/Weighted Average

    73     12,442,877     100 % $ 50,428     100 %
                       

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

        The following table sets forth information about the 10 largest tenants in our portfolio based on total annualized rent as of December 31, 2010:

Tenant
  Total Leased
Square Feet
  Percentage of
Total Leased
Square Feet
  Total
Annualized
Rent
  Percentage of
Total
Annualized
Rent
 
 
   
  (dollars in thousands)
 

International Paper

    573,323     4.6 % $ 2,765     5.5 %

Bank of America

    318,979     2.6 %   2,233     4.4 %

Spencer Gifts

    491,025     3.9 %   1,890     3.7 %

Berry Plastics

    315,500     2.5 %   1,718     3.4 %

Stream International

    148,131     1.2 %   1,666     3.3 %

Archway Marketing Services

    386,724     3.1 %   1,623     3.2 %

ConAgra Foods

    342,700     2.8 %   1,388     2.8 %

Chrysler Group

    343,416     2.8 %   1,181     2.3 %

DuPont

    418,406     3.4 %   1,151     2.3 %

Cequent Performance Products

    366,000     2.9 %   1,138     2.3 %
                   

Total

    3,704,204     29.8 % $ 16,753     33.2 %
                   

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        As of December 31, 2010, our weighted average in-place remaining lease term across our portfolio was approximately 5.9 years. The following table sets forth a summary schedule of lease expirations for leases in place as of December 31, 2010, plus available space, for each of the five calendar years beginning with 2011 and thereafter in our portfolio. The information set forth in the table assumes that tenants exercise no renewal options and no early termination rights.

Year of
Lease
Expiration
  Number of
Leases
Expiring
  Total
Rentable
Square
Feet
  Percentage of
Total Expiring
Square Feet
  Total
Annualized
Rent(1)
  Percentage
of Total
Annualized
Rent
 
 
   
   
  (dollars in thousands)
 

Available

          1,434,217     10.3 %            

2011

    10     661,911     4.8 %   3,364     6.7 %

2012

    13     1,515,134     10.9 %   6,331     12.6 %

2013

    8     1,747,803     12.6 %   5,485     10.9 %

2014

    9     1,698,275     12.2 %   7,006     13.9 %

2015

    4     303,732     2.2 %   1,450     2.9 %

Thereafter

    29     6,516,022     47.0 %   26,792     53.0 %
                       

    73     13,877,094     100 % $ 50,428     100 %
                       

(1)
Total annualized rent does not include any gross-up for tenant reimbursements and we had no rent abatements in effect as of December 31, 2010.

Recent Developments

        STAG GI has entered into purchase and sale agreements for the purchase of two industrial properties with a total of 536,550 square feet, which represent an aggregate purchase price for both properties of $24.9 million. We are in various stages of due diligence and underwriting as part of our evaluations of these two potential acquisitions, and each is subject to significant outstanding conditions.

        In addition, of the leases representing 1,041,705 square feet that were originally expiring in 2011, we executed two early renewals in 2010 representing 379,794 square feet of space and, in the first quarter of 2011, have renewed an additional 379,180 square feet of space. Including those leases, we have now renewed 73% of the square footage and 54% of the annualized rent that was expiring in 2011.

        We also have leased 65,182 square feet of vacant space in the first quarter of 2011, at an average rental rate of $2.50 per square foot, initially equating to $162,955 of annualized rent (representing an increase of approximately $98,000 of annualized rent from the previous leases). In addition, we have leased a total of 78,266 square feet to two existing tenants who have expanded into vacant space in their current buildings on a short term and month to month basis.

        We have executed a loan modification, which is being held in escrow and is subject to customary closing conditions, to extend the maturity of our loan from Anglo Irish Bank Corporation Limited ("Anglo Master Loan (Fund III)"), which debt is due in 2012, to October 2013.

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Market Overview

        Unless otherwise indicated, all information contained in this Market Overview section is derived from market materials prepared by CBRE-EA as of February 11, 2011, and the projections and beliefs of CBRE-EA stated herein are as of that date.

        As of December 31, 2010, the overall U.S. industrial market consisted of approximately 257,000 buildings with 13.8 billion square feet of space. In terms of net rentable area ("NRA"), warehouse/distribution facilities constitute the majority (66.6%) of this space followed by manufacturing (20.6%) and flex/office (which includes research and development) (10.5%). Unclassified buildings (industrial facilities such as sewage treatment centers and airport hangars that are not amenable to private real estate investment) represent the remaining 2.3%.

 
  NRA
(square feet in millions)
  Number of Properties  

Warehouse/Distribution

    9,179     171,227  

Manufacturing

    2,846     41,596  

Flex/Office

    1,443     36,496  

Other

    323     8,049  
           

All Industrial

    13,791     257,368  
           


Source: CBRE-EA Industrial Peer Select, Spring 2011.

        The single-tenant industrial sector offers investors the opportunity to receive stable income from leases to a variety of firms across the spectrum of industrial sub-property types, and single-tenant industrial buildings are more likely to provide their owners with less volatile cash flows after expenses, as they generally do not require the same degree of tenant and capital improvement expenditures that are required on an ongoing basis to lease multi-tenanted space or other classes of commercial property.

        Within the context of the broader real estate market, industrial property, including our targeted asset class, has exhibited a number of favorable investment characteristics:

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Summary Risk Factors

        An investment in our common stock involves material risks. You should consider carefully the risks described below and under "Risk Factors" before purchasing shares of our common stock in this offering:

Debt Financing and Liquidity

        As of December 31, 2010, on a pro forma basis, we had mortgage debt outstanding with an estimated aggregate balance of approximately $250.9 million at a weighted average annual interest rate of 5.55%. All of this debt will initially bear interest at a fixed rate, $146.8 million of which as a result of interest rate swaps. This debt will be comprised of a $135.8 million loan maturing in 2012, a $95.6 million loan maturing in 2018 and an $8.5 million loan maturing in 2027, as well as borrowings in the amount of approximately $11.0 million under a $100 million credit facility with an initial three-year term to maturity. See "Business—Description of Certain Debt" for more information about such debt. We have executed a loan modification, which is being held in escrow and is subject to customary closing conditions, to extend the maturity of our debt due in 2012 to October 2013. The pro forma debt yield on this instrument is 16.12%.

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        We have executed a loan agreement with several financial institutions establishing a $100 million secured corporate revolving credit facility (subject to increase to $200 million under certain circumstances). The credit facility is being held in escrow and will be available upon the closing of this offering and satisfaction of other customary closing conditions. In addition, in connection with our formation transactions, we will be assuming an existing secured acquisition credit facility from STAG GI that currently has $30.4 million of borrowing capacity and a commitment letter for an additional $65 million secured acquisition credit facility.

        Upon completion of this offering and after the debt paydowns discussed under "Use of Proceeds" and the approximately $11.0 million borrowing described above, we expect to have approximately $36.0 million in credit facility capacity immediately available to us under the $100 million credit facility (with up to $64.4 million available upon the satisfaction of certain lender conditions) to fund working capital and property acquisitions and to execute our business strategy.

Our Formation Transactions and Structure

        We have deployed approximately $1.4 billion through four private equity real estate funds, SCP Green, LLC ("Fund I"), STAG Investments II, LLC ("Fund II"), STAG Investments III, LLC ("Fund III") and STAG Investments IV, LLC ("Fund IV"), and one joint venture, STAG GI. We were formed to acquire the existing assets and operations of our predecessor business.

        Our senior management team consists of Mr. Butcher, the Chairman of our board of directors and our Chief Executive Officer and President, Gregory W. Sullivan, our Chief Financial Officer, Executive Vice President and Treasurer, Stephen C. Mecke, our Chief Operating Officer and Executive Vice President, Kathryn Arnone, our Executive Vice President, General Counsel and Secretary, and David G. King, our Executive Vice President and Director of Real Estate Operations. They have each led or helped manage private and public real estate companies and funds, including STAG, AMB Property Corp., Trizec Hahn Corporation, Meditrust Corporation and LaQuinta Corporation.

        Prior to or concurrent with the completion of this offering, we will engage in the following formation transactions, which are designed to consolidate the ownership of our property portfolio under our operating partnership and its subsidiaries, consolidate our acquisition and asset management businesses into a subsidiary of our operating partnership and enable us to qualify as a REIT for U.S. federal income tax purposes commencing with the taxable year ending December 31, 2011:

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        We will not enter into any tax protection agreements in connection with our formation transactions.

        Following completion of our formation transactions, Fund II will continue to operate as a private, fully-invested fund and will retain ownership of its 86 properties, with approximately 13.1 million rentable square feet. We will enter into a services agreement with Fund II on terms we believe to be customary, pursuant to which we will manage its properties in return for an annual asset management fee based on the equity investment in such assets, which will initially equal 0.94% of the equity investment and may increase up to 1.25% of the equity investment to the extent assets are sold and the total remaining equity investment is reduced.

        Following completion of our formation transactions, Fund III will retain ownership of three properties with approximately 890,891 rentable square feet that are vacant and that are acquisition opportunities for us (the "Option Properties"). Following completion of our formation transactions, we will enter into a services agreement with Fund III pursuant to which we will manage the Option Properties for an annual fee of $30,000 per property and provide the limited administrative services (including preparation of reports for the Fund III lender and investors, bookkeeping, tax and accounting services) Fund III will require until its liquidation for an annual fee of $20,000. Upon approval of our independent directors, we will have the right to acquire any of the Option Properties individually.

        In addition, we will enter into a services agreement with Fund IV pursuant to which we will provide the limited administrative services (including preparation of reports for the Fund IV investors, bookkeeping, tax and accounting services) Fund IV will require until its liquidation for an annual fee of $20,000. STAG GI will not require administrative services from us or our affiliates following completion of our formation transactions.

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        Following completion of our formation transactions, Fund II, Fund III, Fund IV and STAG GI will make no additional property acquisitions, and our senior management team will devote substantially all of its business time to our business.

        The chart below reflects our organization immediately following completion of our formation transactions and this offering.

CHART


(1)
Upon completion of this offering, we will grant 80,809, shares of restricted common stock, or 0.6% of our outstanding common stock, pursuant to our 2011 Equity Incentive Plan.

(2)
Includes our executive officers' investments in Fund III, Fund IV and STAG GI and their residual interests in Fund III, Fund IV and STAG GI. Solely for purposes of this chart, we calculated our executive officers' residual interests assuming Fund III, Fund IV and STAG GI are liquidated on April 13, 2011 at $13.00 per share, the initial public offering price, and made certain other assumptions. We cannot estimate the actual timing of the liquidations of Fund III, Fund IV and STAG GI or the value of any distributions at the time of the liquidations. "See—Benefits to Related Parties—Formation Transactions" below.

(3)
Excludes common units in which a director or executive officer has no pecuniary interest but that are owned by entities that a director or executive officer may directly or indirectly control. Includes LTIP units, as if LTIP units were common units, that will be issued upon closing of this offering to our executive officers and independent directors pursuant to our 2011 Equity Incentive Plan.

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(4)
Ownership is through Fund III, Fund IV and/or STAG GI.

        Upon completion of our formation transactions and this offering, our directors and executive officers and their affiliates will receive material financial and other benefits, as shown below. For a more detailed discussion of these benefits see "Management," "Certain Relationships and Related Transactions" and "Structure and Formation of Our Company—Benefits of Our Formation Transactions and this Offering to Certain Parties."

        Formation Transactions.    Fund III, Fund IV, STAG GI and the members of the management company will receive 7,590,000 common units as a result of their contribution to us of the entities owning our properties and the management company, as described above under "—Our Formation Transactions and Structure—Formation Transactions." In addition, upon completion of our formation transactions, we will repay or assume indebtedness secured by our properties and unsecured indebtedness, as described under "—Our Formation Transactions and Structure—Formation Transactions" and "Use of Proceeds."

        After the expiration of the lock-up period, Fund III, Fund IV and STAG GI may distribute its common units to its members in accordance with the fund's operating agreement. In addition to their invested equity, certain members of Fund III, Fund IV and STAG GI, including certain of our officers, employees and directors, have residual interests, or contingent profit interests, in Fund III, Fund IV and STAG GI. As a result, they may receive distributions related to these residual interests if there are sufficient proceeds after return of capital and preferred returns to themselves and the other equity investors in Fund III, Fund IV and STAG GI. In all cases where there is a residual distribution, the higher the share price of our common stock at the time a fund is liquidated, the greater the portion of the common units the fund will distribute to the holders of the residual interests.

        The number of common units being issued in our formation transactions is fixed so that residual interests will not, in any manner, require us to issue additional common units or shares of common stock or otherwise dilute investors in this offering. In addition, because the value of the residual interests depends on the value of our common stock, not on the value of certain properties or portfolios individually, such residual interests align the interests of the holders of residual interests with the interests of our company and shareholders. See "Structure and Formation of Our Company—Benefits of Our Formation Transactions and the Offering to Certain Parties."

        The table below sets forth a list of what individual directors and executive officers of our company will receive as a result of the contributions.

 
  Common Units(2)  
Name(1)
  Number   Value  

Benjamin S. Butcher

    80,736   $ 1,049,568  

Gregory W. Sullivan

    59,945     779,285  

Stephen C. Mecke

    16,284     211,692  

Kathryn Arnone

    9,440     122,720  

David G. King

    7,742     100,646  

(1)
The amounts shown in the table reflect common units received by the individual directly or received by any entity, but if by an entity only to the extent of the individual's interest in the assets of the entity. Accordingly, the amounts shown in the table above do not reflect common units received by entities that may be controlled by the individual (except to the extent of the individual's interest in the assets of the entity).

(2)
Includes our executive officers' investments in Fund III, Fund IV and STAG GI and their residual interests in Fund III, Fund IV and STAG GI. Solely for purposes of this table, we calculated our executive officers' residual interests assuming Fund III, Fund IV and STAG GI are liquidated on April 13, 2011 at $13.00 per

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        Voting Agreement.    An affiliate of GI Partners will receive rights to designate two nominees for election to our board of directors, and Fund III, Fund IV, STAG GI and the contributors of the management company will enter into a voting agreement pursuant to which they will vote any shares of common stock that they own in favor of the election of the two nominees at each annual meeting of shareholders.

        Services Agreements and Option Agreement.    We will enter into services agreements with each of Fund II, Fund III and Fund IV and an option to purchase agreement with Fund III with respect to the Option Properties. See "—Our Formation Transactions and Structure—Services Agreements and Option Properties."

        Registration Rights Agreement.    We have agreed to file a shelf registration statement with the SEC covering the resale of the shares of common stock issued or issuable in exchange for common units issued in our formation transactions. We have also agreed to provide rights to these holders of common units to demand additional registration statement filings.

        Employment Agreements.    Messrs. Butcher, Sullivan, Mecke and King and Ms. Arnone will enter into employment agreements with us providing for salary, discretionary bonus and other benefits.

        Equity Incentive Plan Grants.    We will issue 200,441 LTIP units to our executive officers and independent directors and 80,809 shares of restricted common stock to our employees pursuant to our 2011 Equity Incentive Plan, representing in the aggregate 1.3% of the total number of shares of our common stock outstanding on a fully-diluted basis.

        Indemnification Agreements.    Our bylaws provide that we will indemnify our directors, executive officers and employees to the fullest extent permitted by Maryland law. We also intend to enter into indemnification agreements with our directors and executive officers. See "Management—Limitation on Liabilities and Indemnification of Directors and Officers."

Conflicts of Interest

        The executive officers for each of the managers of Fund II, Fund III, Fund IV and STAG GI consist of a number of persons who serve as executive officers in similar positions in our company, specifically: Messrs. Butcher, Sullivan, Mecke and King and Ms. Arnone. Also, Mr. Butcher, who is a member of our board of directors, also serves on the board of managers and/or management committees of the managers of Fund II, Fund III and Fund IV, and is a member of the management board of STAG GI. F. Alexander Fraser, one of two of our directors selected by GI Partners, is also a member of the management board of STAG GI and serves as a Director at GI Partners, LLC, which is an affiliate of GI Partners and STAG GI. Our executive officers and certain of our directors may have conflicting duties because they have a duty to both us and to Fund II (which will retain ownership of its properties and continue as a private, fully-invested fund until liquidated), Fund III (which will retain ownership of the Option Properties), Fund IV and STAG GI. Upon completion of our formation transactions, all of these entities will be fully invested and, as a result, will not be making any additional investments in income properties. It is possible that the executive officers' and board members' fiduciary duty to and interests in Fund II, Fund III, Fund IV, STAG GI and GI Partners, LLC, 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.

        We did not conduct arm's-length negotiations with respect to the terms and structuring of our formation transactions, resulting in the principals of the management company having the ability to

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influence the type and level of benefits that they and our other affiliates will receive. We have not obtained third-party appraisals of the properties to be contributed to us in our formation transactions or fairness opinions in connection with our formation transactions.

        Additional conflicts of interest could arise in the future as a result of the relationships between us and our affiliates, on the one hand, and our operating partnership or any partner thereof on the other. Our directors and officers have duties to our company under applicable Maryland law in connection with their management of our company. At the same time, we, as the indirect general partner of our operating partnership, have duties to our operating partnership and to its limited partners in connection with the management of our operating partnership under Delaware law as modified by our operating partnership agreement. Our duties, as the indirect general partner of our operating partnership, may come into conflict with the duties of our directors and officers to our company.

        We plan to adopt policies to reduce potential conflicts of interest. To the extent that specific matters involving us arise where Mr. Fraser may have conflicting duties, we will require that our disinterested directors approve those matters. More generally, our policies will provide that any transaction involving us in which any of our directors, officers or employees has a material interest must be approved by a vote of a majority of our disinterested directors. However, we cannot assure you that these policies will be successful in eliminating the influence of these conflicts. See "Policies with Respect to Certain Activities—Conflicts of Interest Policies."

Tax Status

        We will elect to be taxed as a REIT under the Code commencing with our taxable year ending December 31, 2011. As a REIT, we generally will not be subject to U.S. federal income tax on income that we distribute currently to our shareholders. Under the Code, REITs are subject to numerous organizational and operational requirements, including the distribution requirement described below. If we fail to qualify for taxation as a REIT in any year, our income will be taxed at regular corporate rates, we will not be allowed a deduction for dividends to our shareholders in computing our taxable income and we may be precluded from qualifying for treatment as a REIT for the four-year period following the year of our failure to qualify. Even if we qualify as a REIT for U.S. federal income tax purposes, we may still be subject to state and local taxes on our income and property and to U.S. federal income and excise taxes on our undistributed income.

Distribution Policy

        We are a newly formed company that has not commenced operations, and as a result, we have not paid any distributions as of the date of this prospectus. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gains. To satisfy the requirements to qualify as a REIT and generally not be subject to U.S. federal income tax, we intend to make quarterly distributions of all or substantially all of our net income to holders of our common shares out of assets legally available therefor. We intend to pay a pro rata initial distribution with respect to the period commencing on the completion of this offering and ending at the last day of the then-current fiscal quarter, based on a distribution of $0.256 per share for a full quarter. On an annualized basis, this would be $1.024 per share, or an annual distribution rate of approximately 7.9%, based on the initial public offering price. We estimate this initial annual distribution rate will represent approximately 103.6% of estimated cash available for distribution to our common shareholders for the 12 months ending December 31, 2011. We intend to maintain our initial distribution rate for the 12-month period following completion of this offering unless our actual results of operations, economic conditions or other factors differ materially from the assumptions used in our estimate. Any future distributions we make will be at the discretion of our board of directors and will depend upon our earnings and financial condition, maintenance of REIT qualification, the applicable provisions of the Maryland General Corporation Law ("MGCL") and such other factors as our board may determine in its sole

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discretion. We anticipate that our estimated cash available for distribution will exceed the annual distribution requirements applicable to REITs. However, under some circumstances, we may be required to pay distributions in excess of cash available for distribution in order to meet these distribution requirements and may need to use the proceeds from future equity and debt offerings, sell assets or borrow funds to make some distributions. We have no intention to use the net proceeds of this offering to make distributions nor do we intend to make distributions using shares of common stock. We cannot assure you that our distribution policy will not change in the future.

Restrictions on Ownership and Transfer of Stock

        Due to limitations on the concentration of ownership of a REIT imposed by the Code, not more than 50% of the value of the outstanding shares of beneficial ownership of a REIT may be owned, directly or indirectly, by five or fewer individuals (as defined by the Code to include certain entities) during the last half of a taxable year (other than the first year for which an election to be a REIT has been made). As a result, our charter provides that, subject to certain exceptions, no person may beneficially 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 shares of capital stock, or more than 9.8% in value or in number of shares, whichever is more restrictive, of our outstanding common stock. Our board of directors may, in its discretion, exempt a person from the 9.8% ownership limits under certain circumstances. In connection with our formation transactions, our board of directors will grant a waiver to STAG GI, GI Partners and an affiliate of GI Partners to own up to 28.7% of our outstanding common stock. Our charter also prohibits any person from, among other matters: beneficially or constructively owning or transferring shares of our capital stock if such ownership or transfer would result in our being "closely held" within the meaning of Section 856(h) of the Code; owning or transferring our capital stock if such ownership or transfer would result in us becoming a "pension-held REIT" under Section 856(h)(3)(D) of the Code; transferring shares of our capital stock if such transfer would result in our capital stock being owned by fewer than 100 persons; or beneficially or constructively owning or transferring shares of our capital stock if such ownership or transfer would cause us to own, directly or indirectly, 10% or more of the ownership interests in a tenant of our company (or a tenant of any entity owned or controlled by us) or would cause any independent contractor to not be treated as such under Section 856(d)(3) of the Code, or beneficially or constructively owning shares of our capital stock to the extent such beneficial or constructive ownership would otherwise cause us to fail to qualify as a REIT. See "Description of Stock—Restrictions on Ownership and Transfer of Stock."

Lock-Up Arrangements

        We and our executive officers and directors and the owners of the management company, Fund III, Fund IV and STAG GI have agreed not to sell or transfer any common units or shares of common stock, as applicable, for a period of 180 days in the case of our company and 12 months in the case of our executive officers, directors and contributors after the date of this prospectus. Specifically, all of these parties have agreed, subject to exceptions, not to directly or indirectly offer, pledge, sell or contract to sell any common units or shares of common stock, sell any option or contract to purchase any common units or shares of common stock, purchase any option or contract to sell any common units or shares of common stock, grant any option, right or warrant for the sale of any common units or shares of common stock, lend or otherwise dispose of or transfer any common units or shares of common stock, request or demand that we file a registration statement related to the common units or shares of common stock, or enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of any common units or shares of common stock whether any such swap or transaction is to be settled by delivery of shares or other securities, in cash or otherwise.

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The Offering

Common stock offered by us   13,750,000 shares of common stock (plus up to an additional 2,062,500 shares of common stock that we may issue and sell upon the exercise of the underwriters' overallotment option)

Common stock and common units to be outstanding after completion of our formation transactions and this offering

 

21,621,250 shares/units(1)(2)(3)

Use of proceeds(4)

 

We estimate that the net proceeds we will receive from the sale of shares of our common stock in this offering will be approximately $160.6 million (or approximately $185.6 million if the underwriters exercise their overallotment option in full), in each case after deducting underwriting discounts and commissions of $12.5 million (or approximately $14.4 million if the underwriters exercise their overallotment option in full) and estimated organizational and net offering expenses of approximately $5.6 million payable by us. We will contribute the net proceeds we receive from this offering to our operating partnership in exchange for common units in our operating partnership.

 

 

We expect our operating partnership will use the net proceeds, together with borrowings in the amount of approximately $11.0 million under a $100 million credit facility, as follows:

 

•       approximately $159.3 million to repay mortgage debt secured by certain of the properties we will acquire in our formation transactions, including approximately $5.4 million secured by the Option Properties (common units to be issued to Fund III in our formation transactions will be reduced accordingly);

 

•       approximately $4.4 million to repay the loan dated January 31, 2009 from an affiliate of NED to the Fund III subsidiaries that will be contributed to us in our formation transactions;

 

•       approximately $3.0 million to repay the loan originally drawn on May 15, 2007 from Fund III to the management company;

 

•       approximately $1.3 million for general corporate purposes including acquisitions of real estate assets;

 

•       approximately $1.3 million to repay expenditures associated with the retirement of indebtedness and the attainment of lender consents on existing indebtedness (including financing fees, related legal fees, and contingent waiver fees), and fees associated with the revolving credit facility;

 

•       approximately $1.0 million to repay the line of credit dated May 15, 2007 from an affiliate of NED to the management company;

 

•       approximately $0.6 million to pay transfer taxes and fees associated with the contribution of our properties to us;

 

•       approximately $0.5 million to terminate a portion of an interest rate swap due to the retirement of mortgage debt; and

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•       approximately $0.2 million to post as escrows for our mortgage debt.


 

 

If the underwriters exercise their overallotment option in full, we expect to use the additional $25.0 million of net proceeds for general corporate purposes, including acquisitions of real estate assets. See "Use of Proceeds."

Proposed New York Stock Exchange symbol

 

"STIR"

(1)
Assumes the underwriters' overallotment option to purchase up to an additional 2,062,500 shares of common stock is not exercised.

(2)
Does not include 1,319,250 shares of our common stock reserved for future issuance under our 2011 Equity Incentive Plan. Includes 200,441 LTIP units to be granted to our executive officers and independent directors under our 2011 Equity Incentive Plan upon consummation of this offering and 80,809 shares of our restricted common stock to be issued under our 2011 Equity Incentive Plan to certain employees upon consummation of this offering. See "Management—Equity Incentive Plan" for additional information.

(3)
Includes 7,590,000 common units held by limited partners (other than STAG Industrial, Inc.) expected to be outstanding following consummation of our formation transactions.

(4)
The debt repayments described above are estimated based on principal and related accrued interest outstanding as of December 31, 2010.

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Summary Financial Information

        The following table sets forth summary financial and operating data on (1) a pro forma basis for our company and (2) an historical basis for STAG Predecessor Group. On a pro forma basis, we will own 91 properties, consisting of 57 properties owned by STAG Predecessor Group and 34 properties that constitute STAG Contribution Group. STAG Predecessor Group, which includes the entity that is considered our accounting acquirer, is part of our predecessor business and consists of the subsidiaries of Fund III that will be contributed to us by Fund III in our formation transactions. STAG Contribution Group consists of the properties owned by Fund IV and STAG GI that will be contributed to us in the formation transactions.

        In the summary financial and operating data, we have not presented historical information for STAG Industrial, Inc. because we have not had any corporate activity since our formation other than the issuance of shares of common stock in connection with the initial capitalization of our company and activity in connection with our formation transactions and this offering, and because we believe that a discussion of the results of STAG Industrial, Inc. would not be meaningful.

        We have not presented historical financial information for the management company as its results are not considered significant, and because we believe that a discussion of these results (which primarily consist of acquisition and asset management fees from Fund II, Fund III and Fund IV and general and administrative costs), would not be meaningful.

        You should read the following summary financial and operating data in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operation," our unaudited pro forma consolidated financial statements and related notes, the historical combined financial statements and related notes of STAG Predecessor Group, the historical combined statements of revenue and certain expenses and related notes of STAG Contribution Group, and the historical (combined) statements of revenue and certain expenses and related notes of the various properties listed in the Index to the Financial Statements.

        The unaudited pro forma condensed consolidated balance sheet data is presented as if this offering and our formation transactions had occurred on December 31, 2010, and the unaudited pro forma statement of operations and other data for the year ended December 31, 2010, is presented as if this offering and our formation transactions had occurred on January 1, 2010. The pro forma financial information is not necessarily indicative of what our actual financial condition would have been as of December 31, 2010 or what our actual results of operations would have been assuming this offering and our formation transactions had been completed as of January 1, 2010, nor does it purport to represent our future financial position or results of operations.

        The summary historical combined balance sheet information as of December 31, 2010 and 2009, and the historical combined statement of operations data for the years ended December 31, 2010, 2009, and 2008, have been derived from the combined financial statements of the STAG Predecessor Group audited by PricewaterhouseCoopers LLP, independent registered public accountants, whose report thereon is included elsewhere in this prospectus. The summary historical cost balance sheet information as of December 31, 2008 and the historical combined statement of operations data for the year ended December 31, 2007 have been derived from audited combined financial statements of the STAG Predecessor Group, which are not included in this prospectus. The summary historical combined balance sheet information as of December 31, 2007 and 2006 and the historical combined statement of operations for the period ended December 31, 2006 have been derived from the unaudited combined financial statements of the STAG Predecessor Group, which are not included in this prospectus.

        The audited historical financial statements of STAG Predecessor Group in this prospectus, and therefore the historical financial and operating data in the table below, exclude the operating results and financial condition of the Option Properties, the entities that own the Option Properties and the management company.

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  Company
Pro Forma
  STAG Predecessor Group
Historical
 
 
  Year Ended
December 31,
  Year Ended
December 31,
  Period Ended
December 31,
 
 
  2010   2010   2009   2008   2007(1)   2006  
 
  (unaudited)
   
   
   
  (unaudited)
  (unaudited)
 
 
  (dollars in thousands)
 

Statement of Operations Data:

                                     

Revenue

                                     

Rental income

  $ 53,016   $ 24,249   $ 25,658   $ 27,319   $ 11,162   $ 941  

Tenant recoveries

    6,178     3,761     4,508     3,951     1,326      

Other

    1,252                      
                           

Total revenue

    60,446     28,010     30,166     31,270     12,488     941  
                           

Expenses

                                     

Property

    9,361     6,123     8,409     5,813     1,437     11  

General and administrative

    9,094     937     1,078     1,112     648     29  

Depreciation and amortization

    26,142     9,514     10,257     12,108     4,687     336  

Loss on impairment of assets

                3,728          
                           

Total expenses

    44,597     16,574     19,744     22,761     6,772     376  
                           

Other income (expense)

                                     

Interest income

    16     16     66     140     163     4  

Interest expense

    (14,853 )   (14,116 )   (14,328 )   (15,058 )   (7,861 )   (616 )

Gain (loss) on interest rate swaps

    (14 )   (282 )   (1,720 )   (1,275 )        
                           

Total other income (expense)

    (14,851 )   (14,382 )   (15,982 )   (16,193 )   (7,698 )   (612 )
                           

Net income (loss)

  $ 998   $ (2,946 ) $ (5,560 ) $ (7,684 ) $ (1,982 ) $ (47 )
                           

Balance Sheet Data (End of Period):

                                     

Rental property, before accumulated depreciation

  $ 432,510   $ 210,186   $ 210,009   $ 208,948   $ 212,688   $ 31,998  

Rental property, after accumulated depreciation

    413,249     190,925     195,383     200,268     210,294     31,808  

Total assets

    509,041     211,004     220,116     229,731     242,134     35,976  

Notes payable

    239,947     207,550     212,132     216,178     217,360     31,877  

Total liabilities

    265,658     219,340     221,637     223,171     220,548     32,305  

Owners'/shareholders' equity (deficit)

    243,383     (8,336 )   (1,521 )   6,560     21,586     3,671  

Other Data: (unaudited)

                                     

Net operating income (NOI)(2)

  $ 51,085   $ 21,887   $ 21,757   $ 25,457   $ 11,051   $ 930  

EBITDA(2)

    41,977     20,668     18,959     19,342     10,403     901  

FFO(2)

    27,140     6,568     4,697     4,424     2,705     289  

Adjusted funds from operations (AFFO)(2)

    27,262     5,858     6,166     8,081     2,443     243  

(1)
We have prepared the results of operations for the year ended December 31, 2007 by combining amounts for 2007 obtained by adding the audited operating results of each of the Antecedent for the period of January 1, 2007 to May 31, 2007 and STAG Predecessor Group for the period of June 1, 2007 to December 31, 2007 (since the difference in basis between Antecedent and STAG Predecessor Group were not materially different and the entities were under common management). Although this combined presentation does not comply with GAAP, we believe that it provides a meaningful method of comparison.

(2)
See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for more detailed explanations of net operating income ("NOI"), EBITDA, FFO and adjusted funds from operations ("AFFO"), and reconciliations of NOI, EBITDA, FFO and AFFO to net income computed in accordance with GAAP.

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RISK FACTORS

        An investment in our common stock involves risks. In addition to other information in this prospectus, you should carefully consider the following risks before investing in our common stock offered by this prospectus. The occurrence of any of the following risks could materially and adversely affect our business, prospects, financial condition, results of operations and our ability to make cash distributions to our shareholders, which could cause you to lose all or a significant portion of your investment in our common stock. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. See "Cautionary Note Regarding Forward-Looking Statements."

Risks Related to Our Business and Operations

        All of our 91 properties are industrial properties, including 44 warehouse/distribution facilities, 26 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.

        Our operating results may be affected by market and economic challenges, including the current global economic credit environment, which may result from a continued or exacerbated general economic slow down 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:

        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 slow down or downturn cannot be predicted. Our operations could be negatively affected to the extent that an economic slow down or downturn is prolonged or becomes more severe.

        Domestic and international financial markets recently experienced significant dislocations brought about in large part by failures in the U.S. banking system. These dislocations have impacted the availability of credit. If this dislocation in the credit markets causes the inability to borrow at attractive rates, our ability to borrow monies to finance the purchase of, or other activities related to, real estate assets will be negatively impacted. If we are unable to borrow monies on terms and conditions that we find acceptable, we likely will have to reduce the number of properties we can purchase, and the return on the properties we do purchase may be lower. Also, if the values of our properties decline we may be

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unable to refinance all of our debt as it matures. All of these events would have a material adverse effect on our results of operations, financial condition and ability to pay distributions.

        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, 2010, accounted for the percentage of our total annualized rent indicated): North Carolina (17.1%); Ohio (12.7%); Wisconsin (7.2%); and Michigan (6.1%). 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 certain industry concentrations with respect to our properties, including the following (which, as of December 31, 2010, accounted for the percentage of our total annualized rent indicated): Containers & Packaging (14.7%); Business Services (9.8%); Personal Products (9.5%); Industrial Equipment, Components & Metals (7.1%); Aerospace & Defense (7.1%); Automotive (7.0%); Retail (6.9%); Food & Beverages (6.6%); and Technology (6.3%). Such industries are subject to specific risks that could result in downturns within the industries. For example, several of our technology tenants operate in the telecommunications sector. Telecommunications companies face risks regarding their ability to adapt to new technological developments and changes in regulations by the Federal Communications Commission and other federal, state and local agencies. 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.

        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 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.

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        Many of our tenants rely on external sources of financing to operate their businesses. The U.S. financial and credit markets 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 were organized in July 2010 and will commence operations upon completion of our formation transactions and this offering. 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 and that the value of your investment could decline substantially.

        We have no 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 common stock and ability to satisfy our debt service obligations and to pay dividends to you.

        Our success depends to a significant degree upon the continued contributions of certain key personnel including, but not limited to, Messrs. Butcher, Sullivan, Mecke and King and Ms. Arnone, whose continued service is not guaranteed, and each of whom would be difficult to replace. While we have entered into employment contracts with Messrs. Butcher, Sullivan, Mecke and King and Ms. Arnone, 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. Butcher, the founder of STAG. The policy has limits in the amount of $5.0 million and covers us in the event of Mr. Butcher's death.

        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.

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        We acquire and intend to continue to acquire primarily generic distribution warehouses, 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 common stock.

        A key component of our growth strategy is to continue to acquire additional industrial real estate assets. Since 2004, approximately 32.5% 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.

        We have not obtained updated third-party appraisals of the properties and other assets to be contributed to us in our formation transactions or fairness opinions in connection with our formation transactions. The initial public offering price of our common stock was determined in consultation with the underwriters based on the history and prospects for the industry in which we compete, our financial information, the ability of our management and our business potential and earning prospects, the prevailing securities markets at the time of this offering, and the recent market prices of, and the demand for, publicly traded shares of generally comparable companies. The initial public offering price does not necessarily bear any relationship to the book value or the fair market value of such assets. As a result, the consideration for these assets in our formation transactions may exceed their book value and fair market value.

        All distributions will be made at the discretion of our board of directors and will depend on our earnings, our financial condition, maintenance of our REIT qualification and other factors as our board of directors may deem relevant from time to time. We may not be able to make distributions in the future. In addition, some of our distributions may include a return of capital. To the extent that we

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make distributions in excess of our current and accumulated earnings and profits, such distributions would generally be considered a return of capital for U.S. 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. See "U.S. Federal Income Tax Considerations—Taxation of Shareholders." 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 expect to pay an initial annual dividend of $1.024 per share, or $22.1 million in the aggregate, which represents approximately 103.6% of our estimated cash available for distribution of $21.4 million for the 12 months ending December 31, 2011 calculated as described in "Distribution Policy" (which does not take into account future tenant retention and potential acquisitions). Our ability to pay our estimated initial annual distribution depends upon our actual operating results, and, in adverse scenarios, we may be required either to fund future distributions from cash balances, borrowings under our secured corporate revolving credit facility or to reduce such distributions. Use of our secured corporate revolving credit facility to pay distributions will reduce the amount of our borrowing capacity available for other purposes. If we need to borrow funds on a regular basis to meet our distribution requirements or if we reduce the amount of our distribution, our stock price may be adversely affected.

        Prior to our formation transactions and this offering, Fund III, Fund IV and STAG GI owned or controlled our 91 initial properties comprising an aggregate 13.9 million rentable square feet. All of these properties have been under management for less than four years. The 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 directors and executive officers have ownership interests in the other entities or properties to be contributed to us in our formation transactions, including Fund III, Fund IV, STAG GI and the management company. Following the completion of our formation transactions and this offering, under the contribution agreements with certain of our directors and executive officers and their affiliates, we will be entitled to indemnification in the event of breaches of the representations and warranties made by them with respect to the entities and properties to be acquired by us. Such indemnification is limited and we are not entitled to any other indemnification in connection with our formation transactions. In addition, we expect that our executive officers will enter into employment agreements with us pursuant to which they will agree, among other things, not to engage in certain business activities in competition with us and pursuant to which they will devote substantially all of their business time to our business. See "Management—Employment Agreements." We may choose not

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to enforce, or to enforce less vigorously, our rights under these agreements due to our ongoing relationship with our directors and executive officers.

        We did not conduct arm's-length negotiations with respect to all of the terms of our formation transactions. In the course of structuring our formation transactions, our directors and executive officers had the ability to influence the type and level of benefits that they and our other officers will receive from us. In addition, certain of our directors and executive officers had substantial pre-existing ownership interests in Fund III, Fund IV, STAG GI and the management company, and will receive substantial economic benefits as a result of our formation transactions. The formation transaction documents provide that the individual allocations of the total formation transaction value to each prior investor are determined by the provisions of the applicable partnership agreement or organizational document of the relevant fund. Also, our directors and executive officers have assumed management and/or director positions with us, for which they will obtain certain other benefits such as employment agreements, restricted stock or LTIP unit grants and other compensation.

        Certain of our executive officers and directors also serve on the board of managers and/or management committees of the managers of Fund II, Fund III and Fund IV, and are members of the board of directors of STAG GI. Our officers and directors may have conflicting duties because they have a duty to both us and to Fund II (which will retain ownership of its properties and continue as a private, fully-invested fund until liquidated), Fund III (which will retain ownership of the Option Properties), Fund IV and STAG GI. Upon completion of our formation transactions, all of these entities will be 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, Fund III, Fund IV and STAG GI, 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.

        After the consummation of this offering, we, as the sole member of the general partner of our operating partnership, will have fiduciary duties to the other limited partners in the operating partnership, the discharge of which may conflict with the interests of our shareholders. 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 shareholders 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 shareholders. For example, we are unable to modify the rights of limited partners to receive distributions as set forth in the operating partnership agreement in a manner that adversely

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affects their rights without their consent, even though such modification might be in the best interest of our shareholders.

        In addition, conflicts may arise when the interests of our shareholders and the limited partners of the 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 common stock 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 LTIP units granted under our 2011 Equity Incentive Plan. See "Management—Equity Incentive Plan."

        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 U.S. 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.

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        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 common stock.

        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. Our board of directors, in its sole discretion, may exempt a proposed transferee from the ownership limits. 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 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 involve a premium price for our common stock or otherwise be in the best interest of our shareholders. See "Description of Stock—Restrictions on Ownership and Transfer of Stock."

        Our board of directors may create and issue a class or series of preferred stock without shareholder approval.    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 shareholder approval. Our board of directors may determine the relative rights, preferences and privileges of any class or series of preferred stock issued. As a result, we may issue series or classes of preferred stock with preferences, dividends, powers and rights, voting or otherwise, senior to the rights of holders of our common stock. 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 shareholders.

        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 shareholders might consider such proposals, if made, desirable. These provisions include, among others:

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        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 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 otherwise could provide our shareholders with the opportunity to realize a premium over the then-prevailing market price of our common stock, including:

        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. However, only upon the approval of our shareholders, 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 shareholders, 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 shareholder 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 otherwise could provide the holders of our common stock with the opportunity to realize a premium over the then-current market price.

        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 involve a premium price for our common stock or otherwise be in the best interest of our shareholders. See "Certain Provisions of Maryland Law and of Our Charter and Bylaws—Our Board of Directors," "—Business Combinations," "—Control Share Acquisitions," "—Maryland Unsolicited Takeovers Act," "—Advance Notice of Director Nominations and New Business" and "Our Operating Partnership and the Partnership Agreement."

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        In connection with this offering, we are entering into employment agreements with Messrs. Butcher, Sullivan, Mecke and King and Ms. Arnone. These employment agreements 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. See "Management—Employment Agreements" for further details about the terms of these employment agreements.

        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.

        In the past, we have reported our results to the investors in our predecessor business on a fund-by-fund basis. We have generally maintained separate systems and procedures for each fund, which makes it more difficult for us to evaluate and integrate their systems and procedures on a reliable company-wide basis. In addition, for certain funds we were not required to report our results on a GAAP basis. In connection with our operation as a public company, we will be required to report our operations on a consolidated basis under GAAP and, in some cases, on a property by property basis. We are in the process of implementing an internal audit function and modifying our company-wide systems and procedures in a number of areas to enable us to enhance our reporting on a consolidated basis under GAAP as we continue the process of integrating the financial reporting of our predecessor. If we fail to implement proper overall business controls, including as required to integrate our predecessor entities and support our growth, our results of operations could be harmed or we could fail to meet our reporting obligations.

        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:

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        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 shareholder, the right to vote.

        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 shareholders 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 shareholders 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.

General Real Estate Risks

        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 shareholders 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

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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:

        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.

        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 common stock and ability to satisfy our debt service obligations could be materially adversely affected.

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        Our results of operations, cash flows and the value of our common stock 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, 2010, leases with respect to 30.2% of our total annualized rent will expire on or before December 31, 2013. We cannot assure you 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 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 shareholders. 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.

        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.

        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 cause us to reduce distributions to shareholders.

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        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 common stock.

        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.

        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 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 common stock. 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.

        As part of our formation transactions, we will assume existing liabilities of contributed operating companies and liabilities in connection with contributed properties, some of which may be unknown or unquantifiable at the time this offering is consummated. Unknown liabilities might include liabilities for cleanup or remediation of undisclosed environmental conditions beyond the scope of our environmental

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insurance coverage, claims of tenants, vendors or other persons dealing with the entities prior to this offering, tax liabilities, and accrued but unpaid liabilities whether incurred in the ordinary course of business or otherwise. As part of our formation transactions, the owners of our predecessor business have only made limited representations and warranties to us regarding the entities, properties and assets that we will own following our formation transactions that survive for a period of one year and agreed to indemnify us and our operating partnership for breaches of such representations subject to specified deductibles and caps, as applicable. Because many liabilities, including tax liabilities, may not be identified within such period, we may have no recourse against any of the owners of our predecessor business for these liabilities.

        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.

        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 shareholders.

        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, 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

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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. In connection with our secured corporate revolving credit facility and STAG GI's recent acquisition activity, 65.4% of the total rentable square feet of our portfolio have Phase I environmental site assessments that are less than 12 months old. Material environmental conditions, liabilities or compliance concerns may arise after the environmental assessment has been completed. Moreover, there can be no assurance that:

        Under the Americans with Disabilities Act of 1990, as amended (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 shareholders 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.

        We own one 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

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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 shareholders and the trading price of our common stock.

        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 one property that benefits from payment in lieu of tax ("PILOT") programs and to facilitate such tax treatment our ownership in this property is structured as a leasehold interest with the relevant municipality serving as lessor. With respect to such arrangement, 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 interest to fee interest. In the event of such a conversion of our ownership interest, however, any preferential tax treatment offered by the PILOT program will be lost.

        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.

        We may acquire properties through contracts that could restrict our ability to dispose of the property for a period of time. These "lock-out" provisions could affect our ability to turn our investments into cash and could affect cash available for distributions to you. Lock-out provisions could also impair our ability to take actions during the lock-out period that would otherwise be in the best interest of our shareholders and, therefore, may have an adverse impact on the value of our common stock relative to the value that would result if the lock-out provisions did not exist.

        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 shareholders and result in litigation and related expenses.

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Even in the absence of a purchaser default, the distribution of the proceeds of sales to our shareholders, 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.

Risks Related to Our Debt Financings

        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 will generally 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 common stock and distributions payable to shareholders to be reduced. Certain of our existing and 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. See "Policies With Respect to Certain Activities—Financing Policies."

        As of December 31, 2010, we had total pro forma outstanding debt of approximately $250.9 million, and we expect that we will incur additional indebtedness in the future. Interest we pay reduces our cash available for distributions. We have entered into interest rate swaps and intend to collateralize other interest rate swaps under our secured corporate revolving credit facility to mitigate the risk of increasing interest rates for our $146.8 million in variable rate debt. 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.

        The terms 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. We have executed a loan agreement with several financial institutions establishing a $100 million secured corporate revolving credit facility (subject to increase to $200 million under certain circumstances). The credit facility is being held in escrow and will be available upon the closing of this offering and satisfaction of other customary closing conditions. Contemporaneously with the

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closing of this offering, we expect to borrow approximately $11.0 million under the credit facility. In addition, in connection with our formation transactions, we will be assuming an existing secured acquisition credit facility from STAG GI that currently has $30.4 million of borrowing capacity and a commitment letter for an additional $65 million secured acquisition credit facility. There is no assurance that we will be able to enter into a definitive agreement relating to the additional acquisition facility that we find acceptable, or at all. Any facility we obtain will likely include a number of additional customary financial and other covenants. Any of our existing loan covenants or future credit facility covenants may limit our flexibility in our operations and prevent us from making distributions to our shareholders, and breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness even if we have satisfied our payment obligations.

        As of December 31, 2010, 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, together with applicable prepayment charges, to avoid foreclosure on all cross-collateralized properties within the applicable pool. Moreover, any future corporate credit facility of ours 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 facility 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 common stock. 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 the 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 distributions on our common stock required to maintain our REIT status.

        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 shareholders 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.

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        If mortgage 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 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 such 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.

        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.

Risks Related to this Offering

        The purchase price per share of our common stock offered pursuant to this prospectus reflects the result of negotiations between us and the representatives of the underwriters. The purchase price may not accurately reflect the future value of our company, and the offering price may not be realized upon any subsequent disposition of the shares.

        In the future, we may attempt to increase our capital resources by making offerings of debt or additional offerings of equity securities, including commercial paper, senior or subordinated notes and series of preferred stock or common stock. Upon liquidation, holders of our debt securities and shares of preferred stock, if any, 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 shareholders or reduce the market price of our common stock, or both. Preferred stock, if issued, could have a preference on liquidating distributions or a preference on dividend payments or both that could limit our ability to make a dividend distribution to the holders of

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our common stock. 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, holders of our common stock bear the risk of our future offerings reducing the market price of our common stock and diluting their stock holdings in us.

        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 that will hold 7,590,000 common units on a pro forma basis are parties to an agreement that provides for registration rights. The exercise of these registration rights could depress the price of our common stock. The existence of shares of our common stock reserved for issuance as restricted shares or upon exchange of options or 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 shareholders.

        Our executive officers and our directors and the owners of the management company, Fund III, Fund IV and STAG GI have entered into lock-up agreements that, subject to exceptions, prohibit them from selling, pledging, transferring or otherwise disposing of our common stock or securities convertible into our common stock for a period of 12 months after the date of this prospectus. The representatives of the underwriters may, in their discretion, release all or any portion of the common stock subject to the lock-up agreements with our directors and officers and the owners of the management company, Fund III, Fund IV and STAG GI at any time without notice or shareholder approval. If the restrictions under the lock-up agreements are waived or terminated, up to approximately 7,790,441 shares of common stock, including securities convertible into our common stock, will be available for sale into the market, subject only to applicable securities rules and regulations and, in some cases, vesting requirements, which could reduce the market price for our common stock.

        Currently, there is no established trading market for our common stock. Our shares of common stock have been approved for listing on the New York Stock Exchange ("NYSE") under the symbol "STIR." We cannot assure you that an active trading market for our common stock will develop after the offering or if one does develop, that it will be sustained.

        Even if an active trading market develops, 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, you may be unable to resell your shares at or above the initial public offering price. 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

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affect our stock price or result in fluctuations in the price or trading volume of our common stock include:

        In addition, the stock market has experienced price and volume fluctuations that have affected the market prices of many companies in industries similar or related to ours and may have been unrelated to operating performances of these companies. These broad market fluctuations could reduce the market price of our common stock.

        As of December 31, 2010, the pro forma net tangible book value of the assets to be acquired by us in our formation transactions was approximately $75.6 million, or $3.54 per share of our common stock held by our continuing investors, assuming the exchange of common units for shares of our common stock on a one-for-one basis. As a result, the pro forma net tangible book value per share of our common stock after the consummation of our formation transactions and this offering will be less than the initial public offering price. The purchasers of our common stock offered hereby will experience immediate and substantial dilution of $9.46 per share in the pro forma net tangible book value per share of our common stock.

        One of the factors that will influence the price of our common stock will be the dividend yield on our common stock (as a percentage of the price of our common stock) relative to market interest rates. An increase in market interest rates may lead prospective purchasers of our common stock to expect a higher dividend yield and, if we are unable to pay such yield, the market price of our common stock could decrease.

        The market value of the equity securities of a REIT is based primarily upon the market's perception of the REIT's growth potential and its current and potential future cash distributions, whether from operations, sales or refinancings, and is secondarily based upon the real estate market value of the underlying assets. For that reason, our common stock may trade at prices that are higher or lower than our net asset value per share. To the extent we retain operating cash flow for investment purposes, working capital reserves or other purposes, these retained funds, while increasing the value of our underlying assets, may not correspondingly increase the market price of our common stock. Our failure to meet the market's expectations with regard to future earnings and cash distributions likely would adversely affect the market price of our common stock.

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        STAG Predecessor Group had historical net losses of $2.9 million, $5.6 million and $7.7 million for the years ended December 31, 2010, 2009 and 2008, respectively. STAG Predecessor Group had historical accumulated deficits after effects of depreciation and amortization of $8.3 million and $1.5 million as of December 31, 2010 and December 31, 2009, respectively. There can be no assurance that we will not continue to incur net losses in the future, 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 common stock.

        Following this offering, we will become subject to reporting and other obligations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including the requirements of Section 404 of the Sarbanes-Oxley Act. 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 will place significant demands on our management, administrative, operational, internal audit and accounting resources and will 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 achieve and maintain effective internal controls could have a material adverse effect on our business, operating results and stock price.

U.S. Federal Income Tax Risks

        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 U.S. federal income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT status. Losing our REIT status would reduce our net earnings available for investment or distribution to shareholders because of the additional tax liability. In addition, dividends to shareholders 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. For a discussion of the REIT qualification tests and other considerations relating to our election to be taxed as REIT, see "U.S. Federal Income Tax Considerations."

        In the future, we may institute a dividend reinvestment plan, which would allow our shareholders to acquire additional shares of common stock by automatically reinvesting their cash dividends. If our shareholders participate in a dividend reinvestment plan, they will be deemed to have received, and for income tax purposes will be taxed on, the amount reinvested in shares of our common stock to the

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extent the amount reinvested was not a tax-free return of capital. In addition, our shareholders will be treated for tax purposes as having received an additional distribution to the extent the shares are purchased at a discount to fair market value. As a result, unless a shareholder is a tax-exempt entity, it may have to use funds from other sources to pay its tax liability on the value of the shares of common stock received.

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

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

        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 shareholders (for example, where a borrower defers the payment of interest in cash pursuant to a contractual right or otherwise). If we do not have other funds available in these situations we could be required to borrow funds, sell investments at disadvantageous prices 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 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 shareholders. We may be required to make distributions to shareholders at times when it would be more advantageous to reinvest cash in our business or when we do not have funds readily available for

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distribution. Compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits and the value of our shareholders' investment.

        We expect to purchase real properties and lease them back to the sellers of such properties. While we will use commercially reasonable efforts 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 U.S. 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 U.S. 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 deemed to be, or make investments in entities that own or are themselves deemed to be, taxable mortgage pools. Similarly, certain of our securitizations or other borrowings could be considered to result in the creation of a taxable mortgage pool for U.S. federal income tax purposes. As a REIT, provided that we own 100% of the equity interests in a taxable mortgage pool, we generally would not be adversely affected by the characterization of the securitization as a taxable mortgage pool. Certain categories of shareholders, however, such as foreign shareholders eligible for treaty or other benefits, shareholders with net operating losses, and certain tax-exempt shareholders that are subject to unrelated business income tax, could be subject to increased taxes on a portion of their dividend income from us that is attributable to the taxable mortgage pool. In addition, to the extent that our stock is owned by tax-exempt "disqualified organizations," such as certain government-related entities that are not subject to tax on unrelated business income, we will incur a corporate-level tax on a portion of our income from the taxable mortgage pool. In that case, we are authorized to reduce and intend to reduce the amount of our distributions to any disqualified organization whose stock ownership gave rise to the tax by the amount of such tax paid by us that is attributable to such shareholder's ownership. Moreover, we would be precluded from selling equity interests in these securitizations to outside investors, or selling any debt securities issued in connection with these securitizations that might be considered to be equity interests for U.S. federal income tax purposes. These limitations may prevent us from using certain techniques to maximize our returns from securitization transactions.

        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 shareholders or us. We cannot predict how changes in the tax laws might affect our shareholders 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.

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        As a result of our formation transactions described above, the contributors expect to defer approximately $18.7 million of taxable income and taxable gain. The contribution transactions are expected to be tax free, in whole or in part, to us, our operating partnership and the contributors. Our operating partnership will have a carryover tax basis in the assets of the limited liability companies acquired by us by contribution such that our basis will be the same as the basis immediately before our formation transactions, adjusted upward by the gain, if any, recognized by the contributors. As a result of the contributions, we will have substantial built-in taxable income in our assets immediately after our formation transactions.

        We intend to take the position that each of the contributions of the interests in the limited liability companies qualify as a tax-free transaction, in whole or in part, under the Code. To the extent any of these contributions does not so qualify, then the contribution would be treated as a taxable asset sale in which the contributors would be required to recognize taxable gain. If the contribution is treated as a taxable event, our adjusted tax basis in the assets of the limited liability companies is expected to equal the then fair market value of the consideration paid for such assets.

ERISA Risks

        Fiduciaries of employee benefit plans subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA") should take into account their fiduciary responsibilities in connection with a decision to invest in our common stock. If such fiduciaries breach their responsibilities, including (among other things) the responsibility to act prudently, to diversify the plan's assets, and to follow plan documents and investment policies, they may be held liable for plan losses and may be subject to civil or criminal penalties and excise taxes. Similar consequences may result if a plan's investment in shares of our stock constitutes a so-called "prohibited transaction" under ERISA. Plans or arrangements that are not subject to ERISA, such as individual retirement accounts, may be subject to Section 4975 of the Code, which contains similar prohibited transaction rules.

        Although it is intended that our underlying assets and our operating partnership's underlying assets will not constitute "plan assets" of ERISA plans within the meaning of Department of Labor regulations and Section 3(42) of ERISA, there can be no assurance in this regard. If our assets or our operating partnership's assets constitute plan assets under ERISA, certain transactions in which we might normally engage could constitute prohibited transactions under ERISA or the Code. If our assets or our operating partnership's assets are plan assets, our managers may be fiduciaries under ERISA.

        Governmental employee benefit plans and certain church plans are exempt from ERISA, but these plans may be subject to federal, state or local laws that are similar to the ERISA laws and regulations discussed above.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

        We make statements in this prospectus that are forward-looking statements, which are usually identified 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:

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS


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.

        Market data and industry forecasts and projections used in this prospectus have been obtained from CBRE-EA or other independent industry sources. Forecasts, projections and other forward-looking information obtained from CBRE-EA or other sources are subject to similar qualifications and uncertainties as other forward-looking statements in this prospectus.

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USE OF PROCEEDS

        We estimate that the net proceeds we will receive from the sale of shares of our common stock in this offering will be approximately $160.6 million (or approximately $185.6 million if the underwriters exercise their overallotment option in full), in each case after deducting underwriting discounts and commissions of approximately $12.5 million (or approximately $14.4 million if the underwriters exercise their overallotment option in full) and estimated organizational and net offering expenses of approximately $5.6 million payable by us. We will contribute the net proceeds of this offering to our operating partnership in exchange for common units in our operating partnership.

        We expect our operating partnership will use the net proceeds, together with borrowings in the amount of approximately $11.0 million under our secured corporate revolving credit facility, as follows:

        If the underwriters exercise their overallotment option in full, we expect to use the additional $25.0 million of net proceeds for general corporate purposes, including acquisitions of real estate assets.

        The debt repayments described above are estimated based on principal and related accrued interest outstanding as of December 31, 2010. The actual amounts of the debt repayments will depend

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on the principal and related accrued interest outstanding at the time of payment and may be greater than or less than our estimates above.

        Pending application of cash proceeds, we intend to invest the net proceeds temporarily in interest-bearing, short-term investment-grade securities, money-market accounts or checking accounts, which are consistent with our intention to qualify for taxation as a REIT. Such investments may include, for example, government and government agency certificates, certificates of deposit, interest-bearing bank deposits and mortgage loan participations. These initial investments are expected to provide a lower net return than we will seek to achieve from investments in our properties.

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DISTRIBUTION POLICY

        We intend to elect and qualify to be treated as a REIT for U.S. federal income tax purposes commencing with our taxable year ending December 31, 2011. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains. We will not be required to make distributions with respect to income derived from the activities conducted through STAG Industrial TRS, LLC (our "TRS") that is not distributed to us. Our TRS is the entity through which we will provide any third-party management and advisory services, potentially including management services provided to Fund II, Fund III and Fund IV, unless such services can be provided without jeopardizing our REIT status. To the extent our TRS's income is not distributed and is instead reinvested with the operations of our TRS, the value of our equity interest in our TRS will increase. The aggregate value of the securities that we hold in our TRS may not exceed 25% of the total value of our gross assets. In part because of restrictions applicable to us as a REIT, distributions from our TRS to us will not exceed 25% of our gross income with respect to any given taxable year.

        We are a newly formed company that has not commenced operations and, as a result, we have not paid distributions as of the date of this prospectus. To satisfy the requirements to qualify as a REIT and generally not be subject to U.S. federal income tax, we intend to make quarterly distributions of all or substantially all of our taxable income to holders of our common stock out of assets legally available therefor. We intend to pay a pro rata initial distribution with respect to the period commencing on the completion of this offering and ending at the last day of the then-current fiscal quarter, based on a distribution of $0.256 per share for a full quarter. On an annualized basis, this would be $1.024 per share, or an annual distribution rate of approximately 7.9%, based on the initial public offering price. We estimate that this initial annual distribution rate will represent approximately 103.6% of estimated cash available for distribution to our common shareholders for the 12 months ending December 31, 2011. Our intended initial annual distribution rate has been established based on our estimate of cash available for distribution for the 12 months ending December 31, 2011, which we have calculated based on adjustments to our pro forma net income for the 12 months ended December 31, 2010 (after giving effect to the offering and the formation transactions). This estimate was based on our pro forma operating results and does not take into account our growth strategy, nor does it take into account any unanticipated expenditures we may have to make or any debt we may have to incur. In estimating our cash available for distribution for the 12 months ending December 31, 2011, we have made certain assumptions as reflected in the table and footnotes below.

        Our estimate of cash available for distribution does not include the effect of any changes in our working capital. Our estimate also does not reflect the amount of cash estimated to be used for investing activities for acquisition and other activities, other than a reserve for recurring capital expenditures and current contractual tenant improvement or leasing commission costs to be incurred in the 12 months ending December 31, 2011 related to any new leases or lease renewals entered into as of April 3, 2011. It also does not reflect the amount of cash estimated to be used for financing activities, other than scheduled debt principal payments on mortgage and other indebtedness that will be outstanding upon completion of this offering. Any such investing and/or financing activities may have a material effect on our estimate of cash available for distribution. Because we have made the assumptions set forth above in estimating cash available for distribution, we do not intend this estimate to be a projection or forecast of our actual results of operations or our liquidity, and we have estimated cash available for distribution for the sole purpose of determining the amount of our initial annual distribution rate. Our estimate of cash available for distribution should not be considered as an alternative to cash flow from operating activities (computed in accordance with GAAP). In addition, the methodology upon which we made the adjustments described below is not necessarily intended to be a basis for determining future dividends or other distributions.

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        We intend to maintain our initial distribution rate for the 12-month period following completion of this offering unless our actual results of operations, economic conditions or other factors differ materially from the assumptions used in our estimate. Any future distributions we make will be at the discretion of our board of directors and will depend upon our earnings and financial condition, maintenance of REIT qualification and the applicable provisions of the MGCL and such other factors as our board may determine in its sole discretion. We anticipate that our estimated cash available for distribution will exceed the annual distribution requirements applicable to REITs. However, under some circumstances, we may be required to pay distributions in excess of cash available for distribution in order to meet these distribution requirements and we may need to use the proceeds from future equity and debt offerings, sell assets or borrow funds to make distributions. We have no intention to use the net proceeds from this offering to make distributions nor do we intend to make distributions using shares of common stock. We cannot assure you that our distribution policy will not change in the future. Actual distributions may be significantly different from the expected distributions. For more information regarding risk factors that could materially adversely affect our earnings and financial condition, please see "Risk Factors."

        We anticipate that, at least initially, our distributions will exceed our then current and accumulated earnings and profits as determined for U.S. federal income tax purposes due to non-cash expenses, primarily depreciation and amortization charges that we expect to incur. Therefore, a portion of these distributions may represent a return of capital for federal income tax purposes. Distributions in excess of our current and accumulated earnings and profits will not be taxable to a taxable U.S. shareholder under current U.S. federal income tax law to the extent those distributions do not exceed the shareholder's adjusted tax basis in his or her common stock, but rather will reduce the adjusted basis of the common stock. Therefore, the gain (or loss) recognized on the sale of that common stock or upon our liquidation will be increased (or decreased) accordingly. To the extent those distributions exceed a taxable U.S. shareholder's adjusted tax basis in his or her common stock, they generally will be treated as a capital gain realized from the taxable disposition of those shares. We expect that approximately 59% of our estimated initial dividend will represent a return of capital for the tax period ending December 31, 2011. The percentage of our shareholder distributions that exceeds our current and accumulated earnings and profits may vary substantially from year to year. For a more complete discussion of the tax treatment of distributions to holders of our common stock, see "U.S. Federal Income Tax Considerations."

        The following table describes our pro forma net income before non-controlling interest for the year ended December 31, 2010, and the adjustments we have made thereto in order to estimate our initial cash available for distribution to the holders or our common stock for the year ending December 31, 2011 (dollars in thousands, except per share data). The table reflects our condensed consolidated information, including common units in our operating partnership. Each common unit in

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our operating partnership may be redeemed for cash, or at our option, one share of our common stock, beginning 12 months after completion of this offering.

Pro forma net income before non-controlling interest for the 12 months ended December 31, 2010

  $ 998  
 

Add: Pro forma real estate depreciation and amortization

    26,142  
 

Add: Amortization of deferred financing costs

    479  
 

Less: Net effects of straight-line rents and amortization of acquired above/below market lease intangibles

    (617 )
 

Add: Non-cash compensation expense

    695  
 

Less: Gain on interest rate swaps

    14  
       

Pro forma cash flows provided by operations for the 12 months ended December 31, 2010

    27,711  
 

Add: Net increases in contractual rent income and related revenue(1)

    1,653  
 

Less: Net decreases in contractual rental and related revenue due to lease expirations, assuming no renewals(2)

    (3,064 )
       

Estimated cash flows provided by operations for the 12 months ending December 31, 2011

    26,300  
 

Less: Provision for tenant improvements and leasing commissions(3)

    (255 )
 

Less: Estimated annual provision for recurring capital expenditures(4)

    (278 )
       

Estimated cash flows used in investing activities for the 12 months ending December 31, 2011

    (533 )
 

Less: Scheduled debt principal payments(5)

    (4,392 )
       

Estimated cash flows used in financing activities for the 12 months ending December 31, 2011

    (4,392 )
       

Estimated cash available for distribution for the 12 months ending December 31, 2011

  $ 21,375  
       
 

Estimated cash available for distribution to non-controlling interests for the 12 months ending December 31, 2011

    7,702  
 

Estimated cash available for distribution to common shareholders for the 12 months ending December 31, 2011

    13,673  
       

Estimated cash available for distribution for the 12 months ending December 31, 2011

    21,375  
       
 

Estimated annual distribution to non-controlling interest for the 12 months ending December 31, 2011

    7,977  
 

Estimated annual distribution to common shareholders for the 12 months ending December 31, 2011

    14,162  
       

Estimated annual distribution for the 12 months ending December 31, 2011

  $ 22,139  
       
 

Estimated distribution per common unit for the 12 months ending December 31, 2011(6)

  $ 1.024  
 

Estimated distribution per share for the 12 months ending December 31, 2011(6)

  $ 1.024  
 

Payout ratio based on estimated cash available for distribution to our holders of common stock/common units(7)

    103.6 %

(1)
Represents net increases in contractual rent income and related revenue from new leases, renewals, contractual rent increases and lease termination fees, net of abatements, from existing leases that were not in effect for the year ended December 31, 2010 or that will go into effect during the year ending December 31, 2011, based on leases entered into as of April 3, 2011.

(2)
Represents net decreases in contractual rental and related revenue due to lease expirations assuming no new leases or lease renewals for leases that expired during the year ended December 31, 2010 or will expire during the year ending December 31, 2011, other than renewals of month-to-month leases, unless the new lease or lease renewal was executed and delivered on or before April 3, 2011.

(3)
Provision for tenant improvements and leasing commissions includes any current contractual tenant improvement or leasing commission costs to be paid or incurred in the year ending December 31, 2011 related to any new leases or lease renewals entered into as of April 3, 2011. During the 12 months ending December 31, 2011, we expect to have additional tenant improvement and leasing commission expenditures related to new and renewal leasing that occur after December 31, 2010. Any increases in such expenditures would be directly related to such new and renewal leasing in that such expenditures would be incurred when a new lease is signed or an expiring lease is renewed, and are not included herein because we have no contractual obligations at this time for such future leasing.

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(4)
Estimated annual provision for recurring capital expenditures is based on $0.02 per leasable square foot of such expenditures for our consolidated portfolio. This estimate is based on the prior three year average recurring capital expenditures per square foot multiplied by the square footage of our existing portfolio.

(5)
Represents all scheduled debt repayments for the 12 months ending December 31, 2011, including both amortization and other principal repayments, excluding debt that we intend to repay with net proceeds of this offering.

(6)
Estimated distribution per share for the 12 months ending December 31, 2011 is based on 13,750,000 shares outstanding, 200,441 LTIP units outstanding, and 80,809 shares of restricted common stock outstanding following the completion of this offering and estimated distribution per common unit for the 12 months ending December 31, 2011 is based on 7,590,000 common units outstanding following the completion of this offering.

(7)
Because our estimated annual distribution for the 12 months ending December 31, 2011 exceeds our estimated cash available for distribution during this same period by approximately $764,000, if our operating cash flow does not increase, we will be required either to fund a portion of our future distributions from cash balances or borrowings under our secured corporate revolving credit facility or to reduce such distributions.

        As reflected in the payout ratio shown in the table above, our estimated initial annual dividend of $1.024 per share, or $22.1 million in the aggregate, represents approximately 103.6% of our estimated cash available for distribution of $21.4 million for the 12 months ending December 31, 2011. However, the above table does not include any increases or decreases in revenues or costs associated with: (1) any rental and related revenue increases or decreases from changes in occupancy in our real estate portfolio subsequent to December 31, 2010; (2) rental and related revenue from renewals of expiring leases in our real estate portfolio that may be executed subsequent to December 31, 2010 without regard to tenant retention (the management company has achieved an average tenant retention rate of 73.3% since its first property acquisition in 2004); (3) rental and related revenue from acquisitions completed subsequent to the completion of this offering, not considered probable at the time of the offering, from our current acquisition pipeline and other acquisition opportunities; and (4) any offsetting costs associated with any increases in revenue, such as tenant improvements and leasing commissions. As a result, our actual payout ratio could be higher or lower than the payout ratio shown in the table above.

        If the above table was calculated assuming that we renewed all leases expiring during the year ending December 31, 2011 that had not expired and that we had not already renewed as of April 3, 2011 based on our average tenant retention rate of 73.3% and at the then current rental rate, our payout ratio based on estimated cash available for distribution would be 101.2% to our holders of common stock and common units.

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CAPITALIZATION

        The following table sets forth:

        This table should be read in conjunction with "Use of Proceeds," "Selected Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and STAG Predecessor Group's historical audited financial statements and the unaudited pro forma financial information and related notes appearing elsewhere in this prospectus.

 
  As of December 31, 2010  
 
  STAG Predecessor
Group Historical
  Company
Pro Forma
Prior to this
Offering
  Company
Pro Forma(1)(2)(3)
 
 
   
  (unaudited)
  (unaudited)
 
 
  (dollars in thousands)
 
 

Debt

  $ 207,550   $ 407,681   $ 250,947  
 

Owners' equity (deficit)

    (8,336 )   83,499        
 

Shareholders' equity (deficit):

                   
   

Preferred stock, par value $0.01 per share, 10,000,000 shares authorized, no shares issued and outstanding

             
   

Common stock, par value $0.01 per share; 100,000,000 shares authorized, 0, 110 and 13,830,809 shares issued and outstanding on a historical, pro forma prior to this offering and pro forma basis, respectively

            138  
   

Additional paid-in capital

            155,551  
   

Non-controlling interest in our operating partnership

            87,694  
               
   

Total owners' and shareholders' equity (deficit)

    (8,336 )   83,499     243,383  
               

Total capitalization

  $ 199,214   $ 491,180   $ 494,330  
               

(1)
Assumes 13,750,000 shares will be sold in this offering at an initial public offering price of $13.00 per share for net proceeds of approximately $160.6 million after deducting the underwriting discounts and estimated organizational and net offering expenses payable by us of approximately $18.1 million. See "Use of Proceeds."

(2)
Does not include the underwriters' option to purchase up to 2,062,500 additional shares of common stock.

(3)
The common stock outstanding as shown does not include common units in our operating partnership to be issued in connection with our formation transactions. The common stock outstanding as shown includes 80,809 shares of restricted common stock to be granted to certain employees under our equity incentive plan upon the completion of this offering. The common stock outstanding as shown does not include (1) 200,441 LTIP units to be granted to our executive officers and independent directors under our equity incentive plan or (2) 1,319,250 shares of our common stock reserved for future issuance under our equity incentive plan. See "Management—Equity Incentive Plan."

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DILUTION

        Purchasers of our common stock offered in this prospectus will experience an immediate and substantial dilution of the net tangible book value of our common stock from the initial public offering price. As of December 31, 2010, we had a net tangible book value of approximately $(19.1) million, or $(82.84) per share of our common stock held by continuing investors, assuming the exchange of common units into shares of our common stock on a one-for-one basis. After giving effect to the sale of the shares of our common stock offered hereby, including the use of proceeds as described under "Use of Proceeds," and our formation transactions, the deduction of underwriting discounts and commissions, and estimated formation transaction and offering expenses, the pro forma net tangible book value as of December 31, 2010 attributable to common shareholders, excluding the effects of the grant of LTIP units and including the shares of restricted common stock to our executive officers, directors and certain employees, would have been $75.6 million, or $3.54 per share of our common stock. This amount represents an immediate increase in net tangible book value of $86.38 per share to continuing investors and an immediate dilution in pro forma net tangible book value of $9.46 per share from the initial public offering price of $13.00 per share of our common stock to new public investors. See "Risk Factors—Risks Related to this Offering—Differences between the book value of the assets to be acquired in our formation transactions and the price paid for our common stock will result in an immediate and material dilution of the book value of our common stock." The following table illustrates this per share dilution:

Initial public offering price per share

  $ 13.00  

Net tangible book value per share before our formation transactions and this offering(1)

  $ (82.84 )

Increase in pro forma net tangible book value per share attributable to our formation transactions(2)

  $ 71.64  

Increase in pro forma net tangible book value per share attributable to this offering(3)

  $ 14.74  
       

Net increase in pro forma net tangible book value per share attributable to the formation transactions and this offering

  $ 86.38  
       

Pro forma net tangible book value per share after our formation transactions and this offering(4)

  $ 3.54  
       

Dilution in pro forma net tangible book value per share to new investors(5)

  $ 9.46  
       

(1)
Net tangible book value per share of our common stock before our formation transactions and this offering is determined by dividing net tangible book value based on December 31, 2010 net book value of the tangible assets (consisting of total assets less intangible assets, which are comprised of goodwill, deferred financing and leasing costs, acquired above-market leases and acquired in place lease value, net of liabilities to be assumed, excluding acquired below market leases and acquired above-market ground leases) of STAG Predecessor Group by the number of shares of our common stock issued to Fund III in exchange for STAG Predecessor Group, assuming the exchange of the common units issued to Fund III for shares of our common stock on a one-for-one basis.

(2)
Increase in the net tangible book value attributable to our formation transactions represents the difference between (a) the net tangible book value per share before our formation transactions and this offering and (b) the pro forma net tangible book value, excluding net offering proceeds, divided by the number of outstanding shares of common stock after our formation transactions, but before this offering, assuming the exchange of all outstanding common units for shares of our common stock on a one-for-one basis and excluding the restricted shares of common stock and LTIP units that we will issue upon completion of the offering.

(3)
The increase in pro forma net tangible book value per share attributable to this offering is determined by subtracting (a) the sum of (i) the pro forma net tangible book value per share before our formation transactions and this offering (see note (1) above) and (ii) the increase in pro forma net tangible book value per share attributable to our formation transactions (see note (2) above) from (b)(i) the pro forma net tangible book value per share after our formation transactions and this offering (see note (4) below) divided by (ii) the number of outstanding shares of common stock after our formation transactions and this offering, assuming the exchange of all outstanding common units for shares of our common stock on a one-for-one basis and excluding the restricted shares of common stock and LTIP units that we will issue upon completion of this offering.

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(4)
Based on pro forma net tangible book value of approximately $75.6 million divided by the 21,340,000 shares of common stock to be outstanding after our formation transactions and this offering, assuming the exchange of all outstanding common units for shares of our common stock on a one-for-one basis and excluding the restricted shares of common stock and LTIP units that we will issue upon completion of this offering.

(5)
Dilution is determined by subtracting pro forma net tangible book value per share of our common stock after our formation transactions and this offering from the initial public offering price paid by a new investor for a share of our common stock.

        The principal reduction in our pro forma net tangible book value in the table set forth above is not from goodwill but rather from net lease related assets and liabilities which are categorized by GAAP as intangibles. Our lease related intangible assets and liabilities primarily reflect the present value of the difference of in-place leasing rates and prevailing market rates as well as the avoided costs and lost revenue as if the buildings were vacant. If the above table was calculated without excluding lease related intangible assets and liabilities, the pro forma net tangible book value per share after our formation transactions and this offering would be $7.04 and the dilution in pro forma net tangible book value per share to new investors would be $5.96. In addition, the computations in the dilution table above do not reflect the fair value of the properties contributed by the STAG Predecessor Group as these assets are accounted for at carryover book basis.

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SELECTED FINANCIAL INFORMATION

        The following table sets forth selected financial and operating data on (1) a pro forma basis for our company and (2) an historical basis for the STAG Predecessor Group. On a pro forma basis we will own 91 properties consisting of 57 properties owned by STAG Predecessor Group and 34 properties that constitute STAG Contribution Group. STAG Predecessor Group, which includes the entity that is considered our accounting acquirer, is part of our predecessor business and consists of the subsidiaries of Fund III that will be contributed to us by Fund III in our formation transactions. STAG Contribution Group consists of the properties owned by Fund IV and STAG GI that will be contributed to us in the formation transactions.

        In the selected financial and operating data, we have not presented historical financial information for STAG Industrial, Inc. because we have not had any corporate activity since our formation other than the issuance of shares of common stock in connection with the initial capitalization of our company and activity in connection with our formation transactions and this offering, and because we believe that a discussion of the results of STAG Industrial, Inc. would not be meaningful.

        We have not presented historical financial information for the management company as its results are not considered significant, and because we believe that a discussion of these results, (which primarily consist of acquisition and asset management fees from Fund II, Fund III and Fund IV and general and administrative costs) would not be meaningful.

        You should read the following summary financial and operating data in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operation," our unaudited pro forma consolidated financial statements and related notes, the historical combined financial statements and related notes of STAG Predecessor Group, the historical combined statements of revenue and certain expenses and related notes of STAG Contribution Group, and the historical (combined) statements of revenue and certain expenses and related notes of the various properties listed in the Index to the Financial Statements.

        The unaudited pro forma condensed consolidated balance sheet data is presented as if this offering and our formation transactions had occurred on December 31, 2010, and the unaudited pro forma statement of operations and other data for the year ended December 31, 2010 is presented as if this offering and our formation transactions had occurred on January 1, 2010. The pro forma financial information is not necessarily indicative of what our actual financial condition would have been as of December 31, 2010 or what our actual results of operations would have been assuming this offering and our formation transactions had been completed as of January 1, 2010, nor does it purport to represent our future financial position or results of operations.

        The selected historical combined balance sheet information as of December 31, 2010 and 2009, and the historical combined statement of operations data for the years ended December 31, 2010, 2009, and 2008, have been derived from the combined financial statements of the STAG Predecessor Group audited by PricewaterhouseCoopers LLP, independent registered public accountants, whose report thereon is included elsewhere in this prospectus. The summary historical cost balance sheet information as of December 31, 2008 and the historical combined statement of operations data for the year ended December 31, 2007 have been derived from audited combined financial statements of the STAG Predecessor Group, which are not included in this prospectus. The summary historical combined balance sheet information as of December 31, 2007 and 2006 and the historical combined statement of operations for the period ended December 31, 2006 have been derived from the unaudited combined financial statements of the STAG Predecessor Group, which are not included in this prospectus.

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SELECTED FINANCIAL INFORMATION


        The audited historical financial statements of STAG Predecessor Group in this prospectus, and therefore the historical financial and operating data in the table below exclude the operating results and financial condition of the Option Properties, the entities that own the Option Properties and the management company.

 
  Company
Pro Forma
  STAG Predecessor Group
Historical
 
 
  Year Ended
December 31,
  Year Ended December 31,   Period Ended
December 31,
 
 
  2010   2010   2009   2008   2007(1)   2006  
 
  (unaudited)
   
   
   
  (unaudited)
  (unaudited)
 
 
  (dollars in thousands)
 

Statement of Operations Data:

                                     

Revenue

                                     

Rental income

  $ 53,016   $ 24,249   $ 25,658   $ 27,319   $ 11,162   $ 941  

Tenant recoveries and other income

    6,178     3,761     4,508     3,951     1,326      

Other

    1,252                      
                           

Total revenue

    60,446     28,010     30,166     31,270     12,488     941  
                           

Expenses

                                     

Property

    9,361     6,123     8,409     5,813     1,437     11  

General and administrative

    9,094     937     1,078     1,112     648     29  

Depreciation and amortization

    26,142     9,514     10,257     12,108     4,687     336  

Loss on impairment of assets

                3,728          
                           

Total expenses

    44,597     16,574     19,744     22,761     6,772     376  
                           

Other income (expense)

                                     

Interest income

    16     16     66     140     163     4  

Interest expense

    (14,853 )   (14,116 )   (14,328 )   (15,058 )   (7,861 )   (616 )

Gain (loss) on interest rate swaps

    (14 )   (282 )   (1,720 )   (1,275 )        
                           

Total other income (expense)

    (14,851 )   (14,382 )   (15,982 )   (16,193 )   (7,698 )   (612 )
                           

Net income (loss)

  $ 998   $ (2,946 ) $ (5,560 ) $ (7,684 ) $ (1,982 ) $ (47 )
                           

Balance Sheet Data (End of Period):

                                     

Rental property, before accumulated depreciation

    432,510     210,186     210,009     208,948     212,688     31,998  

Rental property, after accumulated depreciation

    413,249     190,925     195,383     200,268     210,294     31,808  

Total assets

    509,041     211,004     220,116     229,731     242,134     35,976  

Notes payable

    239,947     207,550     212,132     216,178     217,360     31,877  

Total liabilities

    265,658     219,340     221,637     223,171     220,548     32,305  

Owners'/shareholders' equity (deficit)

    243,383     (8,336 )   (1,521 )   6,560     21,586     3,671  

Other Data:

                                     

Cash flow provided by operating activities

        $ 9,334   $ 8,365   $ 8,431   $ 3,488   $ 273  

Cash flow used in investing activities

          (2,088 )   (2,040 )   (411 )   (203,669 )   (30,041 )

Cash flow (used in) provided by financing activities

          (8,451 )   (6,921 )   (8,524 )   204,581     35,315  

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SELECTED FINANCIAL INFORMATION


 
  Company
Pro Forma
  STAG Predecessor Group
Historical
 
 
  Year Ended
December 31,
  Year Ended December 31,   Period Ended
December 31,
 
 
  2010   2010   2009   2008   2007(1)   2006  
 
  (dollars in thousands)
 

Net operating income (NOI) (unaudited)(2)

                                     

Rental income

  $ 53,016   $ 24,249   $ 25,658   $ 27,319   $ 11,162   $ 941  

Tenant recoveries

    6,178     3,761     4,508     3,951     1,326      

Other operating income

    1,252                      

Property expenses

    (9,361 )   (6,123 )   (8,409 )   (5,813 )   (1,437 )   (11 )
                           

Net operating income (NOI)

    51,085     21,887     21,757     25,457     11,051     930  
                           

Net income (loss)

   
998
   
(2,946

)
 
(5,560

)
 
(7,684

)
 
(1,982

)
 
(47

)

Interest income

    (16 )   (16 )   (66 )   (140 )   (163 )   (4 )

(Gain) loss on interest rate swaps

    14     282     1,720     1,275          

Depreciation and amortization

    26,142     9,514     10,257     12,108     4,687     336  

Interest expense

    14,853     14,116     14,328     15,058     7,861     616  

General and administrative expenses

    9,094     937     1,078     1,112     648     29  

Loss on impairment

                3,728          
                           

Net operating income (NOI)

    51,085     21,887     21,757     25,457     11,051     930  

EBITDA (unaudited)(2)

                                     

Net income (loss)

    998     (2,946 )   (5,560 )   (7,684 )   (1,982 )   (47 )

Interest expense

    14,853     14,116     14,328     15,058     7,861     616  

Interest income

    (16 )   (16 )   (66 )   (140 )   (163 )   (4 )

Depreciation and amortization

    26,142     9,514     10,257     12,108     4,687     336  
                           

EBITDA

   
41,977
   
20,668
   
18,959
   
19,342
   
10,403
   
901
 
                           

Funds from operations (FFO) (unaudited)(2)

                                     

Net income (loss)

    998     (2,946 )   (5,560 )   (7,684 )   (1,982 )   (47 )

Depreciation and amortization

    26,142     9,514     10,257     12,108     4,687     336  
                           

Funds from operations (FFO)

    27,140     6,568     4,697     4,424     2,705     289  
                           

Adjusted funds from operations (AFFO) (unaudited)(2)

                                     

FFO

    27,140     6,568     4,697     4,424     2,705     289  

Impairment charges

                3,728          

Straight line rental revenue adjustment

    (2,001 )   (641 )   (817 )   (1,187 )   (415 )   (61 )

Deferred financing cost amortization

    479     118     466     522     160     30  

Above/below market lease amortization

    1,384     (34 )   284     (563 )   (7 )   (15 )

(Gain) loss on interest rate swaps

    14     282     1,720     1,275          

Acquisition costs(3)

                         

Amortization of non-cash compensation

    695                      

Recurring capital expenditures

    (293 )   (279 )   (164 )   (118 )        

Lease renewal commissions and tenant improvements

    (156 )   (156 )   (20 )            
                           

Adjusted funds from operations (AFFO)

    27,262     5,858     6,166     8,081     2,443     243  
                           

(1)
We have prepared the results of operations for the year ended December 31, 2007 by combining amounts for 2007 obtained by adding the audited operating results of each of the Antecedent for the period of January 1, 2007 to May 31, 2007 and STAG Predecessor Group for the period of June 1, 2007 to December 31, 2007 (since the difference in basis between Antecedent and STAG Predecessor Group were not materially different and the entities were under common management). Although this combined presentation does not comply with GAAP, we believe that it provides a meaningful method of comparison.

(2)
See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for more detailed explanations of NOI, EBITDA, FFO and AFFO, and reconciliations of NOI, EBITDA, FFO and AFFO to net income computed in accordance with GAAP.

(3)
Represents the costs associated with acquisitions that are expensed under GAAP.

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        The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in forward-looking statements for many reasons, including the risks described in "Risk Factors" and elsewhere in this prospectus. You should read the following discussion with "Cautionary Note Regarding Forward-Looking Statements" and the combined financial statements and related notes included elsewhere in this prospectus.

        The following discussion and analysis is based on, and should be read in conjunction with, the audited financial statements and notes thereto as of December 31, 2010 and 2009 (and for the years ended December 31, 2010, 2009 and 2008) of STAG Predecessor Group. We have not had any corporate activity since our formation, other than the issuance of 110 shares of our common stock in connection with our initial capitalization and activities in preparation for our formation transactions and this offering. Accordingly, we believe that a discussion of our results of operations would not be meaningful, and this discussion and analysis therefore only discusses the combined results of STAG Predecessor Group. For more information regarding these companies, see "Selected Financial Information." All significant intercompany balances and transactions have been eliminated in the financial statements.

Overview

        We are a newly formed, self-administered and self-managed full-service real estate company focused on the acquisition, ownership and management of single-tenant industrial properties throughout the United States. We will continue and grow the single-tenant industrial business conducted by our predecessor business. Mr. Butcher, the Chairman of our board of directors and our Chief Executive Officer and President, together with an affiliate of NED, a real estate development and management company, formed our predecessor business, which commenced active operations in 2004. Since inception, we have deployed approximately $1.4 billion of capital, representing the acquisition of 220 properties totaling approximately 35.3 million rentable square feet in 144 individual transactions.

        Upon completion of our formation transactions and this offering, our portfolio will consist of 91 properties in 26 states with approximately 13.9 million rentable square feet. Our properties consist of 44 warehouse/distribution properties, 26 manufacturing properties and 21 flex/office properties. As of December 31, 2010, our properties were 89.7% leased to 70 tenants, with no single tenant accounting for more than 5.5% of our total annualized rent and no single industry accounting for more than 14.7% of our total annualized rent.

        We intend to continue to 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 that, due to observed market inefficiencies, our focus on these properties will allow us to generate returns for our shareholders that are attractive in light of the associated risks, when compared to other real estate portfolios.

        We intend to elect and qualify to be taxed as a REIT under the Code for the year ending December 31, 2011, and generally will not be subject to U.S. federal taxes on our income to the extent we currently distribute our income to our shareholders and maintain our qualification as a REIT. We are structured as an UPREIT and will own substantially all of our assets and conduct substantially all of our business through our operating partnership.

        As a result of our formation transactions, our future financial condition and results of operations will differ significantly from, and will not be comparable with, the historical financial position and results of operations of STAG Predecessor Group, which will be only a part of our company after the

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consummation of our formation transactions. Please refer to our unaudited pro forma consolidated financial statements and related notes included elsewhere in this prospectus, which present on a pro forma basis the condition and results of our company as if our formation transactions and this offering and the application of the net proceeds thereof had all occurred on December 31, 2010 for the pro forma consolidated balance sheet and on January 1, 2010 for the pro forma consolidated statement of operations. The pro forma financial information is not necessarily indicative of what our actual financial position and results of operations would have been as of the date or for the periods indicated, nor does it propose to represent our future financial position or results of operations.

        Concurrently with this offering, we will complete our formation transactions, pursuant to which we will acquire, through a series of contribution transactions, direct or indirect interests in the management company and certain of the industrial properties owned by Fund III and all of the properties owned by Fund IV and STAG GI.

        As a result of our formation transactions, we will acquire our property portfolio together with the other assets and operations of the management company. In consideration for the contributions, we will issue an aggregate of 7,590,000 common units with an aggregate value of $98.7 million, based on the initial public offering price, to the contributors of the management company, Fund III, Fund IV and STAG GI. We will also repay with the proceeds of this offering approximately $167.7 million of debt and assume approximately $250.9 million in principal amount of mortgage debt secured by our properties, based on December 31, 2010 balances on a pro forma basis.

        Our management has determined that common control does not exist among the entities constituting our predecessor business; accordingly, our formation transactions will be accounted for as a business combination. Any interests in the entities contributed by Fund III are presented in the combined financial statements of STAG Predecessor Group, which includes the entity that is considered our accounting acquirer, at historical cost. The contribution of all interests other than those directly owned by STAG Predecessor Group will be accounted for under the purchase method of accounting and recorded at the estimated fair value of acquired assets and assumed liabilities corresponding to their ownership interests. The fair values of tangible assets acquired are determined on an as-if-vacant basis. The as-if-vacant fair value will be allocated to land, building, tenant improvements and the value of in-place leases based on our own market knowledge and published market data, including current rental rates, expected downtime to lease up vacant space, tenant improvement construction costs, leasing commissions and recent sales on a per square foot basis for comparable properties in our sub-markets. The estimated fair value of acquired in-place leases are the costs we would have incurred to lease the property to the occupancy level of the property at the date of acquisition. Such estimates include the fair value of leasing commissions and legal costs that would be incurred to lease this property to this occupancy level. Additionally, we evaluate the time period over which such occupancy level would be achieved and include an estimate of the net operating costs (primarily real estate taxes, insurance and utilities) incurred during the lease-up period, which generally ranges up to eight to 15 months. Above-market and below-market in-place lease values are recorded as an asset or liability based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be paid pursuant to the in-place leases and our estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The fair value of the debt assumed was determined using current market interest rates for comparable debt financings.

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        Upon consummation of our formation transactions and this offering, our operations will be carried on through our operating partnership, STAG Industrial Operating Partnership, L.P., which we formed on December 21, 2009. Our formation transactions were designed to:

        As a result, we expect to be a fully integrated, self-administered and self-managed real estate company with 26 employees providing substantial in-house expertise in asset management, property management, leasing, tenant improvement construction, acquisitions, repositioning, redevelopment, legal and financing.

Factors That May Influence Future Results of Operations

        We expect to continue our predecessor business' investment strategy of acquiring 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 current cash-on-cash returns. We believe that the systematic aggregation of such properties results in a diversified portfolio that will produce sustainable returns which are attractive in light of the associated risks. Future results of operations may be affected, either positively or negatively, by our ability to execute this strategy.

        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 and space available from lease terminations. As of December 31, 2010, properties owned by our predecessor business were approximately 89.7% 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. Our pro forma rental income for the year ended December 31, 2010 was $53.0 million. Approximately $1.3 million of this rental income was attributable to leases that have terminated or expired where we have not yet re-leased the space. If the space had been vacant for the entire year then the rental income for the year ended December 31, 2010, would have been reduced by $1.3 million in the aggregate. Our predecessor business since inception has experienced insolvency of three tenants. The write-off related to the three tenants was $1.1 million in the aggregate. In the future, we may experience additional tenant insolvencies and may be required to recognize additional write-offs.

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        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.

        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, 2010, in addition to approximately 1,434,217 rentable square feet of currently available space in our properties, leases representing approximately 4.8% of the rentable square footage of such portfolio are scheduled to expire prior to December 31, 2011. The leases scheduled to expire prior to December 31, 2011 represent approximately 6.7% of the total annualized rent for our portfolio.

        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 portofolio. 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.

        Following this offering, we also will incur increased general and administrative expenses, including legal, accounting and other expenses related to corporate governance, public reporting and compliance with various provisions of the Sarbanes-Oxley Act of 2002. We anticipate that our staffing levels will increase from 26 employees to between 27 and 30 employees during the next 12 to 24 months and, as a result, our general and administrative expenses will further increase.

        While our unaudited pro forma rental income is $53,016,000 for the year ended December 31, 2010, our total annualized rent (as defined on page ii of this prospectus) is $50,428,000, as of December 31, 2010. Our total annualized rent excludes $157,300 of contractual revenue from space ground-leased to two tenants that is included in our unaudited pro forma results of operations for the year ended December 31, 2010. In addition, we note that our unaudited pro forma results of operations for the year ended December 31, 2010 included tenant recoveries in the amount of $6,178,000 and property expenses in the amount of $9,361,000. Our unaudited pro forma results of operations for the

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year ended December 31, 2010 included, among other items, approximately $46,800 of net tenant recoveries in excess of property expenses associated with five tenants who terminated their leases during calendar year 2010, which space remained vacant as of December 31, 2010.

Critical Accounting Policies

        Our discussion and analysis of the historical financial condition and results of operations of the STAG Predecessor Group are based upon its combined financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions in certain circumstances that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses in the reporting period. Actual amounts may differ from these estimates and assumptions. We have provided a summary of significant accounting policies in note 2 to the combined financial statements of the STAG Predecessor Group included elsewhere in this prospectus. We have summarized below those accounting policies that require material subjective or complex judgments and that have the most significant impact on financial condition and results of operations. Management evaluates these estimates on an ongoing basis, based upon information currently available and on various assumptions that it believes are reasonable as of the date hereof. In addition, other companies in similar businesses may use different estimation policies and methodologies, which may impact the comparability of our or the STAG Predecessor Group's results of operations and financial condition to those of other companies.

        The following discussion of critical accounting policies uses "we" and "STAG Predecessor Group" interchangeably. Except where specifically stated to the contrary, we expect the critical accounting policies of STAG Industrial, Inc. to be substantially similar to those of the STAG Predecessor Group.

        Rental property is carried at cost. We review our properties on a periodic basis for impairment and provide a provision if impairments are identified. To determine if an impairment may exist, we review our properties and identify those that have had either an event of change or event of circumstances warranting further assessment of recoverability (such as a decrease in occupancy). If further assessment of recoverability is needed, we estimate the future net cash flows expected to result from the use of the property and its eventual disposition, on an individual property basis. If the sum of the expected future net cash flows (undiscounted and without interest charges) is less than the carrying amount of the property on an individual property basis, we will recognize an impairment loss based upon the estimated fair value of such property as compared to its current carrying value.

        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

        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. Repairs and maintenance are charged to expense when incurred. Expenditures for improvements are capitalized.

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        We account for all acquisitions in accordance with the guidance issued by the Financial Accounting Standards Board ("FASB") under FASB Accounting Standard Codification ("ASC"), ASC 805, Business Combinations, (formerly known as Statement of Financial Accounting Standards ("SFAS") No. 141(R)). The FASB issued ASC 805 to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. The statement is to be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We adopted ASC 805 on January 1, 2009 and the adoption did not have a material effect on the combined financial statements.

        Upon acquisition of a property, we allocate the purchase price of the property based upon the fair value of the assets 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. 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 base 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.

        We maintain an allowance for estimated losses that may result from the inability of tenants to make required payments. We regularly assess our ability to collect outstanding payments and in so doing must make estimates of the collectability of tenant accounts receivable. If a tenant fails to make contractual payments beyond any allowance, we may recognize bad debt expense in future periods equal to the amount of unpaid rent and deferred rent.

        Financial instruments include cash and cash equivalents, tenant accounts receivable, interest rate swaps, accounts payable, other accrued expenses and mortgage notes payable. The fair values of the cash and cash equivalents, tenant accounts receivable, accounts payable and other accrued expenses approximate their carrying or contract values.

        We calculate the fair value of mortgage notes payable by discounting the future cash flows using the current rates at which loans would be made to borrowers with similar credit ratings for loans with similar remaining maturities and similar loan-to-value ratios.

        We account for interest rate swaps in accordance with ASC 815, Derivatives and Hedging, (formerly known as SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities). On January 1, 2009, we adopted SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133 (SFAS 161), which changes the disclosure

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requirements for derivative instruments and hedging activities. The adoption of SFAS 161 (now included in ASC 815) did not have a material impact on our results of operations or financial condition.

        We designate interest rate swaps as non-hedge instruments. Accordingly, we recognize the fair value of the interest rate swap as asset or liability on the combined balance sheets with the changes in fair value recognized in the combined statements of operations.

        We adopted the fair value measurement provisions as of January 1, 2008 for our interest rate swaps recorded at fair value. The new guidance establishes a three-tier fair 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. As of December 31, 2010 and 2009, we applied the provisions of this standard to the valuation of our interest rate swaps, which are the only financial instruments measured at fair value on a recurring basis.

        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, 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.

        Certain tenants are obligated to make payments for insurance, real estate taxes and certain other expenses and these costs, which have been assumed by the tenants under the terms of their respective leases, are not reflected in our combined financial statements. To the extent any tenant responsible for these costs under their respective lease defaults on their lease or it is deemed probable that they will fail to pay for such costs, we would record a liability for such obligation. Recovery revenue related to leases whereby the tenant has assumed the cost for insurance, real estate taxes, and certain other expenses is not recognized in the combined financial statements.

        Rental revenue from month-to-month leases or leases with no scheduled rent increases or other adjustments is recognized on a monthly basis when earned.

        Lease termination fees are recognized as termination revenue when the related leases are canceled and we have no continuing obligation to provide services to such former tenants. STAG Predecessor Group has no lease termination revenue for the years presented.

        We recognize gains on sales of real estate pursuant to the provisions of ASC 360-20-15, Accounting for Sales of Real Estate (formerly known as SFAS No. 66). The specific timing of a sale is measured against various criteria in ASC 360-20-15 related to the terms of the transaction and any continuing involvement in the form of management or financial assistance associated with the property. If the sales criteria are not met, we defer gain recognition and accounts for the continued operations of the property by applying the finance, installment or cost recovery methods, as appropriate, until the sales criteria are met.

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Historical Results of Operations of STAG Predecessor Group

        The following table summarizes our historical results of operations for the years ended December 31, 2010, 2009, and 2008.

 
  Year Ended
December 31,
   
   
   
 
 
  %
Change
  Year Ended
December 31,
2008
  %
Change
 
 
  2010   2009  
 
  (dollars in thousands)
 

Revenue

                               

Rental income

  $ 24,249   $ 25,658     (5 )% $ 27,319     (6 )%

Tenant recoveries(1)

    3,761     4,508     (17 )%   3,951     14 %
                       

Total revenue

    28,010     30,166     (7 )%   31,270     (4 )%
                       

Expenses

                               
 

Property

    3,254     5,342     (39 )%   3,009     78 %
 

General and administrative

    337     478     (29 )%   502     (5 )%
 

Real estate taxes and insurance

    2,869     3,067     (6 )%   2,804     9 %
 

Asset management fees

    600     600     0 %   610     (2 )%
 

Depreciation and amortization

    9,514     10,257     (7 )%   12,108     (15 )%
 

Loss on impairment of assets

                3,728     (100 )%
                       

Total expenses

    16,574     19,744     (16 )%   22,761     (13 )%
                       

Other income (expense)

                               
 

Interest income

    16     66     (76 )%   140     (53 )%
 

Interest expense

    (14,116 )   (14,328 )   (1 )%   (15,058 )   (5 )%
 

Gain (loss) on interest rate swaps

    (282 )   (1,720 )   (84 )%   (1,275 )   35 %
                       

Total other income (expense)

    (14,382 )   (15,982 )   (10 )%   (16,193 )   (1 )%
                       

Net loss

  $ (2,946 ) $ (5,560 )   (47 )% $ (7,684 )   (28 )%
                       

(1)
Tenant recoveries related to reimbursement of real estate taxes, insurance, repairs and maintenance, and other operating expenses are recognized as revenue in the period the applicable expenses are incurred.

        Total revenue decreased by $2.2 million, or 7%, to $28.0 million for the year ended December 31, 2010 compared to $30.2 million for the year ended December 31, 2009. A detailed analysis of the increase follows.

        Rent.    Rental revenue decreased by $1.4 million, or 5%, to $24.2 million for the year ended December 31, 2010 compared to $25.7 million for the year ended December 31, 2009. The decrease is primarily attributable to terminated or expiring leases during the year ended December 31, 2010, offset by an increase in new leases and lease escalations.

        Tenant recoveries.    Tenant recoveries decreased by $747,600, or 17%, to $3.8 million for the year ended December 31, 2010, compared to $4.5 million for the year ended December 31, 2009. The decrease is primarily attributable to fewer property expenses being recovered due to lower occupancy resulting from terminated or expiring leases that occurred during the year ended December 31, 2010.

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        Property.    Property expense, which consists of property operation and maintenance expenses and bad debt expense decreased by $2 million, or 39%, to $3.3 million for the year ended December 31, 2010 compared to $5.3 million for the year ended December 31, 2009. The decrease was primarily attributable to $1.9 million in bad debt expense incurred during the year ended December 31, 2009. The bad debt expense resulted primarily from non-payment of rent and reimbursable expenses from three financially troubled tenants.

        General and administrative.    General and administrative expenses decreased $141,000, or 29%, to $337,000 for the year ended December 31, 2010 from $478,000 for the year ended December 31, 2009. The decrease was primarily attributable to a lower amount of legal and accounting fees incurred.

        Real estate taxes and insurance.    Real estate taxes and insurance decreased by $198,000, or 6%, to $2.9 million for the year ended December 31, 2010 compared to $3.1 million for the year ended December 31, 2009. The decrease was primarily attributable to lower insurance fees incurred.

        Asset management fees.    Asset management fees remained unchanged at $600,000 for the years ended December 31, 2010 and 2009, respectively.

        Depreciation and amortization.    Depreciation and amortization expense decreased $743,000, or 7%, to $9.5 million for the year ended December 31, 2010 compared to $10.3 million for the year ended December 31, 2009. The decrease was primarily attributable to accelerated amortization of lease intangibles recorded during the year ended December 31, 2009 in connection with certain lease terminations and early vacancies.

        Interest income.    Interest income decreased 76% to $16,000 for the year ended December 31, 2010 from $66,000 for the year ended December 31, 2009. The decrease was primarily attributable to lower cash balances.

        Interest expense.    Interest expense decreased $212,000, or 1%, to $14.1 million for the year ended December 31, 2010 compared to $14.3 million for the year ended December 31, 2009. The decrease was attributable to a reduction in loan balances due to amortized principal payments.

        Gain (loss) on interest rate swaps.    Our loss on interest rate swaps decreased $1.4 million to $282,000 for the year ended December 31, 2010 compared to $1.7 million for the year ended December 31, 2009. The decrease was primarily attributable to an increase in the forward rate of the underlying LIBOR-based floating rate debt.

        Total revenue decreased by $1.1 million, or 4%, to $30.2 million for the year ended December 31, 2009 compared to $31.3 million for the year ended December 31, 2008. A detailed analysis of the decrease follows.

        Rent.    Rent decreased by $1.7 million, or 6%, to $25.7 million for the year ended December 31, 2009 compared to $27.3 million for the year ended December 31, 2008. The two primary components

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of the decrease were lower occupancy levels and the write-off of above market lease intangible assets. Rental revenue decreased $923,000 due to lower occupancy during 2009. Rental revenue decreased $690,000 due to the write-off of above market lease intangible assets related to a lease termination.

        Tenant recoveries.    Tenant recoveries increased by $557,000, or 14%, to $4.5 million for the year ended December 31, 2009 compared to $4.0 million for the year ended December 31, 2008. The increase in tenant recoveries was primarily attributable to the amount of tenant specific billings related to real estate tax and insurance recoveries compared to the previous period. The increase was partially offset by a decrease in tenant recoveries attributable to lower occupancy rates.

        Property.    Property expense, which consists of property operation and maintenance expenses and bad debt expense, increased by $2.3 million, or 78%, to $5.3 million for the year ended December 31, 2009 compared to $3.0 million for the year ended December 31, 2008. The increase was primarily attributable to an increase of $1.9 million in bad debt expense recorded in 2009. The increase in bad debt expense resulted from nonpayment of rent and reimbursable expenses from five financially troubled tenants. The increase in property expense was also attributable to approximately $250,000 of environmental remediation costs incurred in connection with our Daytona Beach, FL property.

        General and administrative.    General and administrative expenses decreased $24,327, or 5%, to $478,141 for the year ended December 31, 2009 from $502,468 for the year ended December 31, 2008. The decrease was primarily attributable to a reduction in legal fees incurred and a reduction in appraisal fees, partially offset by an increase in accounting fees.

        Real estate taxes and insurance.    Real estate taxes and insurance increased by $263,088, or 9%, to $3.1 million for the year ended December 31, 2009 compared to $2.8 million for the year ended December 31, 2008. The increase was primarily attributable to a payment made for real estate taxes on our St. Louis, MO property on behalf of a non-paying tenant. This increase was partially offset by lower real estate tax assessments at various other properties.

        Asset management fees.    Asset management fees decreased $9,883, or 2%, to $599,869 for the year ended December 31, 2009 from $609,752 for the year ended December 31, 2008.

        Depreciation and amortization.    Depreciation and amortization expense decreased $1.9 million, or 15%, to $10.3 million for the year ended December 31, 2009 compared to $12.1 million for the year ended December 31, 2008. The decrease was primarily attributable to accelerated amortization of lease intangibles related to lease terminations during the year ended December 31, 2008. The decrease was also attributable to a reduced asset base for depreciation purposes due to a 2008 asset impairment.

        Loss on impairment.    There were no impairment charges for the year ended December 31, 2009 compared to $3.7 million for the year ended December 31, 2008. The 2008 impairment charge was attributable to the impairment of our property located in Daytona Beach, Florida. The loss of occupancy, its continued vacancy and lower market rents indicated that the carrying amount of this property had been impaired.

        Interest income.    Interest income decreased $73,632, or 53%, to $66,852 for the year ended December 31, 2009 from $140,484 for the year ended December 31, 2008. The decrease was primarily

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attributable to declining bank deposit balances resulting from an increase in principal payments on debt during the year ended December 31, 2009.

        Interest expense.    Interest expense decreased $729,490, or 5%, to $14.3 million for the year ended December 31, 2009 compared to $15.1 million for the year ended December 31, 2008. The decrease was primarily attributable to a reduction in interest rates and loan balances due to amortized principal payments under amended loan agreements.

        Gain (loss) on interest rate swaps.    Our loss on interest rate swaps increased $445,720, or 35%, to $1.7 million for the year ended December 31, 2009 compared to $1.3 million for the year ended December 31, 2008. The increase was primarily attributable to larger underlying notional amounts under the swap agreements and an increase in the interest rate swap spread.

Liquidity and Capital Resources

        Our short-term liquidity requirements consist primarily of funds to pay for operating expenses and other expenditures directly associated with our properties, including:

In addition, we will require funds for future dividends expected to be paid to our common shareholders and unit holders in our operating partnership.

        We intend to satisfy our short-term liquidity requirements through our existing cash and cash equivalents, cash flow from operating activities, the proceeds of this offering and borrowings available under our secured corporate revolving credit facility.

        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, issuance of equity securities, or, in connection with acquisitions of additional properties, the issuance of common units of the operating partnership property dispositions and joint venture transactions.

        Following completion of this offering, our debt will be comprised of a $135.8 million loan maturing in 2012, a $95.6 million loan maturing in 2018 and an $8.5 million loan maturing in 2027, as well as borrowings in the amount of approximately $11.0 million under the $100 million credit facility described below. We have executed a loan modification, which is being held in escrow and is subject to customary closing conditions, to extend the maturity date of our debt due in 2012 to October 2013.

        We have executed a loan agreement with several financial institutions establishing a $100 million secured corporate revolving credit facility (subject to increase to $200 million under certain circumstances). The credit facility is being held in escrow and will be available upon the closing of this offering and satisfaction of other customary closing conditions. This facility 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 term of the credit facility is three years with a one year extension option, subject to the satisfaction of certain conditions. The credit facility contains customary terms, covenants and other conditions for credit facilities of this type. See "—Secured Corporate Revolving Credit Facility" below.

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        In addition, in connection with our formation transactions, we will be assuming an existing secured acquisition credit facility from STAG GI that currently has $30.4 million of borrowing capacity and a commitment letter for an additional $65 million secured acquisition credit facility. There is no assurance that we will be able to enter into a definitive agreement relating to the additional acquisition facility that we find acceptable, or at all.

        STAG Predecessor Group.    The following table sets forth our principal obligations and commitments, including periodic interest payments related to the indebtedness, of STAG Predecessor Group as of December 31, 2010:

 
  Payments by Period  
 
  Total   Less than
1 year(2)
  1-3 years(3)   3-5 years(4)   More than
5 years
 
 
   
   
  unaudited
   
   
 
 
  (dollars in thousands)
 

Principal payments(1)

  $ 207,550   $ 4,807   $ 202,743   $   $  

Interest payments—fixed rate debt

    8,830     8,151     679          

Interest payments—variable rate debt

    2,584     2,392     192          

Loan guaranty fee

    3,314     3,062     252          
                       

Total

  $ 222,278   $ 18,412   $ 203,866   $   $  
                       

(1)
The terms of the Anglo Master Loan (Fund III) agreement also stipulate that a capital improvement escrow be funded monthly in an amount equal to the difference between the payments required under a 25-year amortizing loan and a 20-year amortizing loan.

(2)
Period from January 1, 2011 to December 31, 2011.

(3)
Period from January 1, 2012 to December 31, 2014.

(4)
Period from January 1, 2015 to December 31, 2016.

        On a Pro Forma Basis Before Paydowns.    The following table sets forth our principal obligations and commitments, including periodic interest payments related to the indebtedness outstanding as of December 31, 2010, on a pro forma basis, other than pro forma paydowns from the proceeds of this offering and pro forma borrowings under our secured revolving credit facility:

 
  Payments by Period  
 
  Total(6)   Less than
1 year(3)
  1-3 years(4)   3-5 years(5)   More than
5 years
 
 
   
   
  unaudited
   
   
 
 
  (dollars in thousands)
 

Principal payments(1)(2)

  $ 399,304   $ 127,127   $ 173,490   $ 3,267   $ 95,420  

Interest payments—fixed rate debt

    75,139     16,725     34,410     12,556     11,448  

Interest payments—variable rate debt

    2,675     2,425     250          

Obligations under ground leases

    5,133     110     340     230     4,453  
                       

Total

  $ 482,251   $ 146,387   $ 208,490   $ 16,053   $ 111,321  
                       

(1)
The terms of the Anglo Master Loan (Fund III) agreement also stipulate that a capital improvement escrow be funded monthly in an amount equal to the difference between the payments required under a 25-year amortizing loan and a 20-year amortizing loan.

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(2)
Management company debt of $3.0 million has no stated maturity date and is not included in this table.

(3)
Period from January 1, 2011 to December 31, 2011.

(4)
Period from January 1, 2012 to December 31, 2014.

(5)
Period from January 1, 2015 to December 31, 2016.

(6)
Does not include $5.4 million subordinate mortgage debt secured by certain of our properties and the option properties.

        On a Pro Forma Basis After Paydowns.    The following table sets forth our principal obligations and commitments, including periodic interest payments related to the indebtedness outstanding as of December 31, 2010, including pro forma paydowns from the proceeds of this offering:

 
  Payments by Period  
 
  Total   Less than
1 year(3)
  1-3 years(4)   3-5 years(5)   More than
5 years
 
 
   
   
  unaudited
   
   
 
 
  (dollars in thousands)
 

Principal payments(1)(2)

  $ 250,947   $ 4,392   $ 147,868   $ 3,267   $ 95,420  

Interest payments—fixed rate debt

  $ 69,228   $ 13,473   $ 31,751   $ 12,556   $ 11,448  

Interest payments—variable rate debt

  $ 1,077   $ 359   $ 718   $   $  

Obligations under ground leases

  $ 5,133   $ 110   $ 340   $ 230   $ 4,453  
                       

Total

  $ 326,385   $ 18,334   $ 180,677   $ 16,053   $ 111,321  
                       

(1)
The terms of the Anglo Master Loan (Fund III) agreement also stipulate that a capital improvement escrow be funded monthly in an amount equal to the difference between the payments required under a 25-year amortizing loan and a 20-year amortizing loan.

(2)
Principal payments in connection with the Anglo Master Loan (Fund III) agreement inherent in this table assume that those payments are pro-rated based on the amount of debt remaining after paydown.

(3)
Period from January 1, 2011 to December 31, 2011.

(4)
Period from January 1, 2012 to December 31, 2014.

(5)
Period from January 1, 2015 to December 31, 2016.

        In addition to the contractual obligations set forth in the table above, we expect to enter into employment agreements with certain of our executive officers. These employment agreements provide for salary, discretionary bonus, incentive compensation and other benefits, all as more fully described under "Management—Employment Agreements."

        As of December 31, 2010, we had, after pro forma paydowns, total outstanding debt of approximately $250.9 million. The weighted average annual interest rate on our consolidated indebtedness would have been 5.55% (after giving effect to our interest rate swaps). On a pro forma basis as of December 31, 2010, after taking into account interest rate swaps that will be collateralized under our secured revolving credit facility, we had no long-term debt exposed to fluctuations in short-term interest rates.

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        The following table sets forth certain information with respect to the indebtedness outstanding as of December 31, 2010 on a pro forma basis:

Loan
  Principal   Fixed/Floating   Rate   Maturity  
 
  (dollars in thousands)
   
   
   
 

Anglo Master Loan (Fund III)(1)

  $ 135,816   LIBOR + 3.00%(2)     5.17 %   1/31/2012 (3)

CIGNA Investment, Inc. (STAG GI)

    60,992   Fixed     6.50 %   2/1/2018  

CIGNA Investment, Inc. (STAG GI)(4)

    34,625   Fixed     5.75 %   2/1/2018  

CIBC, Inc. (STAG GI)

    8,514   Fixed     7.05 %(5)   8/1/2027  

Revolving Credit Facility

    11,000   LIBOR + 3.00%(6)     3.26 %   4/20/2014  
                     
 

Total/Weighted Average

  $ 250,947         5.55 %      
                     

(1)
Secured by certain properties of Fund III. It is anticipated that $22.0 million of the total loan balance of $157.8 million will be paid down with offering proceeds resulting in a pro forma balance of $135.8 million.

(2)
Swapped for a fixed rate of 2.165% plus the 3.00% spread for an effective fixed rate of 5.165%. The swap expires at the stated maturity date of the loan.

(3)
We have executed a loan modification, which is being held in escrow and is subject to customary closing conditions, to extend the maturity date of the Anglo Master Loan (Fund III) to October 2013.

(4)
We currently have $30.4 million of borrowing capacity under this secured acquisition credit facility.

(5)
Interest rate increases to the greater of 9.05% and the treasury rate as of August 1, 2012 plus 2% beginning in August 2012 and continues through maturity.

(6)
We expect to collateralize interest rate swaps under this facility, resulting in an effective fixed rate of 4.67% for the borrowing indicated.

        Certain of our loan agreements contain financial covenants. Our Anglo Master Loan (Fund III) described above contains a loan-to-value requirement with respect to the collateral properties that is measured annually, a minimum debt service coverage ratio that is measured semi-annually, a minimum debt yield requirement, and a minimum guarantor net worth and liquidity requirement. We are currently in compliance with the financial covenants in our loan agreements. We have executed a loan modification, which is being held in escrow and is subject to customary closing conditions, to extend the maturity of our Anglo Master Loan (Fund III) due in 2012 to October 2013.

        We have executed a loan agreement with several financial institutions establishing a $100 million secured corporate revolving credit facility (subject to increase to $200 million under certain circumstances). The credit facility is being held in escrow and will be available upon the closing of this offering and satisfaction of other customary closing conditions. This facility will be used for property acquisitions, working capital requirements and other general corporate purposes. The credit facility contains customary terms, covenants and other conditions for credit facilities of this type. In addition, in connection with our formation transactions, we will be assuming an existing secured acquisition credit facility from STAG GI that currently has $30.4 million of borrowing capacity and a commitment letter for an additional $65 million secured acquisition credit facility. There is no assurance that we will be able to enter into a definitive agreement relating to the additional acquisition facility that we find acceptable, or at all.

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Secured Corporate Revolving Credit Facility

        In connection with this offering and the formation transactions, we have executed a loan agreement for a secured corporate revolving credit facility of up to $100 million with Bank of America, N.A. as administrative agent and Merrill Lynch, Pierce, Fenner & Smith Incorporated as lead arranger. The credit facility is being held in escrow and will be available upon the closing of this offering and satisfaction of other customary closing conditions. The credit facility is secured, among other things, by mortgages granted by various indirect subsidiaries of our operating partnership. It is anticipated that, at the initial closing of the credit facility, there will be approximately 19 properties mortgaged as security for the credit facility, with a total property value of approximately $117 million. The properties, which will initially be available to be mortgaged under the credit facility, will first need to be released from another secured facility after repayment of such other facility. Contemporaneously with the closing of this offering, we expect to borrow approximately $11.0 million under the credit facility to pay down indebtedness we are assuming pursuant to our formation transactions. Proceeds from the credit facility after this offering will be used for property acquisitions, working capital requirements and other general corporate purposes. The credit facility has a stated three-year term to maturity with an option to extend the maturity date for one additional year. Additionally, the credit facility has an accordian feature that allows us to request an increase in the total commitments of up to $100 million to $200 million.

        Availability under the credit facility shall be the lesser of (i) the aggregate commitment, (ii) prior to satisfaction of an appraisal condition with respect to the collateral pool, 40% of the value of the borrowing base properties, and following satisfaction of an appraisal condition with respect to the collateral pool, 55% of the value of the borrowing base properties, or (iii) prior to satisfaction of an appraisal condition with respect to the collateral pool, the amount that would result in a debt service coverage ratio for the borrowing base properties of not less than 2.0x based on a 30-year amortization period, and following satisfaction of an appraisal condition with respect to the collateral pool, the amount that would result in a debt service coverage ratio for the borrowing base properties of not less than 1.6x based on a 30-year amortization period, in each case calculated using an interest rate equal to the greatest of (i) the yield on a 10-year United States Treasury Note at such time as determined by the agent plus 3.00%, (ii) 7.50% and (iii) the weighted average interest rate(s) then in effect under the credit agreement. It is anticipated that approximately $36.0 million of the credit facility will be available upon completion of this offering and our formation transactions, including after our borrowing of approximately $11.0 million under the credit facility described above.

        Interest and Fees:    The applicable interest rate under the credit facility will generally depend on elections we make. We expect that generally we will be able to elect to have amounts outstanding under the credit facility bear interest at rates determined by reference to the British Bankers Association LIBOR Rate ("LIBOR") plus a margin, or spread, determined in accordance with a leverage-based pricing grid. If interest rates are determined by reference to LIBOR, then (i) if our ratio of consolidated debt to total asset value is less than or equal to 40%, the spread over LIBOR will be 2.75%, (ii) if our ratio of consolidated debt to total asset value is greater than 40%, but less than or equal to 50%, the spread over LIBOR will be 3.00%, (iii) if our ratio of consolidated debt to total asset value is greater than 50%, but less than or equal to 55%, the spread over LIBOR will be 3.25%, (iv) if our ratio of consolidated debt to total asset value is greater than 55%, the spread over LIBOR will be 3.75%. If interest rates are determined by reference to LIBOR, we will generally be able to elect among one-, two-, three-, six- or 12-month LIBOR interest periods, and the spreads described above will apply with respect to the LIBOR rate for the applicable period. Under certain

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circumstances, interest rates under the credit facility may be based on the "Base Rate" as defined under the credit facility plus applicable spreads, which would result in higher effective interest rates than the LIBOR-based rates described above. In addition, if there are borrowings under letters of credit or "swing line loans," certain other rates and spreads will apply. We will also pay certain customary fees and expense reimbursements.

        Financial Covenants:    The credit facility includes the following financial covenants: (i) maximum leverage ratio of total liabilities to total asset value not exceeding 55% (provided that such percentage may be increased above 55% but not greater than 60% for 2 consecutive quarters not more than once during the term of the credit facility), (ii) the ratio of consolidated EBITDA (as defined in the agreement) to consolidated fixed charges shall not be less than 2.0 to 1.0, provided that following satisfaction of the appraisal condition for the collateral pool such ratio shall be reduced to 1.75 to 1.0, (iii) maximum recourse indebtedness of no more than 15% of total assets, and (iv) tangible net worth of not less than 85% of tangible net worth at the closing of this offering plus 75% of future net equity proceeds along with other covenants which generally limit or restrict investments in unconsolidated joint ventures, mezzanine loans and mortgage receivables, unimproved land, and other investments which are not core to our operating partnership investment focus. In addition, the credit facility prohibits the direct and indirect subsidiaries of our operating partnership which own properties that are mortgaged to secure the credit facility from incurring indebtedness or guaranteeing debt, other than the credit facility itself.

        Events of Default:    The credit facility contains 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 credit facility, cross-defaults to other material debt and bankruptcy or other insolvency events.

Off Balance Sheet Arrangements

        As of December 31, 2010, neither STAG Predecessor Group nor, on a pro forma basis, our company, had any off-balance sheet arrangements.

Interest Rate Risk

        ASC 815, Derivatives and Hedging (formerly known as SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities), 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 income, which is a component of shareholders equity. The ineffective portion of a derivative's change in fair value is immediately recognized in earnings. Because our predecessor business did not previously prepare financial statements in accordance with GAAP, we did not designate the hedges at the time of inception and therefore, our existing investment in interest rate swaps does not qualify as an effective hedge, and as such, changes in the swaps' fair market value are being recorded in earnings.

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        As of December 31, 2010, on a pro forma basis, we had approximately $135.8 million of mortgage debt subject to interest rate swaps with such interest rate swaps having an approximate $(2.8) million net fair value. As these interest rate swaps were entered into prior to us reporting on a GAAP basis, they are designated as non-hedge instruments. As of December 31, 2010, Fund IV had hedged $76.0 million of its variable rate mortgage debt through floating to fixed rate swaps. Such debt will be repaid out of the proceeds of this offering. The related interest rate swaps, one with a notional amount of $45.0 million with terms to receive LIBOR and pay 1.98% and one with a notional amount of $31.0 million with terms to receive LIBOR and pay 1.67%, both with expiration dates of August 1, 2011, will be collateralized under our secured corporate revolving credit facility. Management intends to utilize such interest rate swaps to hedge borrowings under our secured corporate revolving credit facility. As of December 31, 2010, these interest rate swaps have a fair value of approximately $(0.8) million.

Cash Flows of the STAG Predecessor Group

        The following table summarizes the historical cash flows of STAG Predecessor Group for the years ended December 31, 2010, 2009, and 2008:

 
  Year Ended
December 31,
 
 
  2010   2009   2008  
 
  (dollars in thousands)
 

Cash provided by operating activities

  $ 9,334   $ 8,365   $ 8,431  

Cash used in investing activities

    (2,088 )   (2,040 )   (411 )

Cash (used in) provided by financing activities

    (8,451 )   (6,921 )   (8,524 )

        Net cash provided by operating activities.    Net cash provided by operating activities increased $969,000 to $9.3 million for the year ended December 31, 2010 compared to $8.4 million for the year ended December 31, 2009. The increase in cash provided by operating activities was primarily attributable to the net changes in current assets and liabilities, most notably an increase due to related parties attributable to the unpaid guarantee fees.

        Net cash used in investing activities.    Net cash used in investing activities increased $48,000 to $(2.1) million for the year ended December 31, 2010 compared to $(2.0) million for the year ended December 31, 2009. The change is attributable to a increase in building improvements made during the year ended December 31, 2010.

        Net cash used in financing activities.    Net cash used in financing activities increased $1.5 million to $(8.5) million for the year ended December 31, 2010 compared to $(6.9) million for the year ended December 31, 2009. The increase was primarily attributable to an increase in principal payments on mortgage loans, partially offset by a decrease in deferred financing fees.

        Net cash provided by operating activities.    Net cash provided by operating activities decreased $66,000 to $8.4 million for the year ended December 31, 2009 compared to $8.4 million for the year

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ended December 31, 2008. The decrease in 2009 cash provided by operating activities was primarily attributable to net changes in current assets and liabilities.

        Net cash used in investing activities.    Net cash used in investing activities increased $1.6 million to $(2.0) million for the year ended December 31, 2009 compared to $(0.4) million for the year ended December 31, 2008. The change is attributable to an increase in building improvements made during 2008.

        Net cash used in financing activities.    Net cash used in financing activities decreased $1.6 million to $(6.9) million for the year ended December 31, 2009 compared to $(8.5) million for the year ended December 31, 2008. The decrease in cash used in financing activities was primarily attributable to a decrease in distributions of $4.8 million and an increase in proceeds from other notes payable of $4.4 million. The decrease was offset by an increase in deferred financing costs of $0.4 million and an increase in principal payments on mortgage loans of $7.2 million.

Non-GAAP Financial Measures

        In this prospectus, we disclose and discuss NOI, EBITDA, FFO and AFFO, all of which meet the definition of "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 prospectus a statement of why management believes that presentation of these measures provides useful information to investors.

        None of NOI, EBITDA, FFO or AFFO should 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, NOI, EBITDA, FFO and AFFO 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 financial statements.

Net Operating Income (NOI)

        We consider NOI to be an appropriate supplemental measure to net income because it helps both investors and management to understand the core operations of our properties. We define NOI as operating revenue (including rental income, tenant recoveries, and other operating revenue) less property-level operating expenses (which includes third-party property management fees and general and administrative expenses at the property level). NOI excludes depreciation and amortization, impairments, gain/loss on sale of real estate, interest expense and other non-operating items.

 
  Company
Pro Forma
Year Ended
December 31, 2010
 
 
  (unaudited)
 
 
  (dollars in thousands)
 

Rental income

  $ 53,016  

Tenant recoveries

    6,178  

Other operating income

    1,252  
       
 

Total revenue

    60,446  
       

Property expenses

    (9,361 )
       

Net operating income

  $ 51,085  
       

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        The following is a reconciliation from reported net income, the most direct comparable financial measure calculated and presented in accordance with GAAP, to NOI:

 
  Company
Pro Forma
Year Ended
December 31, 2010
 
 
  (unaudited)
 
 
  (dollars in thousands)
 

Net income before non-controlling interest

  $ 998  

Interest income

    (16 )

Loss on interest rate swaps

    14  

Depreciation and amortization

    26,142  

Interest expense

    14,853  

General and administrative expenses

    9,094  
       

Net operating income

  $ 51,085  
       

Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA)

        We believe that EBITDA is helpful to investors as a supplemental measure of the operating performance of a real estate company because it is a direct measure of the actual operating results of our industrial properties. We also use this measure in ratios to compare our performance to that of our industry peers. The following table sets forth a reconciliation of our pro forma EBITDA for the period presented to net income:

 
  Company
Pro Forma
Year Ended
December 31, 2010
 
 
  (unaudited)
 
 
  (dollars in thousands)
 

Net income before non-controlling interest

  $ 998  

Interest expense

    14,853  

Interest income

    (16 )

Depreciation and amortization

    26,142  
       

EBITDA

  $ 41,977  
       

Funds from Operations (FFO)

        We calculate FFO before non-controlling interest 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, real estate related depreciation and amortization (excluding amortization of deferred financing costs) 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

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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 to 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 pro forma FFO before non-controlling interest for the period presented to net income, the nearest GAAP equivalent:

 
  Company
Pro Forma
Year Ended
December 31, 2010
 
 
  (unaudited)
 
 
  (dollars in thousands)
 

Net income before non-controlling interest

  $ 998  

Depreciation and amortization

    26,142  
       

Funds from operations (FFO)

  $ 27,140  
       

Adjusted Funds from Operations (AFFO)

        In addition to presenting FFO in accordance with the NAREIT definition, we also disclose AFFO, which is FFO after a specific and defined supplemental adjustment to:

        Although our FFO as adjusted clearly differs from NAREIT's definition of FFO, we believe it provides a meaningful supplemental measure of our operating performance because we believe that, by excluding items noted above, management and investors are presented with an indicator of our operating performance that more closely achieves the objectives of the real estate industry in presenting FFO.

        As with FFO, our reported AFFO may not be comparable to other REITs' AFFO, should not be used as a measure of our liquidity, and is not indicative of our funds available for our cash needs, including our ability to pay dividends.

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        The following table sets forth a reconciliation of our pro forma AFFO for the periods presented to FFO:

 
  Company
Pro Forma
Year Ended
December 31, 2010
 
 
  (unaudited)
 
 
  (dollars in thousands)
 

Funds from operations (FFO)

  $ 27,140  

Impairment charges

     

Straight line rental revenue adjustment

    (2,001 )

Deferred financing cost amortization

    479  

Above/below market lease amortization

    1,384  

Loss on interest rate swaps

    14  

Acquisition costs

     

Recurring capital expenditures

    (293 )

Amortization of non-cash compensation

    695  

Lease renewal commissions and tenant improvements

    (156 )
       

Adjusted funds from operations (AFFO)

  $ 27,262  
       

Inflation

        The majority of our leases are either triple net or provide for tenant reimbursement for costs related to real estate taxes and operating expenses In addition, most of the leases provide 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.

Quantitative and Qualitative Disclosure 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. We use derivative financial instruments to manage, or hedge, interest rate risks related to our borrowings, primarily through interest rate swaps.

        An interest rate swap is a contractual agreement entered into by two counterparties under which each agrees to make periodic payments to the other for an agreed period of time based on a notional amount of principal. Under the most common form of interest rate swap, known from our perspective as a floating-to-fixed interest rate swap, a series of floating, or variable, rate payments on a notional amount of principal is exchanged for a series of fixed interest rate payments on such notional amount.

        As of December 31, 2010, we had total pro forma outstanding debt of approximately $250.9 million, and we expect that we will incur additional indebtedness in the future. Interest we pay reduces our cash available for distributions. Approximately $146.8 million of our pro forma outstanding debt as of December 31, 2010 bears interest at a variable rate, of which approximately $135.8 million has been hedged through a floating-to-fixed interest rate swap whereby we swapped the variable rate interest on the hedged debt for a fixed rate of interest and of which approximately $11.0 million is expected to be hedged through as a result of collateralizing floating-to-fixed interest rate swaps under

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our secured corporate revolving credit facility. The variable rate component of our pro forma mortgage debt is LIBOR based. If LIBOR were to increase by 100 basis points, we do not expect there would be any significant effect on the interest expense on our pro forma variable rate debt.

        As of December 31, 2010, on a pro forma basis, approximately $239.9 million of our consolidated borrowings bore interest at fixed rates, as shown in the table below.

 
  2011   2012   2013   2014   2015   2016+   Total   Fair Value  
 
  (dollars in thousands)
 

Secured Mortgage Notes Payable

                                                 

Fixed Rate

  $ 1,178   $ 1,395   $ 1,390   $ 1,481   $ 1,582   $ 97,105   $ 104,131   $ 104,131  

Average Interest Rate

    6.43 %   6.40 %   6.47 %   6.48 %   6.49 %   6.45     6.45 %    

Variable Rate(1)

  $ 3,215   $ 3,289   $ 129,313   $ 11,000           $ 146,816   $ 146,816  
                                   

Total Debt

  $ 4,392   $ 4,684   $ 130,703   $ 12,481   $ 1,582   $ 97,105   $ 250,947   $ 250,947  
                                   

(1)
The contractual annual interest rate on this indebtedness is LIBOR plus 3.00%, of which approximately $135.8 million has been swapped for a fixed rate of 2.165% plus the 3.00% spread, for an effective fixed interest rate of 5.165%, and of which approximately $11.0 million is expected to be swapped for an effective fixed rate of 4.67% through August 1, 2011, as a result of collateralizing interest rate swaps under our secured corporate revolving credit facility.

        As of December 31, 2010, Fund IV had hedged $76.0 million of its variable rate mortgage debt through floating to fixed rate swaps. Such debt will be repaid out of the proceeds of this offering. The related interest rate swaps, one with a notional amount of $45.0 million with terms to receive LIBOR and pay 1.98% and one with a notional amount of $31.0 million with terms to receive LIBOR and pay 1.67%, both with expiration dates of August 1, 2011, will be collateralized under our secured corporate revolving credit facility. Management intends to utilize such interest rate swaps to hedge future borrowings under our secured corporate revolving credit facility.

        As of December 31, 2010, on a pro forma basis, we were party to the interest rate swaps shown in the table below.

 
  Notional
Amount
  Fair Value at
December 31, 2010
  Fixed Pay
Rate
  Expiration
Date
 

Interest Rate Swaps

                         

Anglo Master Loan Swap

  $ 135,815   $ (2,820 )   2.165 %   January 31, 2012  

RBS/Citizens/Bank of America

  $ 45,000   $ (509 )   1.98 %   August 1, 2011  

RBS/Citizens/Bank of America

  $ 31,000   $ (286 )   1.67 %   August 1, 2011  
                   

Total/Weighted Average

  $ 211,815   $ (3,615 )   2.05 %      
                     

        The market values of the swaps depend 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 values of the swaps increase. We will treat the swaps as non-hedge instruments and, accordingly, recognize the fair value of the swaps as assets or liabilities on our balance sheet, with the change in fair value recognized in our statements of operations.

        No assurance can be given that our predecessor business's hedging activities, or any future hedging activities by us, 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.

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MARKET OVERVIEW

        Unless otherwise indicated, all information contained in this Market Overview section is derived from market materials prepared by CBRE-EA as of February 11, 2011, and the projections and beliefs of CBRE-EA stated herein are as of that date.

        In this Market Overview section, we use technical phrases such as availability rate, capitalization rate, effective rent, net absorption and rent growth percentage. We define these phrases where they are first used. The phrases are industry terms, and we consider their definition and use in the disclosure below to be helpful and appropriate because of their prevalence in industry publications and frequent usage among those individuals and organizations that consider investing in real estate companies.

Market Opportunity

        The single-tenant industrial sector offers investors the opportunity to receive stable income from leases to a variety of firms across a broad spectrum of industrial sub-property types. As compared to multi-tenant and other classes of commercial property, single-tenant industrial buildings are more likely to provide their owners with less volatile cash flows after expenses, as single-tenant industrial buildings generally do not require the same degree of tenant and capital improvement expenditures on an ongoing basis.

        In recent years, the single-tenant industrial market has attracted a diverse set of buyers and sellers, from private funds, REITs and individual investors, similar to the multi-tenant industrial market. Despite a low level of investment sales recorded in 2009 and early 2010, over the past decade, single-tenant properties have consistently accounted for close to 20% of the total industrial investment sales volume tracked by Real Capital Analytics. As liquidity is gradually restored to the broader commercial real estate market, opportunities for conventional sale and sale-leaseback opportunities from owner-users are likely to increase.

        Due to the recent capital market dislocation on commercial real estate values, the single-tenant industrial market currently offers a favorable investment opportunity, as recent transactions indicate average sales prices have declined and capitalization rates have increased in recent quarters compared with prior years, according to Real Capital Analytics. Capitalization rates represent the ratio of a property's annual net operating income to its purchase price. Recent sales transactions indicate that opportunities exist to acquire select single-tenant industrial assets at a favorable cost basis compared with pre-distortion periods.

        Within the context of the broader real estate market, industrial property has exhibited a number of favorable investment characteristics. Based on the National Council of Real Estate Investment Fiduciaries ("NCREIF") Property Index, industrial property has generally outperformed commercial property as a whole on a total return basis over the long term by generating high and stable cash-flow yields. Furthermore, Class B industrial space and secondary markets offer a higher degree of stability in occupancies and rents, relative to Class A space and primary markets. At the same time, Class B property prices are regularly discounted significantly compared to Class A property prices, providing a compelling investment opportunity for Class B property.

        While current industrial market occupancy and rent conditions remain challenging, statistics compiled by CBRE-EA indicate market rents and occupancies are likely to improve in 2011.

Size of the Industrial Sector

        As of December 31, 2010, the overall U.S. industrial market consisted of approximately 257,000 buildings with 13.8 billion square feet of space. In terms of net rentable area ("NRA"), warehouse/distribution facilities constituted the majority (66.6%) of this space, followed by manufacturing (20.6%),

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and flex/office (which includes research and development) (10.5%). Unclassified buildings (industrial facilities such as sewage treatment centers and airport hangars that are not amenable to private real estate investment) represent the remaining 2.3%.

 
  NRA
(square feet in millions)
  Number of Properties  

Warehouse/Distribution

    9,179     171,227  

Manufacturing

    2,846     41,596  

Flex/Office

    1,443     36,496  

Other

    323     8,049  
           

All Industrial

    13,791     257,368  
           

Source: CBRE-EA Industrial Peer Select, Spring 2011.

        According to data compiled by CoStar Group, Inc. for the 20 largest industrial markets in the United States, single-tenant industrial buildings are estimated to account for approximately 49% of total industrial NRA and 51% of total industrial properties.

Performance of the Industrial Sector

        According to the NCREIF Property Index, historically, the industrial sector has been among the top performing real estate sectors, exceeding the total returns for the NCREIF Property Index in aggregate by approximately one-third of a percentage point on a per-year average over the 20-year period ending with the fourth quarter of 2010. As with all other property types, total returns declined in the industrial sector between the fourth quarters of 2008 and 2009, as asset values retrenched sharply due to increased risk aversion, a lack of liquidity in the commercial real estate sector and overall economic conditions. Since that time period, asset values have begun to recover sharply, allowing the industrial sector to gain momentum by posting positive total returns during each quarter of 2010. Over the long run, the industrial market has a delivered risk-adjusted performance that exceeds the performance of the commercial real estate market as a whole.

        Among the factors that help differentiate the performance of the industrial sector are its comparatively low cost of operation and high, stable cash flow yields. Over the past 20 years, average cash flow yield for the industrial sector has outperformed comparable yields for the NCREIF Property Index in aggregate. In addition, the industrial sector exhibited some of the most stable cash flow yields (measured in terms of standard deviation) of all property types over a 25-year period. Distinct factors that account for the industrial sector's overall cash flow stability relative to other property types include the nature of industrial leases, which tend to be longer term than many other types of commercial property leases and often require tenants to pay utilities, taxes, insurance and maintenance costs, and the low capital and tenant improvement expenditure requirements compared with other property types.

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Comparative Cash Flow Yields

Average Cash Flow Yield (%)(1)

CHART


(1)
Cash flow yields represent income returns reported in the NCREIF Property Index and the NCREIF Industrial Property Sub-Index, as described in more detail below.

Source: NCREIF, CBRE-EA calculations 2010Q4

        The industrial sector can be distinguished from other property sectors by more favorable volatility characteristics. A greater component of the return in the industrial sector comes from the income component of return rather than appreciation, where the majority of volatility is derived. CBRE-EA believes that the prospect for return in commercial real estate due to capital appreciation over the next few years will be somewhat limited by a stagnation in rent growth until 2012 and in occupancy, which will limit the near-term prospects for capital appreciation through growth in net operating income. Therefore, CBRE-EA believes that current investors are likely to be rewarded by targeting assets that provide a high cash flow component of the total return, such as those found in the industrial sector.

        The foregoing analysis is based on information contained in the NCREIF Property Index. NCREIF is an institutional real estate investment industry association that collects, processes, validates and disseminates investment and operating information reporting on the risk/return behavior of real estate assets owned or controlled by tax-exempt institutional investors. The NCREIF Property Index is a composite total rate of return measure of investment performance of a large pool of individual commercial real estate properties acquired in the private market for investment purposes only. All

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properties in the NCREIF Property Index have been acquired, at least in part, on behalf of tax-exempt institutional investors, mostly pension funds. The NCREIF Property Index generally measures the following three types of returns on a quarterly basis for each property that is included in the index:

        The NCREIF Property Index is based on data that is submitted by NCREIF's members that are investment managers or institutional investors. The market value that is utilized in the index for each property is the market value for that property as reported by the applicable NCREIF member using standard commercial real estate appraisal methodology, and each property must be independently appraised a minimum of once every three years. In determining the NCREIF Property Index, each property's return is weighted by its market value. Within the NCREIF Property Index, the properties are categorized into four property types, Apartment, Industrial, Office and Retail, and data is available for each separate property type. The industrial sector returns described above were obtained from the NCREIF Industrial Property Sub-Index. The principal components of the NCREIF Industrial Property Sub-Index include single and multi-tenant warehouse, manufacturing and flex/office (which includes research and development) properties.

Industrial Property Fundamentals

        Below is a brief summary of availability, demand and supply conditions in the overall U.S. industrial market. Because the information presented is for primary and secondary markets in the United States, and not for secondary markets exclusively, the information may not reflect prevailing conditions in the markets on which we focus.

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Availability and Construction Trends

Completions and Net Absorption (millions of square feet)   Availability Rate

CHART


Source: CBRE-EA Industrial Outlook, Spring 2011.

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Annual Warehouse/Distribution Rent Growth

Warehouse/Distribution Rent Growth (%)(1)

CHART


(1)
The warehouse/distribution rent growth percentage reflects the annual (year-over-year) percentage change in the CBRE-EA Warehouse Rent Index. This index measures gross effective warehouse rent (contract rent in dollars per square foot, net of free rent concessions) based on signed warehouse leases. The index is computed at the market level, then aggregated across the 57 primary industrial markets that CBRE-EA covers to form a summary national index.

Source: CBRE-EA Industrial Outlook, Spring 2011.

Historical Occupancy and Valuation Characteristics of Class B Warehouse/Distribution Market

        Over the recent past, the Class B warehouse/distribution market has demonstrated a relatively higher degree of stability in occupancy and rent levels compared with the market for newer, larger Class A space. Despite these stronger market fundamentals, Class B space is relatively consistently priced at a discount to Class A space.

        The Class A warehouse/distribution market was approximated by buildings that were constructed after 1997 and have a net rentable area of 350,000 square feet or greater. The Class B warehouse/distribution market was approximated by buildings that were constructed in 1997 or earlier or had a net rentable area of less than 350,000 square feet. The Class B market has witnessed lower average availability rates over the past 10 years and a much smaller increase in availability during the recent downturn.

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Availability Rates for Warehouse/Distribution Centers by Class

Warehouse/Distribution Availability Rate (%)

CHART


Source: CBRE-EA Industrial Peer Select, Spring 2011.

        Meanwhile, average capitalization rates on Class B warehouse/distribution space have been higher than those in the Class A segment. CBRE-EA compiled average quarterly capitalization rates on closed transactions from Real Capital Analytics, using the same definitions as above for the Class A and Class B warehouse/distribution markets. Since 2003, the average capitalization rate for Class B warehouse/distribution properties has been approximately three-tenths of a percentage point higher than the average capitalization rate for Class A warehouse/distribution properties, which means that, on average, the purchase price for Class B warehouse/distribution properties generating a certain amount of annual net operating income has been lower than the purchase price for Class A warehouse/distribution properties generating the same amount of annual net operating income.

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Class A and Class B Warehouse/Distribution Capitalization Rate Trends

Average Capitalization Rate %

GRAPHIC


Sources: Real Capital Analytics, CBRE-EA calculations

Performance and Liquidity of Secondary Industrial Markets

        Despite their relatively small size, secondary industrial markets have, on average, a remarkable amount of fundamental stability in rents and occupancies. Large industrial and distribution markets may offer a substantial amount of depth, which allows owners more options to re-tenant vacant space, a feature that has been attractive to a variety of investors. However, this favorable attribute of larger markets appears to be offset by a higher degree of volatility in occupancy and rent due to a higher tenant dependence on external trade and distribution flows, which tend to be more volatile than locally-generated demand, and a higher propensity for speculative construction in larger markets.

        To examine the fundamental performance of primary and secondary industrial markets, CBRE-EA examined historical annual changes in economic rent, which represents the product of the average market net asking rents and the occupancy rates. CBRE-EA created a "Primary" market aggregate economic rent index for the 29 largest industrial metropolitan areas, which each have a minimum market total of 193.3 million in net rentable square footage. This was compared to a "Secondary" market aggregate economic rent index, consisting of the remaining 29 of the 58 metropolitan markets (23.3 million to 193.2 million square feet). Over the period from 1990 through 2010, annual economic rent growth averaged a 1.13% increase per year in the Secondary markets, more than one-half of a percentage point higher than in the Primary markets. In addition, the standard deviation of Secondary market economic rent growth, a measure of volatility, was approximately 17% lower than the comparable measure for Primary markets. Over time, industrial properties in the Secondary markets, on average, have generated superior economic rent growth with slightly lower volatility than their Primary market counterparts.

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Industrial Economic Rent Trends in Primary and Secondary Markets

Average Economic Rent (dollars per square foot)(1)

CHART


(1)
Economic rent represents the product of the average market net asking rents and the occupancy rates.

Source: CBRE-EA Industrial Outlook and calculations, Spring 2011

        Recent historical sales trends indicate that Secondary markets also offer a comparable amount of sales transaction liquidity to Primary markets. Active sales markets are important to investors who may wish to attract multiple bids when they attempt to exit or recapitalize their investments at different points in time.

        Indeed, during the recent active period of industrial property transactions, Primary and Secondary markets on average witnessed similar activity levels. CBRE-EA examined industrial property sales measured in square footage provided at the metropolitan area level by Real Capital Analytics over the 2004-2008 period. Over this period, the proportion of market inventory square footage that sold averaged close to 3.3% per annum, a figure that was nearly identical for Primary and Secondary market aggregations. Although the proportion of inventory that sold varied across metropolitan area markets, there appeared to be no distinction in transaction liquidity between Primary and Secondary markets as a whole.

Current Market for Investment Opportunities

        CBRE-EA believes that recent financial crisis and the dislocation in the capital markets has created a favorable environment for new investment, as industrial property prices are being discounted significantly on an absolute and relative basis.

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        According to NCREIF, appraisal-based industrial property asset values fell by more than 30.5% by the first quarter of 2010 from their late 2007 peak, before stabilizing with a 4.7% increase between the first and fourth quarters of 2010, reflecting a growing demand from investors for well-leased, high quality properties. The Moody's/REAL Commercial Property Price Index (CPPI), which measures price changes based on an index of repeat sales transactions, indicated that industrial property values declined by more than 37.4% from the fourth quarter of 2007 to the third quarter of 2009. During recent quarters, the downward trend in industrial property values has stabilized, according to the CPPI, as the most recent third quarter 2010 industrial index remained close to year-earlier levels. Nonetheless, the overall decline in capital values over the past two years, combined with previously aggressive lending practices, has resulted in an expanding pool of distressed industrial property, where owners are unable to fully re-finance their mortgage loan balances at maturity. Real Capital Analytics identified 1,334 industrial deals representing an estimated value of $9.5 billion that were listed "troubled" as of the fourth quarter of 2010, implying that the current owner faced financial difficulty or bankruptcy, or a loan refinance/default issue.

        Corresponding with the change in property values, average capitalization rates on all commercial property transactions, including those in the industrial sector, also rose sharply between late 2007 and late 2009, before falling over the course of 2010. The average capitalization rate on closed single-tenant industrial property sales during the third quarter of 2010, however, was more than one and one-half percentage points higher than the 2007 average lows, according to data compiled by Real Capital Analytics. Furthermore, the spreads between capitalization rates for single-tenant industrial properties and the 10-year U.S. Treasury rate were at some of their widest levels since early 2003.


Capitalization Rate Trends

Capitalization Rate and Yield (%)(1)

CHART


(1)
Capitalization rates represent the ratio of a property's annual net operating income to its purchase price.

Source: Real Capital Analytics and CBRE-EA calculations, 2010Q3

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        While a further decline in real estate rents and operating fundamentals over the short-term is likely to continue to keep capitalization rates at high levels, CBRE-EA believes that most of the capitalization rate re-setting has already taken place, in part due to a constrained debt market, and a much higher than usual risk premium that investors associate with investing in commercial real estate relative to other asset classes. CBRE-EA also believes that opportunities for acquiring high quality assets through foreclosure or directly from distressed sponsors will increase over the next several years, as a growing pipeline of maturing mortgage loans fail to fully refinance under an environment of stringent lender mortgage refinance guidelines and reduced industrial property values. CBRE-EA estimates that some $5.6 billion in industrial loans will mature through 2012 in the CMBS sector alone. As a result, the current market environment will continue to provide an opportunity for well-capitalized investors to acquire assets with strong cash flows at significantly discounted prices compared to levels witnessed just two years ago.

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BUSINESS

Overview

        STAG Industrial, Inc. is a newly formed, self-administered and self-managed full-service real estate company focused on the acquisition, ownership and management of single-tenant industrial properties throughout the United States. We will continue and grow the single-tenant industrial business conducted by our predecessor business. Mr. Butcher, the Chairman of our board of directors and our Chief Executive Officer and President, together with an affiliate of NED, a real estate development and management company, formed our predecessor business, which commenced active operations in 2004. Since inception, we have deployed approximately $1.4 billion of capital, representing the acquisition of 220 properties totaling approximately 35.3 million rentable square feet in 144 individual transactions.

        Upon completion of our formation transactions and this offering, our portfolio will consist of 91 properties in 26 states with approximately 13.9 million rentable square feet. Our 91 properties are 44 warehouse/distribution properties, 26 manufacturing properties and 21 flex/office properties. As of December 31, 2010, our properties were 89.7% leased to 70 tenants, with no single tenant accounting for more than 5.5% of our total annualized rent and no single industry accounting for more than 14.7% of our total annualized rent.

        We intend to continue to 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, our focus on owning and expanding a portfolio of such properties will, when compared to other real estate portfolios, generate returns for our shareholders that are attractive in light of the risks associated with these returns because:

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

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

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        We believe the market inefficiently prices our target properties because investors 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. Through the evaluation of more than 3,800 qualified transactions (that is, transactions that pass our initial screening) since 2004, we believe we have developed a unique approach to melding real estate and tenant-credit underwriting analyses, which allows us to identify assets that we believe are undervalued by the market. The significant volume of acquisition opportunities presented to us each year provides us with market intelligence that further supports our underwriting and due diligence processes.

        We were incorporated on July 21, 2010 under the laws of the State of Maryland. We intend to elect and qualify to be taxed as a REIT under the Code for the year ending December 31, 2011, and generally will not be subject to U.S. federal taxes on our income to the extent we currently distribute our income to our shareholders and maintain our qualification as a REIT. We are structured as an UPREIT and will own substantially all of our assets and conduct substantially all of our business through our operating partnership.

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:

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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 shareholders, and to enhance shareholder value over time by achieving sustainable long-term growth in 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.

        We believe secondary markets tend to have less occupancy and rental rate volatility and less buyer competition compared with primary markets. As of December 31, 2010, our properties had an average annualized rent of $4.05 per rentable square foot of leased space.

        The performance of single-tenant properties tends to be binary in nature—either a tenant is paying rent or the owner is paying the entire carrying cost of the property. We believe that this binary nature frequently causes the market to inefficiently price our target assets. In an attempt to avoid this binary

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risk and paying the entire carrying cost of a vacant property, potential investors in single-tenant properties may turn to the application of rigid decision rules that would induce buyers of single-tenant properties to avoid acquisitions where the tenant does not have an investment grade rating or where the remaining primary lease term is less than an arbitrary number such as 12 years. By adhering to such inflexible decision rules, other investors may miss attractive opportunities that we can identify and acquire.

        We further believe that our method of using and applying the results of our due diligence and our ability to understand and underwrite risk allows us to exploit this market inefficiency. Lastly, we believe that the systematic aggregation of individual properties will result in a diversified portfolio that mitigates the risk of any single property and will produce sustainable returns which are attractive in light of the associated risks. A diversified portfolio with low correlated risk—essentially a "virtual industrial park"—facilitates debt financing and mitigates individual property ownership risk.

        We will not employ a "top-down" market selection approach to identifying acquisitions but rather will evaluate potential acquisitions within the context of the market in which they are located. Each submarket has its own unique market characteristics that determine the timing and amount of cash flow that can reasonably be expected to be derived from the ownership of real estate asset in that market.

        External Growth through Acquisitions:    Our target acquisitions will be, predominantly in secondary markets across the United States, in the $5 million to $25 million range. Where appropriate potential returns present themselves, we also may acquire assets in primary markets. Other institutional industrial real estate buyers tend to concentrate their efforts on larger deal sizes in select primary markets. Therefore, the competition for our target assets is primarily local investors who are not likely to have ready access to debt or equity capital. In addition, our UPREIT structure may enable us to acquire industrial properties on a non-cash basis in a tax efficient manner. We will also continue to develop our large existing network of relationships with real estate and financial intermediaries. These individuals and companies give us access to significant deal flow—both those broadly marketed and those exposed through only limited marketing. These properties will be acquired primarily from third party owners of existing leased buildings and secondarily from owner-occupiers through sale-leaseback transactions. The market for third-party investment sales transactions is less competitive than the sale-leaseback market and therefore presents an opportunity to earn returns that we believe are attractive in light of the associated risks. We will continue to focus our acquisition activities on our core property types: warehouse/distribution facilities, manufacturing facilities, and flex/office facilities (light assembly and research and development). Because we believe flex/office properties typically have higher