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TABLE OF CONTENTS
INDEX TO FINANCIAL STATEMENTS

Table of Contents

Filed Pursuant to Rule 424(b)(4)
Registration Nos. 333-177131 and 333-177530

PROSPECTUS

2,400,000 Shares

LOGO

9.0% Series A Cumulative Redeemable Preferred Stock
(Liquidation Preference $25.00 per share)



           We are offering 2,400,000 shares of our 9.0% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share ("Series A Preferred Stock").

           We will pay cumulative dividends on the Series A Preferred Stock from the date of original issue at a rate of 9.0% per annum of the $25.00 liquidation preference per share (equivalent to the fixed annual rate of $2.25 per share). Dividends on the Series A Preferred Stock will be payable quarterly in arrears on or about the last day of March, June, September and December of each year, beginning on December 30, 2011. The Series A Preferred Stock will rank senior to our common stock with respect to dividend rights and rights upon our liquidation, dissolution or winding-up.

           Generally, we are not permitted to redeem the Series A Preferred Stock prior to November 2, 2016, except in limited circumstances relating to our ability to qualify as a real estate investment trust ("REIT"). On or after November 2, 2016, we may, at our option, redeem the Series A Preferred Stock, in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus all accrued and unpaid dividends on such Series A Preferred Stock up to but excluding the redemption date. In addition, upon the occurrence of a change of control, as a result of which neither our common stock, par value $0.01 per share, nor the common securities of the acquiring or surviving entity (or American Depositary Receipts ("ADRs") representing such securities) is listed on the New York Stock Exchange ("NYSE"), the NYSE Amex (the "NYSE Amex"), or the NASDAQ Stock Market ("NASDAQ"), or listed or quoted on a successor exchange or quotation system, we may, at our option, redeem the Series A Preferred Stock, in whole or in part within 120 days after the first date on which such change of control occurred, by paying $25.00 per share, plus any accrued and unpaid dividends to, but not including, the date of redemption. If we exercise any of our redemption rights relating to the Series A Preferred Stock, the holders of Series A Preferred Stock will not have the conversion right described below. The Series A Preferred Stock has no stated maturity and is not subject to mandatory redemption or any sinking fund. Holders of shares of the Series A Preferred Stock will generally have no voting rights except for limited voting rights if we fail to pay dividends for six or more quarterly periods (whether or not consecutive) and in certain other circumstances.

           Upon the occurrence of a change of control, as a result of which neither our common stock nor the common securities of the acquiring or surviving entity (or ADRs representing such securities) is listed on the NYSE, the NYSE Amex or NASDAQ or listed or quoted on a successor exchange or quotation system, each holder of Series A Preferred Stock will have the right (unless, prior to the Change of Control Conversion Date (as defined herein), we have provided or provide notice of our election to redeem the Series A Preferred Stock) to convert some or all of the Series A Preferred Stock held by it into a number of shares of our common stock per share of Series A Preferred Stock to be converted equal to the lesser of:

    the quotient obtained by dividing (i) the sum of the $25.00 liquidation preference plus the amount of any accrued and unpaid dividends to, but not including, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a record date for a Series A Preferred Stock dividend payment and prior to the corresponding Series A Preferred Stock dividend payment date, in which case no additional amount for such accrued and unpaid dividend will be included in this sum) by (ii) the Common Stock Price (as defined herein); and

    7.8691, or the Share Cap, subject to certain adjustments;

subject, in each case, to provisions for the receipt of alternative consideration as described in this prospectus.

           We are organized and conduct our operations in a manner that will allow us to qualify as a REIT. To assist us in complying with certain federal income tax requirements applicable to REITs, our charter contains certain restrictions relating to the ownership and transfer of our capital stock, including an ownership limit of 9.8% of the outstanding shares of our Series A Preferred Stock.

           No market currently exists for our Series A Preferred Stock. We intend to apply to list our Series A Preferred Stock on the New York Stock Exchange under the symbol "STAG Pr A." If the application is approved, trading of the Series A Preferred Stock is expected to commence within 30 days after the initial delivery of the Series A Preferred Stock.

           The Series A Preferred Stock has not been rated and is subject to the risks associated with non-rated securities. Investing in our Series A Preferred Stock involves risks that are described in the "Risk Factors" section beginning on page 23 of this prospectus.

 
  Per share   Total  

Public offering price

  $ 25.00   $ 60,000,000  

Underwriting discount

  $ 0.7875   $ 1,890,000  

Proceeds, before expenses, to us

  $ 24.2125   $ 58,110,000  

           We have granted the underwriters an option to purchase up to 360,000 additional shares of our Series A Preferred Stock 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.

           Delivery of the Series A Preferred Stock will be made by the underwriters through the facilities of The Depository Trust Company on or about November 2, 2011.



BofA Merrill Lynch   Raymond James   UBS Investment Bank   Wells Fargo Securities



RBC Capital Markets



Keefe, Bruyette & Woods



The date of this prospectus is October 26, 2011.


Table of Contents


TABLE OF CONTENTS

 
  Page

PROSPECTUS SUMMARY

  1

RISK FACTORS

  23

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

  49

USE OF PROCEEDS

  51

PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS

  52

CAPITALIZATION

  53

SELECTED FINANCIAL INFORMATION

  54

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

  58

BUSINESS

  83

MANAGEMENT

  104

EXECUTIVE COMPENSATION

  113

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  122

STRUCTURE AND FORMATION OF OUR COMPANY

  127

POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

  130

PRINCIPAL SHAREHOLDERS

  134

DESCRIPTION OF SERIES A PREFERRED STOCK

  137

DESCRIPTION OF STOCK

  152

CERTAIN PROVISIONS OF MARYLAND LAW AND OF OUR CHARTER AND BYLAWS

  157

OUR OPERATING PARTNERSHIP AND THE PARTNERSHIP AGREEMENT

  165

U.S. FEDERAL INCOME TAX CONSIDERATIONS

  169

ERISA CONSIDERATIONS

  196

UNDERWRITING (CONFLICTS OF INTEREST)

  200

LEGAL MATTERS

  206

EXPERTS

  206

WHERE YOU CAN FIND MORE INFORMATION

  207

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.



        In this prospectus:

    "our company," "the company," "we," "us" and "our" refer to STAG Industrial, Inc., a Maryland corporation, and its consolidated subsidiaries, except where it is clear from the context that the term only means the issuer of the shares of Series A Preferred Stock in this offering, STAG Industrial, Inc.;

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    "annualized rent" means the monthly base cash rent for the applicable property or properties as of June 30, 2011 (which is different from rent calculated in accordance with U.S. generally accepted accounting principles ("GAAP") for purposes of our financial statements), multiplied by 12, and "total annualized rent" means the annualized rent for all of our properties;

    "Fund II" means the private equity real estate fund, STAG Investments II, LLC, that continues to operate as a private, fully invested fund;

    "Fund III" means the private equity real estate fund, STAG Investments III, LLC, that contributed certain of its properties to us in our formation transactions;

    "Fund IV" means the private equity real estate fund, STAG Investments IV, LLC, that contributed its properties to us in our formation transactions;

    "STAG GI" means the joint venture between our affiliate, STAG GI, LLC and STAG GI Investco, LLC ("GI Partners") called STAG GI Investments, LLC that contributed its properties to us in our formation transactions;

    "investment grade credit tenant" means a tenant that has a published senior unsecured credit rating of BBB-/Baa3 or above from one or both of Standard & Poor's or Moody's Investors Service;

    "net operating income" or "NOI" means operating revenue (including rental revenue, tenant recoveries and other operating revenue) less property-level operating expenses (including management fees and general and administrative expenses), and excludes depreciation and amortization, impairments, gain/loss on sale of real estate, interest expense and other non-operating items;

    "on a fully diluted basis" assumes the exchange of all outstanding common units of limited partnership interest in our operating partnership and all outstanding LTIP units in our operating partnership, for shares of our common stock on a one-for-one basis;

    "on a pro forma basis" means (1) with respect to our financial position, after taking into account acquisitions, including two probable acquisitions subsequent to June 30, 2011 as if they occurred on June 30, 2011 and (2) with respect to our results of operations after taking into account the formation transactions, initial public offering, and acquisitions, including two probable acquisitions, subsequent to April 19, 2011, as if they occurred on January 1, 2010, on the same basis as is reflected in the unaudited pro forma condensed consolidated financial statements included elsewhere in this prospectus;

    "our operating partnership" means STAG Industrial Operating Partnership, L.P., a Delaware limited partnership, and the subsidiary through which we conduct substantially all of our business;

    "our predecessor business" means the entities and properties that were contributed to our operating partnership pursuant to our formation transactions described elsewhere in this prospectus;

    "the management company" means STAG Capital Partners, LLC and STAG Capital Partners III, LLC, which are part of our predecessor business and were contributed to us in our formation transactions;

    "secondary markets" means the 29 largest industrial metropolitan areas other than the primary markets, which each have net rentable square footage ranging between approximately 25 million and 200 million square feet;

    "sub-investment grade tenant" means a tenant that is not an investment grade credit tenant; and

    "primary markets" means the 29 largest industrial metropolitan areas, which each have approximately 200 million or more in net rentable square footage.

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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 Series A Preferred Stock.

        Unless indicated otherwise, the information included in this prospectus assumes no exercise of the underwriters' option to purchase up to 360,000 additional shares of our Series A Preferred 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 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 were formed in 2010 to 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. We completed our initial public offering on April 20, 2011.

        As of June 30, 2011, our portfolio consisted of 93 properties in 26 states with approximately 14.2 million rentable square feet. As of June 30, 2011, our properties were 91.0% leased to 74 tenants, with no single tenant accounting for more than 5.3% of our total annualized rent and no single industry accounting for more than 14.1% 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 we believe:

    Industrial properties generally require less capital expenditure than other commercial property types, and single-tenant properties generally require less expenditure for leasing, operating and capital costs per property than multi-tenant properties.

    Investment yields on single tenant individual property acquisitions are typically greater than investment yields on portfolio acquisitions. With appropriate asset diversification, individual asset risk can be mitigated across an aggregated portfolio.

    Class B industrial properties tend to have higher current returns and lower volatility than Class A industrial properties.

    Secondary markets generally have less occupancy and rental rate volatility than primary markets.

    We typically do not face significant competition from other institutional industrial real estate buyers for acquisitions, as these buyers tend to focus on larger properties in select primary markets. Our typical competitors are local investors who often do not have ready access to debt or equity capital.

    Tenants in our target properties tend to manage their properties directly, which allows us to grow our portfolio without substantially increasing the size of our asset management infrastructure.

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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:

    investment grade credit tenants on shorter term leases (less than four to six years);

    sub-investment grade credit tenants on longer term leases (greater than four to six years); or

    a variable combination of the above.

        We believe the market inefficiently prices our target properties because investors typically either underestimate the probability of tenant retention beyond the primary lease term or overestimate the expected cost of tenant default. Further, we believe our 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 own substantially all of our assets and conduct substantially all of our business through our operating partnership. As of June 30, 2011, we owned a 67.1% limited partnership interest in 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").

Recent Developments

    Our Initial Public Offering

        We completed our initial public offering and formation transactions on April 20, 2011, pursuant to which we sold 13,750,000 shares of our common stock at an offering price of $13.00 per share. On May 13, 2011, we sold an additional 2,062,500 shares of our common stock pursuant to the exercise of the underwriters' overallotment option in full. We received gross proceeds from our initial public offering (including the underwriters' exercise of their overallotment option in full) of approximately $205.6 million before underwriting discounts and commissions and other offering costs. See "Structure and Formation of Our Company" for more information about our initial public offering and formation transactions.

    Acquisition Activity

        Since June 30, 2011, we have acquired an additional seven properties totaling approximately 2.0 million square feet for approximately $65.5 million and have entered into purchase and sale agreements to acquire an additional two properties totaling approximately 0.3 million square feet for approximately $12.2 million (collectively, the "acquisition properties"). We can make no assurance that we will acquire either of the two acquisition properties that are currently subject to a purchase and sale agreement or, if we do, what the terms or timing of any such acquisition will be.

    Leasing Activity

        Since the completion of our initial public offering, we have renewed ten leases totaling approximately 900,579 square feet. Further, we have leased 318,819 square feet to six new tenants and

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we have leased 20,834 square feet of vacant space to an existing tenant. Of the 661,911 square feet of leases originally scheduled to expire in 2011, we have renewed 582,731 square feet or 88% as of September 30, 2011. As of September 30, 2011, our properties were approximately 92.2% leased.

    Financing Activity

        On July 8, 2011, we closed a $65.0 million acquisition loan facility (the "CIGNA-3 facility") with Connecticut General Life Insurance Company ("CIGNA"). The CIGNA-3 facility has an interest rate of 5.88% and will mature in September 2019. This is the third acquisition loan facility that we have closed with CIGNA since July 2010.

        On July 18, 2011, September 26, 2011 and October 12, 2011, we borrowed $13.5 million, $4.0 million and $6.0 million, respectively, under our secured corporate revolving credit facility ("credit facility") for use in acquisitions and other corporate purposes. See "Business—Description of Certain Debt" for more information about our credit facility.

    Corporate Activity

        On July 15, 2011, we issued 3,281 shares of common stock, with a fair value of approximately $41,000 for director's compensation. On October 14, 2011, we issued 4,970 shares of common stock, with a fair value of approximately $51,875 for director's compensation. These awards were fully vested at grant. All of our independent directors elected to receive shares of common stock in lieu of cash for their fees for serving as members of the board and/or chairmen of various board committees for the quarter ended June 30, 2011 and for the remaining quarters of 2011.

        On September 20, 2011, the compensation committee of our board of directors approved the 2011 Outperformance Program under our 2011 Equity Incentive Plan to provide certain key employees of our company with incentives to contribute to our growth and financial success. See "Executive Compensation—2011 Outperformance Program."

    Distributions

        On May 2, 2011, we declared a dividend to common shareholders of record and our operating partnership declared a distribution to holders of record of common units of limited partnership interests in our operating partnership ("common units"), in each case as of June 30, 2011, of $0.2057 per common share and common unit. This dividend was based on a quarterly dividend rate of $0.26 per common share pro-rated for the portion of the second quarter that we had been in existence as a public company. The dividend was paid on July 15, 2011.

        On September 15, 2011, we declared a dividend to common shareholders of record and our operating partnership declared a distribution to holders of record of common units, in each case as of September 30, 2011, of $0.26 per common share and common unit. The dividend was paid on October 14, 2011.

Competitive Strengths

    Proven Growth Profile:  Since 2004, we have deployed approximately $1.5 billion of capital, representing the acquisition of 229 properties totaling approximately 37.7 million rentable square feet in 152 individual transactions. Our pursuit of many small acquisitions helps produce a smooth and predictable growth rate.

    Established Intermediary Relationships:  Approximately 32% of the acquisitions we sourced, based on total purchase price, have been in "limited marketing" transactions where there has been no formal sales process. We believe we have developed a reputation as a credible and active buyer of single-tenant industrial real estate, which provides us access to significant acquisition opportunities that may not be available to our competitors.

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    Scalable Platform:  We own properties in a variety of different markets within 26 states. We believe we have developed the experience and systems infrastructure necessary to acquire, own and manage properties throughout the United States, which allows us to efficiently grow our portfolio in those markets and others. In addition, our focus on net lease properties ensures that our current staff of 27 employees (with incremental additions) will be sufficient to support our growth. As of June 30, 2011, we were pursuing approximately $450 million of specific additional potential acquisitions that we have identified as warranting investment consideration after an initial review.

    Expertise in Underwriting Single-Tenant Properties:  Our expertise and market knowledge have been derived from our significant acquisition activity, our relationships with a national network of commercial real estate brokers and our presence in numerous markets. Through our experience, we developed a proprietary underwriting process. We integrate real estate and corporate credit analysis to project the future cash flows of potential acquisitions. Central to our underwriting is assessing the probability of tenant retention during the lease term and beyond. We then analyze the costs associated with a vacancy event by estimating market rent, potential downtime and re-tenanting costs for the subject property.

    Stable and Predictable Cash Flows:  Our portfolio is diversified by tenant, industry and geography, which tends to reduce risk and earnings volatility. As of June 30, 2011, no single tenant accounted for more than 5.3% of our total annualized rent; no single industry represented more than 14.1% of our total annualized rent; and no single state was the site for properties generating more than 16.4% of our total annualized rent. Cash flow consistency across our portfolio is enhanced by our weighted average in-place remaining lease term of approximately 5.6 years as of June 30, 2011, low costs for tenant improvements and leasing commissions and low capital expenditures (which, for the properties we owned in 2011, averaged 1% and 2% of pro forma net operating income during 2011, respectively). It is further enhanced by our expected high tenant retention rate. From the date of our first acquisition (August 11, 2006) through June 30, 2011, we have achieved an average tenant retention rate of 85.7% with respect to our properties. For the period January 1, 2011 through September 30, 2011, we have achieved an 88% tenant retention rate for those tenants whose leases were scheduled to expire in 2011.

    Conservative Balance Sheet and Liquidity Position:  As of June 30, 2011, we had a pro forma debt-to-annualized earnings before interest, tax, depreciation and amortization ("EBITDA") ratio of approximately 6.9x based on our pro forma results of operations for the six months ended June 30, 2011 before giving effect to this offering. EBITDA includes $1.3 million of gain on interest rate swap and $2.2 million of non-cash amortization of above/below market leases for the six months ended June 30, 2011 on a pro forma basis. If we exclude these items, the pro forma debt-to-annualized EBITDA ratio is 6.7x before giving effect to this offering. We expect our debt-to-EBITDA ratio to decrease as a result of this offering. We target a debt-to-EBITDA ratio of between 5.0x and 7.0x, although we may exceed these levels from time to time as we complete acquisitions. We believe that this leverage and liquidity profile, as well as the transparency and flexibility of our balance sheet and our UPREIT structure, facilitates future refinancings of our indebtedness and positions us to capitalize on external growth opportunities in the near term.

    Experienced Management Team:  The five senior members of our management team have significant real estate industry experience, including: Mr. Butcher with 28 years of experience; Mr. Sullivan with 29 years of experience; Mr. Mecke with 26 years of experience; Ms. Arnone with 23 years of experience; and Mr. King with 15 years of experience. All five have had an active role with our predecessor business and four have previous public REIT or public real estate company experience.

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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.

    Investment Strategy

        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 June 30, 2011, our properties had an average annualized rent of $4.12 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 results in a diversified portfolio that mitigates the risk of any single property and produces 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.

    Growth Strategy

        External Growth through Acquisitions:    Our target acquisitions are 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 approximately 13.8 billion square feet of industrial space in the United States fall within our target investment criteria and that there is an ample supply of suitable acquisition opportunities.

        Following completion of our formation transactions, Fund III retained ownership of three properties with approximately 890,891 rentable square feet that are vacant and that are acquisition opportunities for us (the "Option Properties"). Upon approval of our independent directors, we have the right to acquire any of the Option Properties individually for a period of up to three months after notification that the property has stabilized, defined as 85% or greater occupancy pursuant to leases at least two years in remaining duration. See "Certain Relationships and Related Transactions—Services Agreements and Option Properties."

        Internal Growth through Asset Management:    Our asset management team seeks to maximize cash flows by maintaining high retention rates and leasing vacant space, managing operating expenses and

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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. From the date of our first acquisition (August 11, 2006) through June 30, 2011, we have achieved an average tenant retention rate of 85.7% with respect to our properties. As of June 30, 2011, our portfolio had approximately 1.3 million square feet, or 9.0% of our total rentable square feet, available for lease.

    Underwriting Strategy

        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:

    Real Estate.  We evaluate the physical real estate within the context of the market (and submarket) in which it is located and the prospect for re-tenanting the property if it becomes vacant.

    Deal Parameters.  We evaluate the tenant and landlord obligations contained within the existing or proposed lease and other transaction documents.

    Tenant Credit.  We apply fundamental credit analysis to evaluate the tenant's credit profile by focusing on the tenant's current and historical financial status, general business plan, operating risks, capital sources and earnings expectations. Using this data and publicly available bond default studies of comparable tenant credits, we estimate the probability of future rent loss due to tenant default.

    Tenant Retention.  We assess the tenant's use of its property and the degree to which the property is central to the tenant's ongoing operations, the tenant's potential cost to relocate, the supply/demand dynamic in the relevant submarket and the availability of suitable alternative properties. We believe tenant retention tends to be greater for properties that are critical to the tenants' businesses.

    Financing Strategy

        We intend to preserve a flexible capital structure and to utilize primarily debt secured by pools of properties. In connection with our formation transactions, we entered into a loan agreement with several financial institutions establishing our $100 million secured corporate revolving credit facility (subject to increase to $200 million under certain circumstances). In addition, in July 2011, we entered into the CIGNA-3 facility which is a $65 million acquisition loan facility. We expect to fund property acquisitions 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 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, 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 June 30, 2011:

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

    46     91.4 %   10,272,694     72.3 % $ 3.50   $ 32,873     61.7 %

Flex/Office

    21     89.1 %   1,243,221     8.7 %   10.14     11,235     21.1 %

Manufacturing

    26     90.6 %   2,693,679     19.0 %   3.75     9,161     17.2 %
                               

Total/Weighted Average

    93     91.0 %   14,209,594     100.0 % $ 4.12   $ 53,269     100.0 %
                               

 

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     15.8 % $ 3.89   $ 8,728     16.4 %

Ohio

    11     80.6 %   2,160,330     15.2 %   3.07     6,638     12.5 %

Michigan

    8     94.8 %   1,426,201     10.0 %   3.13     4,459     8.4 %

Wisconsin

    6     98.9 %   1,299,262     9.1 %   2.83     3,672     6.9 %

Tennessee

    3     100.0 %   912,810     6.4 %   3.29     2,999     5.6 %

Maine

    6     100.0 %   378,979     2.7 %   7.33     2,778     5.2 %

Indiana

    11     92.0 %   854,228     6.0 %   3.15     2,694     5.1 %

Minnesota

    2     100.0 %   558,894     3.9 %   4.28     2,392     4.5 %

Kentucky

    2     100.0 %   868,503     6.1 %   2.72     2,361     4.4 %

Florida

    4     56.6 %   329,184     2.3 %   5.67     1,866     3.5 %

Iowa

    1     100.0 %   148,131     1.0 %   12.00     1,778     3.3 %

New Jersey

    2     100.0 %   315,500     2.2 %   5.45     1,718     3.2 %

All Others

    28     79.6 %   2,715,599     19.3 %   8.79     11,186     21.0 %
                               

Total/Weighted Average

    93     91.0 %   14,209,594     100.0 % $ 4.12   $ 53,269     100.0 %
                               

(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     15.3 % $ 7,498     14.1 %

Business Services

    6     777,960     6.0 %   5,181     9.7 %

Personal Products

    6     1,734,489     13.4 %   5,086     9.5 %

Automotive

    6     1,290,280     10.0 %   4,935     9.3 %

Aerospace & Defense

    7     665,930     5.1 %   3,651     6.9 %

Industrial Equipment, Components & Metals

    7     824,318     6.4 %   3,624     6.8 %

Retail

    3     1,069,729     8.3 %   3,483     6.5 %

Food & Beverages

    3     925,700     7.2 %   3,306     6.2 %

Technology

    6     678,850     5.2 %   3,206     6.0 %

Finance

    2     387,227     3.0 %   3,115     5.8 %

Office Supplies

    4     1,277,852     9.9 %   3,042     5.7 %

Non-Profit/Government

    5     127,223     1.0 %   1,474     2.8 %

Healthcare

    3     192,230     1.5 %   1,394     2.6 %

Air Freight & Logistics

    3     242,292     1.9 %   1,098     2.1 %

Education

    3     108,846     0.8 %   1,092     2.1 %

Building Materials

    2     370,050     2.9 %   774     1.5 %

Household Durables

    1     117,564     0.9 %   557     1.0 %

Other

    3     170,304     1.2 %   753     1.4 %
                       

Total

    78     12,936,735     100.0 % $ 53,269     100.0 %
                       

(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 June 30, 2011:

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

   
 

International Paper

    2     573,323     4.4 % $ 2,826     5.3 %

Bank of America

    5     318,979     2.5 %   2,233     4.2 %

Spencer Gifts

    1     491,025     3.8 %   1,890     3.5 %

Stream International

    1     148,131     1.1 %   1,778     3.3 %

Berry Plastics

    2     315,500     2.4 %   1,718     3.2 %

Archway Marketing Services

    1     386,724     3.0 %   1,623     3.0 %

ConAgra Foods

    1     342,700     2.6 %   1,388     2.6 %

JCIM

    1     231,000     1.8 %   1,372     2.6 %

Fuller Brush Company

    2     572,114     4.4 %   1,211     2.3 %

Chrysler Group

    1     343,416     2.7 %   1,199     2.2 %
                       

Total

    17     3,722,912     28.7 % $ 17,238     32.2 %
                       

        As of June 30, 2011, our weighted average in-place remaining lease term across our portfolio was approximately 5.6 years. The following table sets forth a summary schedule of lease expirations for leases in place as of June 30, 2011, plus available space, for each of the five calendar years beginning

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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

          1,272,859                    

MTM(2)

        73,016     0.6 % $ 136     0.3 %

2011

    5     264,839     2.0 %   1,656     3.1 %

2012

    16     1,805,713     14.0 %   7,428     13.9 %

2013

    9     1,816,103     14.0 %   5,790     10.9 %

2014

    11     1,759,628     13.6 %   7,572     14.2 %

2015

    5     303,732     2.3 %   1,468     2.8 %

Thereafter

    32     6,913,704     53.5 %   29,219     54.8 %
                       

Total

    78     14,209,594     100.0 % $ 53,269     100.0 %
                       

(1)
Total annualized rent does not include any gross-up for tenant reimbursements and we had no rent abatements in effect as of June 30, 2011.

(2)
Month-to-month leases.

    Acquisition Properties

        Since June 30, 2011, we have acquired an additional seven properties totaling approximately 2.0 million square feet for approximately $65.5 million and have entered into purchase and sale agreements to acquire an additional two properties totaling approximately 0.3 million square feet for approximately $12.2 million. We can make no assurance that we will acquire either of the two acquisition properties that are currently subject to a purchase and sale agreement or, if we do, what the terms or timing of any such acquisition will be. As of June 30, 2011, the acquisition properties were 100% leased. As of June 30, 2011, the seven acquisition properties that have been acquired had a weighted average lease term of 6.1 years and the two acquisition properties under contract had a weighted average lease term of 8.6 years. Based on leases in place as of June 30, 2011, the acquisition properties provide an aggregate of approximately $7.5 million of total annualized rent, including an aggregate of approximately $1.1 million of total annualized rent from properties that are currently

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subject to a purchase and sale agreement. The following table sets forth additional information regarding the acquisition properties.

Property Address
  City   Number
of
Properties
  Asset Type   Year Built   Year
Renovated(1)
  Total
Rentable
Square
Feet
 

Georgia

                                 

2175 East Park Drive

  Conyers     1   Warehouse/Distribution     1995     2010     226,256  

Kentucky

                                 

947 E Main Street(2)

  Georgetown     1   Warehouse/Distribution     2001     NA     97,500  

6350 Ladd Avenue

  Louisville     1   Warehouse/Distribution     1998     NA     191,820  

6400 Ladd Avenue

  Louisville     1   Warehouse/Distribution     1977     NA     306,000  

Massachusetts

                                 

202 South Washington Street

  Norton     1   Warehouse/Distribution     1996     2005     200,000  

Missouri

                                 

7275 Hazelwood Avenue

  Berkeley     1   Warehouse/Distribution     1970     2008     305,550  

North Carolina

                                 

3250 US Highway 70 West(2)

  Smithfield     1   Warehouse/Distribution     2001     NA     190,855  

Ohio

                                 

1120 Morrison Road

  Gahanna     1   Warehouse/Distribution     1983     2007     383,000  

Oregon

                                 

1600 NE 181st Avenue

  Gresham     1   Warehouse/Distribution     1960     2008     420,690  
                               

Total

        9                     2,321,671  
                               

(1)
Renovation means a material upgrade, alteration or addition to a building or building systems resulting in increased marketability of the property.

(2)
Property under contract and we consider its acquisition to be probable; however, we can make no assurance that we will acquire the property or, if we do, what the terms or timing of any such acquisition will be.

Summary Risk Factors

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

    As a newly formed REIT, we have a limited operating history and may not be able to operate our business successfully or implement our business strategies as described in this prospectus.

    Our investments are concentrated in the industrial real estate sector, and we would be adversely affected by a downturn in that sector.

    Our growth will depend upon our ability to acquire properties successfully. We may be unable to consummate acquisitions on advantageous terms, and acquisitions may not perform as we expect.

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

    Our officers and certain directors may have conflicting duties because they have a duty both to us and to the funds that retained properties that were not contributed to us in our formation transactions.

    We could be adversely affected if we fail to have access to capital on favorable terms.

    We depend on tenants for revenue. Defaults by our tenants, as a result of bankruptcy or otherwise, could adversely affect us.

    We may be unable to renew or replace expiring leases or lease empty space on favorable terms or at all.

    Uninsured losses and contingent or unknown liabilities with respect to our properties, including environmentally hazardous conditions, could adversely affect us.

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    Our charter and bylaws do not limit the amount or percentage of indebtedness that we may incur, and we could be adversely affected if we are unable to make required payments on our indebtedness, comply with other covenants in our indebtedness or refinance our indebtedness at maturity on favorable terms.

    Our accounting predecessor and our company have experienced historical net losses and accumulated deficits after depreciation and we may experience future losses.

    We may not be able to make distributions, including distributions on our Series A Preferred Stock, at expected levels or at all.

    Our qualification as a REIT will depend on our satisfaction of numerous requirements under highly technical and complex provisions of the Code, and our failure so to qualify could adversely affect us, including our ability to make distributions.

    The Series A Preferred Stock has not been rated and is subject to the risks associated with non-rated securities.

    The Series A Preferred Stock is a new issuance with no stated maturity date and does not have an established trading market, which may negatively affect its market value and your ability to transfer or sell your shares.

    Our Series A Preferred Stock is subordinate to our debt, and your interests could be diluted by the issuance of additional preferred stock, including additional Series A Preferred Stock, and by other transactions.

Debt Financing and Liquidity

        As of June 30, 2011, on a historical basis we had mortgage debt outstanding with an estimated aggregate balance of approximately $255.9 million at a weighted average annual interest rate of 5.65%. All of this debt will initially bear interest at a fixed rate, $140.7 million of which is fixed as a result of an interest rate swap through January 31, 2012. As of June 30, 2011, this debt was comprised of a $140.7 million loan maturing in 2013, two loans totaling $106.6 million maturing in 2018, and an $8.5 million loan maturing in 2027. As of June 30, 2011, we had $0 of borrowings under our $100 million credit facility, which matures in April 2014, with an option to extend the maturity date for one additional year. See "Business—Description of Certain Debt" for more information about such debt.

        On July 18, 2011, September 26, 2011 and October 12, 2011, we borrowed $13.5 million, $4.0 million and $6.0 million, respectively, under our credit facility for use in acquisitions and other corporate purposes. See "Business—Description of Certain Debt" for more information about our credit facility. As of October 25, 2011, we had approximately $35.5 million in credit facility capacity immediately available to us under our credit facility (with up to $41.0 million available upon the satisfaction of certain lender conditions) to fund working capital and property acquisitions and to execute our business strategy. As of October 25, 2011, we have approximately $5.4 million in borrowing capacity available to us under our acquisition loan facility with CIGNA that was originally entered into in October 2010 (the "CIGNA-2 facility") and $55.7 million in borrowing capacity available to us under the CIGNA-3 facility.

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 a requirement that we annually distribute at least 90% of our taxable income to our shareholders. 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. See "U.S. Federal Income Tax Considerations."

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The Offering

        The offering terms are summarized below solely for your convenience. For a more complete description of the terms of our Series A Preferred Stock, see "Description of Series A Preferred Stock."

Issuer

  STAG Industrial, Inc.

Series A Preferred Stock Offered

 

2,400,000 shares of 9.0% Series A Cumulative Redeemable Preferred Stock (plus up to an additional 360,000 shares of Series A Preferred Stock that we may issue and sell upon the exercise of the underwriters' overallotment option). We reserve the right to reopen this series and issue additional shares of Series A Preferred Stock either through public or private sales at any time and from time to time.

Ranking

 

The Series A Preferred Stock will rank, with respect to dividend rights and rights upon our liquidation, dissolution or winding-up:

 

•       senior to all classes or series of our common stock, and to any other class or series of our capital stock expressly designated as ranking junior to the Series A Preferred Stock;

 

•       on parity with any class or series of our capital stock expressly designated as ranking on parity with the Series A Preferred Stock; and

 

•       junior to any other class or series of our capital stock expressly designated as ranking senior to the Series A Preferred Stock, none of which exists on the date hereof.

 

The term "capital stock" does not include convertible or exchangeable debt securities, none of which is outstanding as of the date hereof, which, prior to conversion or exchange, will rank senior in right of payment to the Series A Preferred Stock. The Series A Preferred Stock will also rank junior in right of payment to our other existing and future debt obligations.

Dividends

 

Holders of shares of the Series A Preferred Stock will be entitled to receive cumulative cash dividends on the Series A Preferred Stock when, as and if authorized by our board of directors from and including the date of original issue, payable quarterly in arrears on or about the last day of March, June, September and December of each year, beginning on December 30, 2011, at the rate of 9.0% per annum of the $25.00 liquidation preference per share (equivalent to the fixed annual rate of $2.25 per share). The first dividend payable on the Series A Preferred Stock is scheduled to be paid on December 30, 2011 and will be a pro rata dividend from and including the original issue date to and including December 31, 2011 in the amount of $0.36875 per share. Dividends on the Series A Preferred Stock will accrue whether or not (i) we have earnings, (ii) there are funds legally available for the payment of such dividends and (iii) such dividends are authorized or declared.

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Liquidation Preference

 

If we liquidate, dissolve or wind up, holders of shares of the Series A Preferred Stock will have the right to receive $25.00 per share of the Series A Preferred Stock, plus accrued and unpaid dividends (whether or not authorized or declared) up to but excluding the date of payment, before any payment is made to holders of our common stock and any other class or series of capital stock ranking junior to the Series A Preferred Stock as to liquidation rights. We may only issue equity securities ranking senior to the Series A Preferred Stock with respect to dividend rights and rights upon our liquidation, dissolution and winding-up if we obtain the affirmative vote of the holders of at least two-thirds of the outstanding Series A Preferred Stock together with each other class or series of preferred stock ranking on parity with the Series A Preferred Stock with respect to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up. The rights of holders of shares of the Series A Preferred Stock to receive their liquidation preference will be subject to the proportionate rights of any other class or series of our capital stock ranking on parity with the Series A Preferred Stock as to liquidation, and junior to the rights of any class or series of our capital stock expressly designated as ranking senior to the Series A Preferred Stock.

Optional Redemption

 

We may not redeem the Series A Preferred Stock prior to November 2, 2016, except in limited circumstances relating to our ability to qualify as a REIT, as described in "Description of Series A Preferred Stock—Optional Redemption" in this prospectus and pursuant to the special optional redemption provision below. On and after November 2, 2016, the Series A Preferred Stock will be redeemable at our option, in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends (whether or not authorized or declared) up to but excluding the redemption date. Any partial redemption will be on a pro rata basis.

Special Optional Redemption

 

Upon the occurrence of a Change of Control (as defined below), we may, at our option, redeem the Series A Preferred Stock, in whole or in part within 120 days after the first date on which such Change of Control occurred, by paying $25.00 per share, plus any accrued and unpaid dividends to, but not including, the date of redemption. If, prior to the Change of Control Conversion Date, we exercise any of our redemption rights relating to the Series A Preferred Stock (whether our optional redemption right or our special optional redemption right), the holders of Series A Preferred Stock will not have the conversion right described below.

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A "Change of Control" is when, after the original issuance of the Series A Preferred Stock, the following have occurred and are continuing:

 

•       the acquisition by any person, including any syndicate or group deemed to be a "person" under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of stock of our company entitling that person to exercise more than 50% of the total voting power of all stock of our company entitled to vote generally in the election of our directors (except that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); and

 

•       following the closing of any transaction referred to in the bullet point above, neither we nor the acquiring or surviving entity has a class of common securities (or ADRs representing such securities) listed on the NYSE, the NYSE Amex or NASDAQ or listed or quoted on an exchange or quotation system that is a successor to the NYSE, the NYSE Amex or NASDAQ.

Conversion Rights

 

Upon the occurrence of a Change of Control, each holder of Series A Preferred Stock will have the right (unless, prior to the Change of Control Conversion Date, we have provided or provide notice of our election to redeem the Series A Preferred Stock) to convert some or all of the Series A Preferred Stock held by such holder on the Change of Control Conversion Date into a number of shares of our common stock per share of Series A Preferred Stock to be converted equal to the lesser of:

 

•       the quotient obtained by dividing (i) the sum of the $25.00 liquidation preference plus the amount of any accrued and unpaid dividends to, but not including, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a record date for a Series A Preferred Stock dividend payment and prior to the corresponding Series A Preferred Stock dividend payment date, in which case no additional amount for such accrued and unpaid dividend will be included in this sum) by (ii) the Common Stock Price; and

 

•       7.8691 (i.e., the Share Cap), subject to certain adjustments;

 

subject, in each case, to provisions for the receipt of alternative consideration as described in this prospectus.

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If, prior to the Change of Control Conversion Date, we have provided or provide a redemption notice, whether pursuant to our special optional redemption right in connection with a Change of Control or our optional redemption right, holders of Series A Preferred Stock will not have any right to convert the Series A Preferred Stock in connection with the Change of Control Conversion Right and any shares of Series A Preferred Stock selected for redemption that have been tendered for conversion will be redeemed on the related date of redemption instead of converted on the Change of Control Conversion Date.

 

For definitions of "Change of Control Conversion Right," "Change of Control Conversion Date" and "Common Stock Price" and for a description of the adjustments and provisions for the receipt of alternative consideration that may be applicable to the Change of Control Conversion Right, see "Description of Series A Preferred Stock—Conversion Rights."

 

Except as provided above in connection with a Change of Control, the Series A Preferred Stock is not convertible into or exchangeable for any other securities or property.

No Maturity, Sinking Fund or Mandatory Redemption

 

The Series A Preferred Stock has no stated maturity date and is not subject to mandatory redemption or any sinking fund. We are not required to set aside funds to redeem the Series A Preferred Stock. Accordingly, the Series A Preferred Stock will remain outstanding indefinitely unless we decide to redeem the shares at our option or, under circumstances where the holders of the Series A Preferred Stock have a conversion right, such holders decide to convert the Series A Preferred Stock into our common stock.

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Limited Voting Rights

 

Holders of shares of the Series A Preferred Stock will generally have no voting rights. However, if we are in arrears on dividends on the Series A Preferred Stock for six or more quarterly periods, whether or not consecutive, holders of shares of the Series A Preferred Stock (voting together as a class with the holders of all other classes or series of preferred stock upon which like voting rights have been conferred and are exercisable) will be entitled to vote at a special meeting called upon the request of at least 10% of such holders or at our next annual meeting and each subsequent annual meeting of shareholders for the election of two additional directors to serve on our board of directors until all unpaid dividends with respect to the Series A Preferred Stock and any other class or series of parity preferred stock have been paid or declared and a sum sufficient for the payment thereof set aside for payment. In addition, we may not make certain material and adverse changes to the terms of the Series A Preferred Stock without the affirmative vote of the holders of at least two-thirds of the outstanding shares of the Series A Preferred Stock together with the holders of all other shares of any class or series of preferred stock ranking on parity with the Series A Preferred Stock with respect to the payment of dividends and distribution of assets upon our liquidation that are entitled to similar voting rights (voting together as a single class). Holders of shares of Series A Preferred Stock, voting together as a single class with the holders of all other classes and series of preferred stock ranking on parity with Series A Preferred Stock with respect to the payment of dividends and the distribution of assets upon our liquidation that are entitled to similar voting rights (voting together as a single class), also will have the exclusive right to vote on any amendment to our charter on which holders of our Series A Preferred Stock are otherwise entitled to vote (as described above regarding material and adverse changes to the terms of the Series A Preferred Stock) and that would alter only the contract rights, as expressly set forth in our charter, of the Series A Preferred Stock and such other class(es) and series of such parity shares.

Listing

 

We intend to file an application to list our Series A Preferred Stock on the NYSE under the symbol "STAG Pr A." We expect trading of the shares of Series A Preferred Stock on the NYSE, if listing is approved, to commence within 30 days after the date of initial delivery of the shares. The underwriters have advised us that they intend to make a market in the Series A Preferred Stock prior to commencement of any trading on the NYSE, but are not obligated to do so and may discontinue market making at any time without notice. No assurance can be given as to the liquidity of the trading market for the Series A Preferred Stock.

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Restrictions on Ownership and Transfer

 

To help us to qualify as a REIT, our charter, subject to certain exceptions, contains, and the Series A Preferred Stock articles supplementary will contain, restrictions on the number of shares of our common stock, Series A Preferred Stock and our capital stock that a person may own. Our charter provides that generally no person may own, or be deemed to own by virtue of the attribution provisions of the Code, either more than 9.8% in value or in number of shares, whichever is more restrictive, of our outstanding 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. In addition, the Series A Preferred Stock articles supplementary will provide that generally no person may own, or be deemed to own by virtue of the attribution provisions of the Code, either more than 9.8% in value or in number of shares, whichever is more restrictive, of our outstanding Series A Preferred Stock. See "Description of Stock—Restrictions on Ownership and Transfer."

Use of Proceeds

 

We estimate that the net proceeds we will receive from the sale of shares of our Series A Preferred Stock in this offering will be approximately $57.4 million (or approximately $66.1 million if the underwriters' overallotment option is exercised in full), after deducting underwriting discounts and commissions of approximately $1.9 million and estimated offering expenses of approximately $0.7 million payable by us. We will contribute the net proceeds we receive from this offering to our operating partnership in exchange for 9.0% Series A Cumulative Redeemable Preferred Units of partnership interest in our operating partnership ("Series A Preferred Units") that will have rights as to distributions and upon liquidation, dissolution or winding up that are substantially similar to those of the Series A Preferred Stock.

 

Our operating partnership intends to use the net proceeds to fund future acquisitions, repay indebtedness under our credit facility and for general working capital purposes, including funding capital expenditures, tenant improvements and leasing commissions.

Conflicts of Interest

 

As described in "Use of Proceeds," we may use a portion of the net proceeds from this offering to repay indebtedness under our credit facility. Affiliates of Merrill Lynch, Pierce, Fenner & Smith Incorporated, UBS Securities LLC and RBC Capital Markets, LLC are lenders under our credit facility. To the extent that we use a portion of the net proceeds of this offering to repay borrowings outstanding under our credit facility, affiliates of Merrill Lynch, Pierce, Fenner & Smith Incorporated, UBS Securities LLC and RBC Capital Markets, LLC will receive their proportionate shares of any amount of our credit facility that is repaid with the net proceeds of this offering. See "Underwriting (Conflicts of Interest)."

Transfer Agent and Registrar

 

The transfer agent and registrar for our Series A Preferred Stock is Continental Stock Transfer & Trust Company.

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Settlement

 

Delivery of the shares of Series A Preferred Stock will be made against payment therefor on or about November 2, 2011.

Risk Factors

 

See "Risk Factors" beginning on page 23 of this prospectus for risks that you should consider before purchasing shares of our Series A Preferred Stock.

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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) historical basis for our company and STAG Predecessor Group. On a pro forma basis, we will own 102 properties. Included in the 102 properties are two properties under contract, which we consider to be probable; however, we can make no assurance that we will acquire these properties or, if we do, what the terms or timing will be.

        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 consolidated financial statements of the company, 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 the acquisitions, including two probable acquisitions, subsequent to June 30, 2011 had occurred on June 30, 2011, and the unaudited pro forma statements of operations and other data for the six months ended June 30, 2011 and the year ended December 31, 2010 are presented as if the formation transactions, initial public offering and acquisitions, including two probable acquisitions, subsequent to April 19, 2011 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 June 30, 2011 or what our actual results of operations would have been assuming these events had occurred on June 30, 2011 or January 1, 2010, respectively, nor does it purport to represent our future financial position or results of operations.

        The summary historical consolidated balance sheet information as of June 30, 2011, and STAG Predecessor Group's historical combined statement of operations data for the periods from January 1, 2011 to April 19, 2011 and the six months ended June 30, 2010, and STAG Industrial, Inc.'s historical consolidated statement of operations data for the period from April 20, 2011 to June 30, 2011, have been derived from the unaudited financial statements of STAG Industrial, Inc. included elsewhere in this prospectus. 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 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 Industrial, Inc. Historical   STAG Predecessor Group Historical  
 
  Six Months Ended June 30,   Year Ended December 31,   Period from April 20, to June 30   Period from January 1, to April 19,   Six months ended June 30,   Year Ended December 31,   Period Ended December 31,  
 
  2011   2010   2011   2011   2010   2010   2009   2008   2007(1)   2006  
 
  (unaudited)
  (unaudited)
  (unaudited)
  (unaudited)
  (unaudited)
   
   
   
  (unaudited)
  (unaudited)
 
 
  (dollars in thousands)
 

Statement of
Operations Data:

                                                             

Revenue

                                                             

Rental income

  $ 28,873   $ 59,831   $ 9,670   $ 7,027   $ 12,574   $ 24,249   $ 25,658   $ 27,319   $ 11,162   $ 941  

Tenant recoveries

    3,542     7,222     1,073     1,218     2,445     3,761     4,508     3,951     1,326      

Other

    626     1,252     267                                
                                           

Total revenue

    33,041     68,305     11,010     8,245     15,019     28,010     30,166     31,270     12,488     941  
                                           

Expenses

                                                             

Property

    5,578     10,513     1,672     2,145     3,314     6,123     8,409     5,813     1,437     11  

General and administrative

    4,756     9,513     2,060     497     528     937     1,078     1,112     648     29  

Property acquisition costs

            327                              

Depreciation and amortization

    16,880     32,993     6,446     2,459     5,326     9,514     10,257     12,108     4,687     336  

Loss on impairment of assets

                                3,728          
                                           

Total expenses

    27,214     53,019     10,505     5,101     9,168     16,574     19,744     22,761     6,772     376  
                                           

Other income (expense)

                                                             

Interest income

    10     16     9     1     2     16     66     140     163     4  

Interest expense

    (9,824 )   (19,326 )   (3,185 )   (4,136 )   (6,934 )   (14,116 )   (14,328 )   (15,058 )   (7,861 )   (616 )

Gain (loss) on interest rate swaps

    1,313     (210 )   500     762     (935 )   (282 )   (1,720 )   (1,275 )        

Formation transaction costs

            (3,728 )                            
                                           

Total other income (expense)

    (8,501 )   (19,520 )   (6,404 )   (3,373 )   (7,867 )   (14,382 )   (15,982 )   (16,193 )   (7,698 )   (612 )
                                           

Net loss

  $ (2,674 ) $ (4,234 ) $ (5,899 ) $ (229 ) $ (2,016 ) $ (2,946 ) $ (5,560 ) $ (7,684 ) $ (1,982 ) $ (47 )
                                           

Net loss per share attributable to the Company

    (0.11 )   (0.18 )   (0.26 )                            
                                           

Balance Sheet Data (End of Period):

                                                             

Rental property, before accumulated depreciation

  $ 484,114         $ 426,688               $ 210,186   $ 210,009   $ 208,948   $ 212,688   $ 31,998  

Rental property, after accumulated depreciation

    460,391           402,965                 190,925     195,383     200,268     210,294     31,808  

Total assets

    609,459           531,619                 211,004     220,116     229,731     242,134     35,976  

Total debt

    333,314           255,870                 207,550     212,132     216,178     217,360     31,877  

Total liabilities

    349,927           272,087                 219,340     221,637     223,171     220,548     32,305  

Owners'/shareholders' equity (deficit)

    259,532           259,532                 (8,336 )   (1,521 )   6,560     21,586     3,671  

Other Data
(unaudited):

                                                             

Net operating income (NOI)(2)

  $ 27,463   $ 57,792   $ 9,338   $ 6,100   $ 11,705   $ 21,887   $ 21,757   $ 25,457   $ 11,051   $ 930  

EBITDA(2)

    24,020     48,069     3,723     6,365     10,242     20,668     18,959     19,342     10,403     901  

FFO(2)

    14,206     28,759     547     2,230     3,310     6,568     4,697     4,424     2,705     289  

Adjusted funds from operations (AFFO)(2)

    14,722     32,001     5,040     1,457     3,673     5,858     6,166     8,081     2,427     243  

(1)
Certain properties included as part of STAG Predecessor Group were owned by a related party for the period August 11, 2006 through May 31, 2007 and were acquired by STAG Investments III, LLC on June 1, 2007, its commencement date of operations. The period for which certain properties were owned by a related party is labeled "Antecedent" in the accompanying combined financial statements. 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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Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends

        Our ratios of earnings to fixed charges and earnings to combined fixed charges and preferred dividends for the periods indicated are as follows (unaudited):

 
   
   
  Historical  
 
  Company Pro Forma    
   
   
   
   
   
   
 
 
  STAG
Industrial, Inc.
April 20 -
June 30,
2011
  STAG Predecessor Group  
 
  Six Months
Ended
June 30,
2011
   
 
 
  Year Ended
December 31,
2010
  January 1 -
April 19,
2011
  Year Ended
December 31,
2010
  Year Ended
December 31,
2009
  Year Ended
December 31,
2008
  Year Ended
December 31,
2007(2)
  Period Ended
December 31,
2006
 

Ratio of earnings to fixed charges

    0.73 x   0.78 x   (1)   0.94 x   0.79 x   0.61 x   0.49 x   0.75 x   0.92 x

Ratio of earnings to combined fixed charges and preferred dividends

    0.73 x   0.78 x   (1)   0.94 x   0.79 x   0.61 x   0.49 x   0.75 x   0.92 x

(1)
Earnings for the period were less than zero.

(2)
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.

        Our ratios of earnings to fixed charges are computed by dividing earnings by fixed charges. Our ratios of earnings to combined fixed charges and preferred dividends are computed by dividing earnings by the sum of fixed charges and preferred dividends. For these purposes, "earnings" consist of net loss plus fixed charges. Net loss is computed in accordance with GAAP and includes such non-cash items as real estate depreciation and amortization, amortization of above (below) market rents, and amortization of deferred financing costs and loan premium. Net loss in 2011 also includes one-time transactional costs relating to our initial public offering and related formation transactions. "Fixed charges" consist of interest expense, an approximation of the interest component of our operating leases, capitalized interest and amortization of deferred financing fees and loan premium, whether expensed or capitalized and interest within rental expense. Interest income is not included in this computation. "Preferred dividends" consist of the amount of pre-tax earnings required to pay dividends on outstanding preferred securities. There were no preferred securities outstanding for the periods presented. Our pro forma ratios are prepared on the basis of our pro forma financial statements. See "STAG Industrial, Inc. and Subsidiaries Unaudited Pro Forma Condensed Consolidated Financial Statements."

        The computation of ratio of earnings to fixed charges indicates that earnings were inadequate to cover fixed charges on the basis of our pro forma financial statements by approximately $2.7 million for the six months ended June 30, 2011 and by $4.2 million for the year ended December 31, 2010.

        The computation of ratio of earnings to combined fixed charges and preferred dividends indicates that earnings were inadequate to cover fixed charges and preferred dividends on the basis of our pro forma financial statements by approximately $2.7 million for the six months ended June 30, 2011 and by $4.2 million for the year ended December 31, 2010.

        The computation of ratio of earnings to fixed charges indicates that earnings were inadequate to cover fixed charges on the basis of our historical financial statements by approximately $5.9 million for the period April 20, 2011 to June 30, 2011, by $0.2 million for the period January 1, 2011 to April 19, 2011, by $2.9 million, $5.6 million, $7.7 million and $2.0 million for the years ended December 31, 2010, 2009, 2008 and 2007, respectively, and $47,000 for the period ended December 31, 2006.

        The computation of ratio of earnings to combined fixed charges and preferred dividends indicates that earnings were inadequate to cover fixed charges and preferred dividends on the basis of our historical financial statements by approximately $5.9 million for the period April 20, 2011 to June 30, 2011, by $0.2 million for the period January 1, 2011 to April 19, 2011, by $2.9 million, $5.6 million, $7.7 million and $2.0 million for the years ended December 31, 2010, 2009, 2008 and 2007, respectively, and $47,000 for the period ended December 31, 2006.

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Ratios of Adjusted Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends

        Our ratios of adjusted earnings to fixed charges and adjusted earnings to combined fixed charges and preferred dividends for the periods indicated are as follows (unaudited):

 
   
   
  Historical  
 
  Company Pro Forma    
  STAG Predecessor Group  
 
  Six Months
Ended
June 30,
2011
  Year Ended
December 31,
2010
  STAG
Industrial,
Inc. April 20-
June 30, 2011
  January 1-
April 19, 2011
  Year Ended
December 31,
2010
  Year Ended
December 31,
2009
  Year Ended
December 31,
2008
  Year Ended
December 31,
2007(1)
  Period Ended
December 31,
2006
 

Ratio of adjusted earnings to fixed charges

    2.48x     2.62x     1.23x     1.35x     1.44x     1.41x     1.26x     1.29x     1.35x  

Ratio of adjusted earnings to combined fixed charges and preferred dividends

    2.48x     2.62x     1.23x     1.35x     1.44x     1.41x     1.26x     1.29x     1.35x  

(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.

        Ratios of adjusted earnings to fixed charges and combined fixed charges and preferred dividends are computed by dividing adjusted earnings by fixed charges and combined fixed charges and preferred dividends, respectively. "Adjusted earnings" consist of earnings excluding depreciation and amortization, straight line rental revenue adjustments, above (below) market lease amortization, amortization of noncash compensation, and gain (loss) on interest rate swaps. Earnings, fixed charges and preferred dividends are calculated in the same manner as they are for the ratios of earnings to fixed charges and earnings to combined fixed charges and preferred dividends as described above. We believe that the ratios of adjusted earnings to fixed charges and combined fixed charges and preferred dividends are useful supplemental information regarding our ability to cover our fixed charges and preferred dividends.

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RISK FACTORS

        An investment in our Series A Preferred Stock involves risks. In addition to other information in this prospectus, you should carefully consider the following risks before investing in our Series A Preferred 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 Series A Preferred 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

As a newly formed REIT, we have a limited operating history and may not be able to operate our business successfully or implement our business strategies as described in this prospectus.

        We were organized in July 2010 and commenced operations upon completion of our formation transactions and our initial public offering on April 20, 2011. 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.

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

        As of June 30, 2011, all of our 93 properties were industrial properties, including 46 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.

Adverse economic conditions will negatively affect our returns and profitability.

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

    poor economic conditions may result in tenant defaults under leases;

    re-leasing may require concessions or reduced rental rates under the new leases due to reduced demand;

    adverse capital and credit market conditions may restrict our operating activities; and

    constricted access to credit may result in tenant defaults, non-renewals under leases or inability of potential buyers to acquire properties held for sale.

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

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RISK FACTORS



Substantial international, national and local government deficits and the weakened financial condition of these governments may adversely impact our business, financial condition and results of operations. In particular, for example, uncertainty about the financial stability of several countries in the European Union, the increasing risk that those countries may default on their sovereign debt and related stresses on financial markets could have an adverse effect on our business, results of operations and financial condition.

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

        In particular, for example, in 2010, a financial crisis emerged in Europe, triggered by high budget deficits and rising direct and contingent sovereign debt in Greece, Ireland, Italy, Portugal and Spain, which created concerns about the ability of these European Union nations to continue to service their sovereign debt obligations. These conditions impacted financial markets and, despite assistance packages to Greece, Ireland and Portugal, the creation of a joint EU-IMF European Financial Stability Facility in May 2010, and a recently announced plan to expand financial assistance to Greece, uncertainty over the outcome of the European Union governments' financial support programs and worries about sovereign finances persist. There can be no assurance that the market disruptions in Europe, including the increased cost of funding for certain governments and financial institutions, will not spread, nor can there be any assurance that future assistance packages will be available or, even if provided, will be sufficient to stabilize the affected countries and markets in Europe or elsewhere. Risks and ongoing concerns about the debt crisis in Europe could have a detrimental impact on the global economic recovery, financial markets and institutions and the availability of debt financing, which may directly or indirectly adversely affect our business, financial condition and results of operations.

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

        In addition to general, regional, national and international economic conditions, our operating performance is impacted by the economic conditions of the specific markets in which we have concentrations of properties. We have holdings in the following states, which, as of June 30, 2011, accounted for the percentage of our total annualized rent indicated: North Carolina (16.4%); Ohio (12.5%); Michigan (8.4%); and Wisconsin (6.9%). Our operating performance could be adversely affected if conditions become less favorable in any of the states or regions in which we have a concentration of properties.

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

        We are subject to certain industry concentrations with respect to our properties, including the following, which, as of June 30, 2011, accounted for the percentage of our total annualized rent indicated: Containers & Packaging (14.1%); Business Services (9.7%); Personal Products (9.5%); Automotive (9.3%); Aerospace & Defense (6.9%); Industrial Equipment, Components & Metals (6.8%); Retail (6.5%); Food & Beverages (6.2%); and Technology (6.0%). Such industries are subject to specific risks that could result in downturns within the industries. For example, several of our

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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.

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

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

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

        Many of our tenants rely on external sources of financing to operate their businesses. The U.S. financial and credit markets 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.

As a newly formed REIT, we have limited experience operating as a publicly traded REIT, which may affect our ability to successfully operate our business or generate sufficient cash flow to make or sustain distributions to our shareholders, including distributions on our Series A Preferred Stock.

        We have limited experience operating as a publicly traded REIT. We cannot assure you that our past experience will be sufficient to successfully operate our company as a REIT or a publicly traded company, including the requirements to timely meet disclosure requirements and comply with the Sarbanes-Oxley Act of 2002. Failure to maintain REIT status would have an adverse effect on our financial condition, results of operations, cash flow, per share trading price of our common stock and Series A Preferred Stock and ability to satisfy our debt service obligations and to pay dividends to you.

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

        Our success depends to a significant degree upon the continued contributions of certain key personnel including, but not limited to, 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

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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 our predecessor business and our Chief Executive Officer, President and Chairman. The policy has limits in the amount of $5.0 million and covers us in the event of Mr. Butcher's death.

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

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

        We acquire and intend to continue to acquire primarily generic 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 and Series A Preferred Stock.

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

        A key component of our growth strategy is to continue to acquire additional industrial real estate assets. Since 2004, approximately 32% 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.

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The cash available for distribution to shareholders may not be sufficient to pay dividends, including dividends on our Series A Preferred Stock, at expected levels, nor can we assure you of our ability to make distributions, including distributions on our Series A Preferred Stock, in the future. We may use borrowed funds to make distributions.

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

        The majority of our properties have been under management for less than four years. In addition, since the completion of our formation transactions, we have acquired an additional nine properties totaling approximately 2.4 million rentable square feet. These properties may have characteristics or deficiencies unknown to us that could affect their valuation or revenue potential and such properties may not ultimately perform up to our expectations. We cannot assure you that the operating performance of the properties will not decline under our management.

Risks Related to Our Organization and Structure

We may pursue less vigorous enforcement of terms of contribution and other agreements because of conflicts of interest with certain of our officers and directors.

        Certain of our directors and executive officers have ownership interests in the other entities or properties that were 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 our initial public offering, under the contribution agreements with certain of our directors and executive officers and their affiliates, we are entitled to indemnification in the event of breaches of the representations and warranties made by them with respect to the entities and properties acquired by us. Such indemnification is limited and we are not entitled to any other indemnification in connection with our formation transactions. In addition, our executive officers entered into employment agreements with us pursuant to which they agreed, 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 "Executive Compensation—Employment Agreements." We may choose not to enforce, or to enforce less vigorously, our rights under these agreements due to our ongoing relationship with our directors and executive officers.

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Our executive officers and directors have duties to Fund II, Fund III, Fund IV and STAG GI which may create conflicts of interest, which may impede business decisions that could benefit our shareholders.

        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 retained ownership of the Option Properties), Fund IV and STAG GI. Since the completion of our formation transactions, all of these entities are 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.

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

        We, as the sole member of the general partner of our operating partnership, 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 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 and Series A Preferred 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 "Executive Compensation—Equity Incentive Plan."

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

        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:

    general market conditions;

    the market's perception of our growth potential;

    our current debt levels;

    our current and expected future earnings;

    our cash flow and cash dividends; and

    the market price per share of our common stock.

        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.

        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 Series A Preferred Stock.

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

        STAG Industrial, Inc. had a historical net loss for the period from April 20, 2011 to June 30, 2011 of $3.9 million. STAG Predecessor Group had historical net losses of $0.2 million for the period from January 1, 2011 to April 19, 2011 and $2.9 million, $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, including distributions on our

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Series A Preferred Stock, any of which could adversely affect the trading price of our Series A Preferred Stock.

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

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

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

        Our charter contains 9.8% ownership limits.    Our charter, subject to certain exceptions, authorizes our directors to take such actions as are necessary and desirable to limit any person to actual or constructive ownership of no more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of our capital stock and no more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of our common stock. In addition, the Series A Preferred Stock articles supplementary will provide that generally no person may own, or be deemed to own by virtue of the attribution provisions of the Code, either more than 9.8% in value or in number of shares, whichever is more restrictive, of our outstanding Series A Preferred Stock. Our board of directors, in its sole discretion, may exempt a proposed transferee from the ownership limits. However, our board of directors may not grant an exemption from the ownership limits to any proposed transferee whose ownership, direct or indirect, of more than 9.8% of the value or number of our outstanding shares of our common stock or our Series A Preferred Stock could jeopardize our status as a REIT. The ownership limits contained in our charter and the restrictions on ownership of our common stock may delay or prevent a transaction or a change of control that might be in the best interest of our shareholders. See "Description of Stock—Restrictions on Ownership and Transfer."

        Our board of directors may create and issue a class or series of preferred stock without shareholder approval.    Subject to the rights of holders of Series A Preferred Stock to approve the classification or issuance of any class or series of stock ranking senior to the Series A Preferred Stock, our board of directors is empowered under our charter to amend our charter to increase or decrease the aggregate number of shares of our common stock or the number of shares of stock of any class or series that we have authority to issue, to designate and issue from time to time one or more classes or series of preferred stock and to classify or reclassify any unissued shares of our common stock or preferred stock without shareholder approval. Subject to the rights of holders of Series A Preferred Stock discussed above, our board of directors may determine the relative rights, preferences and privileges of any class

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or series of preferred stock issued. The issuance of preferred stock could also have the effect of delaying or preventing a change of control transaction that might otherwise be in the best interests of our 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:

    redemption rights of qualifying parties;

    transfer restrictions on our common units;

    the ability of the general partner in some cases to amend the partnership agreement without the consent of the limited partners; and

    the right of the limited partners to consent to transfers of the general partnership interest and mergers under specified circumstances.

        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 might be in the best interest of our shareholders, including:

    "business combination" provisions that, subject to limitations, prohibit certain business combinations between us and an "interested shareholder" (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof) for five years after the most recent date on which the shareholder becomes an interested shareholder, and thereafter impose special appraisal rights and special shareholder voting requirements on these combinations; and

    "control share" provisions that provide that "control shares" of our company (defined as shares which, when aggregated with other shares controlled by the shareholder, entitle the shareholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a "control share acquisition" (defined as the direct or indirect acquisition of ownership or control of "control shares") have no voting rights except to the extent approved by our shareholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

        We have elected to opt out of these provisions of the MGCL, in the case of the business combination provisions of the MGCL, by resolution of our board of directors, and in the case of the control share provisions of the MGCL, pursuant to a provision in our bylaws. Only upon the approval of our 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.

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        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 might be in the best interest of our shareholders.

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

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

        We entered 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 "Executive Compensation—Employment Agreements" for further details about the terms of these employment agreements.

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

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

If we fail to maintain an effective system of integrated internal controls, we may not be able to accurately report our financial results.

        We are 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 have modified our company-wide systems and procedures in a number of areas to enable us to enhance our reporting on a consolidated basis under GAAP. If we fail to maintain 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.

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

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

    amend or revise at any time and from time to time our investment, financing, borrowing and dividend policies and our policies with respect to all other activities, including growth, debt, capitalization and operations;

    amend our policies with respect to conflicts of interest provided that such changes are consistent with applicable legal requirements;

    within the limits provided in our charter, prevent the ownership, transfer and/or accumulation of shares in order to protect our status as a REIT or for any other reason deemed to be in the best interests of us and our shareholders;

    issue additional shares without obtaining shareholder approval, which could dilute the ownership of our then-current shareholders;

    amend our charter to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series, without obtaining shareholder approval;

    subject to the rights of holders of our Series A Preferred Stock, classify or reclassify any unissued shares of our common stock or preferred stock, set the preferences, rights and other terms of such classified or reclassified shares, without obtaining shareholder approval;

    employ and compensate affiliates;

    direct our resources toward investments that do not ultimately appreciate over time;

    change creditworthiness standards with respect to third-party tenants; and

    determine that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT.

        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.

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

        Maryland law provides that a director or officer has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In addition, our charter eliminates our directors' and officers' liability to us and our 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

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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

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

        The investment returns available from equity investments in real estate depend on the amount of income earned and capital appreciation generated by the properties, as well as the expenses incurred in connection with the properties. If our properties do not generate income sufficient to meet operating expenses, including debt service and capital expenditures, then our ability to pay distributions to our 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 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:

    changes in general or local economic climate;

    the attractiveness of our properties to potential tenants;

    changes in supply of or demand for similar or competing properties in an area;

    bankruptcies, financial difficulties or lease defaults by our tenants;

    changes in interest rates and availability of permanent mortgage funds that may render the sale of a property difficult or unattractive or otherwise reduce returns to shareholders;

    changes in operating costs and expenses and our ability to control rents;

    changes in or increased costs of compliance with governmental rules, regulations and fiscal policies, including changes in tax, real estate, environmental and zoning laws, and our potential liability thereunder;

    our ability to provide adequate maintenance and insurance;

    changes in the cost or availability of insurance, including coverage for mold or asbestos;

    unanticipated changes in costs associated with known adverse environmental conditions or retained liabilities for such conditions;

    periods of high interest rates and tight money supply;

    tenant turnover;

    general overbuilding or excess supply in the market; and

    disruptions in the global supply chain caused by political, regulatory or other factors including terrorism.

        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.

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

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

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

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

        Our results of operations, cash flows, cash available for distribution, including distributions on our Series A Preferred Stock, and the value of our common stock and Series A Preferred 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 June 30, 2011, leases with respect to 42.4% of our total annualized rent will expire on or before December 31, 2014. 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 that incurs a vacancy could be difficult to sell or re-lease, which could adversely affect our results of operations, cash flows, cash available for distribution, including distributions on our Series A Preferred Stock, and the value of our common stock and Series A Preferred Stock.

        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, including distributions on our Series A Preferred Stock. 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.

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We may not have funding for future tenant improvements, which could adversely affect our results of operations, cash flows, cash available for distribution, including distributions on our Series A Preferred Stock, and the value of our common stock and Series A Preferred Stock.

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

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

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

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

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

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

        We have acquired, and may continue to acquire, properties in markets that are new to us. When we acquire properties located in these markets, we may face risks associated with a lack of market

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knowledge or understanding of the local economy, forging new business relationships in the area and unfamiliarity with local government and permitting procedures.

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

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

Contingent or unknown liabilities could adversely affect our financial condition.

        As part of our formation transactions, we assumed existing liabilities of contributed operating companies and liabilities in connection with contributed properties, some of which may be unknown or unquantifiable 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 insurance coverage, claims of tenants, vendors or other persons dealing with the entities prior to our initial public offering, tax liabilities, and accrued but unpaid liabilities whether incurred in the ordinary course of business or otherwise. As part of our formation transactions, the owners of our predecessor business only made limited representations and warranties to us regarding the entities, properties and assets that we own 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.

Environmentally hazardous conditions may adversely affect our operating results.

        Under various federal, state and local environmental laws, a current or previous owner or operator of real property may be liable for the cost of removing or remediating hazardous or toxic substances on such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Even if more than one person may

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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 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. Approximately, 48.1% of the total rentable square feet of our portfolio have Phase I environmental site assessments

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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:

    future laws, ordinances or regulations will not impose any material environmental liability; or

    the current environmental condition of our properties will not be affected by tenants, by the condition of land or operations in the vicinity of our properties (such as releases from underground storage tanks), or by third parties unrelated to us.

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

        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.

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

        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 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, including distributions on our Series A Preferred Stock, and the trading price of our common stock and Series A Preferred 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 may be unable to sell a property if or when we decide to do so, including as a result of uncertain market conditions, which could adversely affect the return on your investment.

        We expect to hold the various real properties in which we invest until such time as we decide that a sale or other disposition is appropriate given our investment objectives. Our ability to dispose of

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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 with "lock-out" provisions which may affect our ability to dispose of the properties.

        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 and Series A Preferred Stock relative to the value that would result if the lock-out provisions did not exist.

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

        If we decide to sell any of our properties, we presently intend to use our best efforts to sell them for cash. However, in some instances we may sell our properties by providing financing to purchasers. If we provide financing to purchasers, we will bear the risk that the purchaser may default, which could negatively impact our cash distributions to shareholders and result in litigation and related expenses. 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 operating results and financial condition could be adversely affected if we are unable to make required payments on our debt.

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

        In particular, loans obtained to fund property acquisitions 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 Series A Preferred Stock to decrease and negatively impact our ability to pay distributions, including distributions on our Series A Preferred Stock. Certain of our existing and future indebtedness is and may be cross-collateralized and,

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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."

Increases in interest rates could increase the amount of our debt payments and adversely affect our ability to make distributions to our shareholders, including distributions on our Series A Preferred Stock.

        As of June 30, 2011, we had total outstanding debt of approximately $255.9 million, and we expect that we will incur additional indebtedness in the future. Interest we pay reduces our cash available for distributions, including distributions on our Series A Preferred Stock. Since we have incurred and may continue to incur variable rate debt, increases in interest rates raise our interest costs, which reduces our cash flows and our ability to make distributions to you. If we are unable to refinance our indebtedness at maturity or meet our payment obligations, the amount of our distributable cash flows and our financial condition would be adversely affected, and we may lose the property securing such indebtedness. In addition, if we need to repay existing debt during periods of rising interest rates, we could be required to liquidate one or more of our investments in properties at times which may not permit realization of the maximum return on such investments.

Covenants in our mortgage loans, our credit facility and any future debt instruments could limit our flexibility, prevent us from paying distributions, including distributions on our Series A Preferred Stock, and adversely affect our financial condition or our status as a REIT.

        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. In addition, our credit facility requires us to comply with loan-to-collateral-value ratios, debt service coverage ratios, recourse indebtedness thresholds and tangible net worth thresholds and limits, in the absence of default, our ability to pay dividends, including dividends on our Series A Preferred Stock. For example, one covenant restricts us from paying any dividends or making any payments for the repurchase or redemption of our equity securities in an amount per year exceeding in the aggregate the greater of (i) 115% (which percentage decreases over time to 95% by March 31, 2013) of our funds from operations (as defined in the credit facility) and (ii) the amount of distributions required to be paid for us to qualify as a REIT. Our existing loan covenants and credit facility covenants may reduce flexibility in our operations, and breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness even if we have satisfied our payment obligations. In addition, upon a default, our credit facility will limit, among other things, our ability to pay dividends, including on our Series A Preferred Stock, even if we are otherwise in compliance with our financial covenants and even if the dividend is less than the then current required percentage of our funds from operations. Other indebtedness that we may incur in the future may contain financial or other covenants more restrictive than those in our existing credit facility.

        As of June 30, 2011, 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, our credit facility contains, and future secured corporate credit facilities may contain, certain cross-default provisions which are triggered in the event that our other material indebtedness is in default. These cross-default provisions may require us to repay or restructure the 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.

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        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 and Series A Preferred 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 Series A Preferred Stock and on our common stock required to maintain our REIT status.

If we enter into financing arrangements involving balloon payment obligations, it may adversely affect our ability to make distributions, including distributions on our Series A Preferred Stock.

        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, including distributions on our Series A Preferred Stock, that we are required to pay to maintain our qualification as a REIT.

High mortgage rates may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire and the amount of cash distributions we can make, including distributions on our Series A Preferred Stock.

        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.

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

        We use various derivative financial instruments to provide a level of protection against interest rate risks, but no hedging strategy can protect us completely. These instruments involve risks, such as the risk that the counterparties may fail to honor their obligations under these arrangements, that these arrangements may not be effective in reducing our exposure to interest rate changes and that a court

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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 Series A Preferred Stock has not been rated.

        We have not sought to obtain a rating for the Series A Preferred Stock. No assurance can be given, however, that one or more rating agencies might not independently determine to issue such a rating or that such a rating, if issued, would not adversely affect the market price of the Series A Preferred Stock. In addition, we may elect in the future to obtain a rating of the Series A Preferred Stock, which could adversely impact the market price of the Series A Preferred Stock. Ratings only reflect the views of the rating agency or agencies issuing the ratings and such ratings could be revised downward or withdrawn entirely at the discretion of the issuing rating agency if in its judgment circumstances so warrant. Any such downward revision or withdrawal of a rating could have an adverse effect on the market price of the Series A Preferred Stock.

The Series A Preferred Stock is a new issuance with no stated maturity date and does not have an established trading market, which may negatively affect its market value and your ability to transfer or sell your shares.

        The shares of Series A Preferred Stock are a new issue of securities with no established trading market. In addition, since the securities have no stated maturity date, investors seeking liquidity will be limited to selling their shares in the secondary market. We intend to apply to list the Series A Preferred Stock on the NYSE, but there can be no assurance that the NYSE will accept the Series A Preferred Stock for listing. Even if the Series A Preferred Stock is approved for listing by the NYSE, however, an active trading market on the NYSE for the shares may not develop or, even if it develops, may not last, in which case the trading price of the shares could be adversely affected and your ability to transfer your shares of Series A Preferred Stock will be limited. If an active trading market does develop on the NYSE, our Series A Preferred Stock may trade at prices lower than the initial offering price. The trading price of our Series A Preferred Stock would depend on many factors, including:

    prevailing interest rates;

    the market for similar securities;

    general economic and financial market conditions;

    our issuance of debt or preferred equity securities; and

    our financial condition, results of operations and prospects.

        We have been advised by the underwriters that they intend to make a market in the shares of our Series A Preferred Stock, but they are not obligated to do so and may discontinue market-making at any time without notice.

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Our Series A Preferred Stock is subordinate to our debt, and your interests could be diluted by the issuance of additional shares of preferred stock, including additional shares of Series A Preferred Stock, and by other transactions.

        Our Series A Preferred Stock is subordinate to all of our existing and future debt. Our existing debt restricts, and our future debt may include restrictions on, our ability to pay dividends to preferred shareholders in the event of a default under the debt facilities. Our charter currently authorizes the issuance of up to 10,000,000 shares of preferred stock in one or more classes or series. The issuance of additional preferred stock on parity with or senior to our Series A Preferred Stock would dilute the interests of the holders of our Series A Preferred Stock, and any issuance of preferred stock senior to our Series A Preferred Stock or of additional indebtedness could affect our ability to pay dividends on, redeem or pay the liquidation preference on our Series A Preferred Stock. Other than the conversion right afforded to holders of Series A Preferred Stock upon the occurrence of a Change of Control as described under "Description of Series A Preferred Stock—Conversion Rights" and other than the limited voting rights as described under "Description of the Series A Preferred Stock—Limited Voting Rights" below, none of the provisions relating to the Series A Preferred Stock relate to or limit our indebtedness or afford the holders of the Series A Preferred Stock protection in the event of a highly leveraged or other transaction, including a merger or the sale, lease or conveyance of all or substantially all our assets or business, that might adversely affect the holders of the Series A Preferred Stock.

Market interest rates may have an effect on the value of our Series A Preferred Stock.

        One of the factors that will influence the price of our Series A Preferred Stock will be the dividend yield on the Series A Preferred Stock (as a percentage of the price of our Series A Preferred Stock, as applicable) relative to market interest rates. An increase in market interest rates, which are currently at low levels relative to historical rates, may lead prospective purchasers of our Series A Preferred Stock to expect a higher dividend yield and higher interest rates would likely increase our borrowing costs and potentially decrease funds available for distribution. Thus, higher market interest rates could cause the market price of our Series A Preferred Stock to decrease.

As a holder of Series A Preferred Stock you have extremely limited voting rights.

        Your voting rights as a holder of Series A Preferred Stock will be extremely limited. Our common stock is the only class or series of our stock carrying full voting rights. Voting rights for holders of Series A Preferred Stock exist primarily with respect to the ability to elect additional directors in the event that dividends for six quarterly dividend periods (whether or not consecutive) payable on our Series A Preferred Stock are in arrears, and with respect to voting on amendments to our charter that materially and adversely affect the rights of the Series A Preferred Stock or create additional classes or series of preferred stock that are senior to our Series A Preferred Stock. See "Description of Series A Preferred Stock—Limited Voting Rights" below. Other than the limited circumstances described in this prospectus, holders of Series A Preferred Stock will not have voting rights.

The Change of Control conversion feature may not adequately compensate you and may make it more difficult for a party to take over our company or discourage a party from taking over our company.

        Upon the occurrence of a Change of Control, holders of the Series A Preferred Stock will have the right (unless, prior to the Change of Control Conversion Date, we have provided or provide notice of our election to redeem the Series A Preferred Stock) to convert some or all of their Series A Preferred Stock into shares of our common stock (or equivalent value of alternative consideration). See

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"Description of Series A Preferred Stock—Conversion Rights." Upon such a conversion, the holders will be limited to a maximum number of shares of our common stock equal to the Share Cap multiplied by the number of shares of Series A Preferred Stock converted. If the Common Stock Price is less than $3.18 (which is 30% of the per-share closing sale price of our common stock reported on the NYSE on October 25, 2011), subject to adjustment, the holders will receive a maximum of 7.8691 shares of our common stock per share of Series A Preferred Stock, which may result in a holder receiving a value that is less than the liquidation preference of the Series A Preferred Stock. In addition, the change of control conversion feature of the Series A Preferred Stock may have the effect of discouraging a third party from making an acquisition proposal for our company or of delaying, deferring or preventing certain change of control transactions of our company under circumstances that shareholders may otherwise believe is in their best interests.

Our ability to pay dividends is limited by the requirements of Maryland law.

        Our ability to pay dividends on our Series A Preferred Stock is limited by the laws of Maryland. Under applicable Maryland law, a Maryland corporation generally may not make a distribution if, after giving effect to the distribution, the corporation would not be able to pay its debts as the debts become due in the usual course of business, or the corporation's total assets would be less than the sum of its total liabilities plus, unless the corporation's charter provides otherwise, the amount that would be needed, if the corporation were dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. Accordingly, we generally may not make a distribution on our Series A Preferred Stock if, after giving effect to the distribution, we would not be able to pay our debts as they become due in the usual course of business or our total assets would be less than the sum of our total liabilities plus, unless the terms of such class or series provide otherwise, the amount that would be needed to satisfy the preferential rights upon dissolution of the holders of shares of any class or series of preferred stock then outstanding, if any, with preferences senior to those of our Series A Preferred Stock.

If our common stock is delisted, your ability to transfer or sell your shares of the Series A Preferred Stock may be limited and the market value of the Series A Preferred Stock will be materially adversely affected.

        Other than in connection with certain change of control transactions, the Series A Preferred Stock does not contain provisions that protect you if our common stock is delisted. Since the Series A Preferred Stock has no stated maturity date, you may be forced to hold your shares of the Series A Preferred Stock and receive stated dividends on the stock when, as and if authorized by our board of directors and declared by us with no assurance as to ever receiving the liquidation preference. In addition, if our common stock is delisted, it is likely that the Series A Preferred Stock will be delisted as well. Accordingly, if our common stock is delisted, your ability to transfer or sell your shares of the Series A Preferred Stock may be limited and the market value of the Series A Preferred Stock will be materially adversely affected.

U.S. Federal Income Tax Risks

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

        Our qualification as a REIT will depend upon our ability to meet requirements regarding our organization and ownership, distributions of our income, the nature and diversification of our income and assets and other tests imposed by the Code. If we fail to qualify as a REIT for any taxable year after electing REIT status, we will be subject to 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

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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."

Our shareholders may have current tax liability on distributions they elect to reinvest in our common stock.

        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 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 other tax liabilities that reduce our cash flow and our ability to make distributions to our shareholders.

        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:

    In order to qualify as a REIT, we must distribute annually at least 90% of our REIT taxable income to our shareholders (which is determined without regard to the dividends-paid deduction or net capital gain). To the extent that we satisfy the distribution requirement but distribute less than 100% of our REIT taxable income, we will be subject to U.S. federal corporate income tax on the undistributed income.

    We will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions we pay in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years.

    If we have net income from the sale of foreclosure property that we hold primarily for sale to customers in the ordinary course of business or other non-qualifying income from foreclosure property, we must pay a tax on that income at the highest corporate income tax rate.

    If we sell an asset, other than foreclosure property, that we hold primarily for sale to customers in the ordinary course of business, our gain would be subject to the 100% "prohibited transaction" tax unless such sale were made by our taxable REIT subsidiary ("TRS") or if we qualify for a safe harbor from tax.

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

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

        From time to time, we may generate taxable income greater than our income for financial reporting purposes, or our taxable income may be greater than our cash flow available for distribution

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

        To qualify as a REIT, we must satisfy certain tests on an ongoing basis concerning, among other things, the sources of our income, nature of our assets and the amounts we distribute to our 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 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.

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

        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.

The "taxable mortgage pool" rules may increase the taxes that we or our shareholders incur and may limit the manner in which we conduct securitizations.

        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

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RISK FACTORS



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.

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

        The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury. Changes to the tax laws, with or without retroactive application, could adversely affect our 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.

ERISA Risks

If you fail to meet the fiduciary and other standards under ERISA or the Code as a result of an investment in our Series A Preferred Stock, you could be subject to criminal and civil penalties.

        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 Series A Preferred 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

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

    the factors included in this prospectus, including those set forth under the headings "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business;"

    the competitive environment in which we operate;

    real estate risks, including fluctuations in real estate values and the general economic climate in local markets and competition for tenants in such markets;

    decreased rental rates or increasing vacancy rates;

    potential defaults on or non-renewal of leases by tenants;

    potential bankruptcy or insolvency of tenants;

    acquisition risks, including failure of such acquisitions to perform in accordance with projections;

    the timing of acquisitions and dispositions;

    potential natural disasters such as hurricanes;

    national, international, regional and local economic conditions;

    the general level of interest rates;

    potential changes in the law or governmental regulations that affect us and interpretations of those laws and regulations, including changes in real estate and zoning or REIT tax laws, and potential increases in real property tax rates;

    financing risks, including the risks that our cash flows from operations may be insufficient to meet required payments of principal and interest and we may be unable to refinance our existing debt upon maturity or obtain new financing on attractive terms or at all;

    lack of or insufficient amounts of insurance;

    our ability to qualify and maintain our qualification as a REIT;

    litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS


    possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by us.

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.

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USE OF PROCEEDS

        We estimate that the net proceeds we will receive from the sale of shares of our Series A Preferred Stock in this offering will be approximately $57.4 million (or approximately $66.1 million if the underwriters' overallotment option is exercised in full), after deducting underwriting discounts and commissions of approximately $1.9 million and estimated offering expenses of approximately $0.7 million payable by us. We will contribute the net proceeds we receive from this offering to our operating partnership in exchange for Series A Preferred Units in our operating partnership that will have rights as to distributions and upon liquidation, dissolution or winding up that are substantially similar to those of the Series A Preferred Stock.

        Our operating partnership intends to use the net proceeds to fund future acquisitions, repay indebtedness under our credit facility and for general working capital purposes, including funding capital expenditures, tenant improvements and leasing commissions. As of October 25, 2011, borrowings under our credit facility bore interest at LIBOR plus 2.25% and totaled $23.5 million. The proceeds from the borrowings under our credit facility were used for acquisition financings and other corporate purposes. Our credit facility matures on April 20, 2014, with an option to extend the maturity date for one additional year.

        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.

        Affiliates of Merrill Lynch, Pierce, Fenner & Smith Incorporated, UBS Securities LLC and RBC Capital Markets, LLC are lenders under our $100 million credit facility. To the extent that we use a portion of the net proceeds of this offering to repay borrowings outstanding under our credit facility, such affiliates of these underwriters will receive their proportionate shares of any amount of our credit facility that is repaid with the net proceeds of this offering.

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PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS

        Our common stock has been listed on the NYSE since April 15, 2011 and is traded under the symbol "STAG." The following table sets forth, for the periods indicated, the high and low sale prices in dollars on the NYSE for our common stock and the distributions we declared on our common stock with respect to the periods indicated.

 
  High   Low   Distributions  

Second quarter of 2011(1)

  $ 12.98   $ 10.52   $ 0.2057  

Third quarter of 2011

   
12.81
   
9.55
   
0.26
 

Fourth quarter of 2011 (through October 26, 2011)

   
11.23
   
9.80
   
 

(1)
Information is provided only for the period from April 15, 2011 to June 30, 2011, as shares of our common stock did not begin trading publicly until April 15, 2011.

        On October 26, 2011, the closing sale price for our common stock, as reported on the NYSE, was $10.69 and there were 22 holders of record of our common stock. This figure does not reflect the beneficial ownership of shares held in nominee name.

        We intend to continue to declare quarterly distributions on our common stock. The actual amount and timing of distributions, however, will be at the discretion of our board of directors and will depend upon our financial condition in addition to the requirements of the Code. Upon a default, our credit facility will limit, among other things, our ability to pay dividends. In addition, our credit facility limits, even in the absence of default, our ability to pay dividends. For example, one covenant restricts us from paying any dividends or making any payments for the repurchase or redemption of our equity securities in an amount per year exceeding in the aggregate the greater of (i) 115% (which percentage decreases over time to 95% by March 31, 2013) of our funds from operations (as defined in the credit facility) and (ii) the amount of distributions required to be paid for us to qualify as a REIT. Other indebtedness that we may incur in the future may contain financial or other covenants more restrictive than those in our existing credit facility. No assurance can be given as to the amounts or timing of future distributions.

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CAPITALIZATION

        The following table sets forth:

    our unaudited historical capitalization as of June 30, 2011;

    our unaudited pro forma capitalization as of June 30, 2011, to give effect to acquisitions, including probable acquisitions, subsequent to June 30, 2011; and

    our unaudited pro forma capitalization as of June 30, 2011, as adjusted to give effect to this offering and the use of proceeds as set forth in "Use of Proceeds."

        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 our historical unaudited financial statements and the unaudited pro forma financial information and related notes appearing elsewhere in this prospectus.

 
  As of June 30, 2011  
 
  Historical   Pro Forma   Pro Forma
as Adjusted(1)(2)
 
 
  (unaudited)
 
 
  (dollars in thousands)
 

Debt

  $ 255,870   $ 333,314   $ 304,180  

Equity:

                   
 

Shareholders' equity:

                   
   

Preferred stock, par value $0.01 per share, 10,000,000 shares authorized, no shares issued and outstanding on a historical and pro forma basis, 2,400,000 shares issued and outstanding on a pro forma, as adjusted, basis

            60,000  
   

Common stock, par value $0.01 per share; 100,000,000 shares authorized, 15,893,309 shares issued and outstanding

    159     159     159  
   

Additional paid-in capital

    177,906     177,906     176,168  
   

Accumulated deficit

    (3,903 )   (3,903 )   (3,903 )
               
 

Total shareholders' equity

    174,162     174,162     232,424  
 

Non-controlling interest in our operating partnership

    85,370     85,370     84,518  
               
     

Total equity

    259,532     259,532     316,942  
               

Total capitalization

  $ 515,402   $ 592,846   $ 621,122  
               

(1)
Assumes 2,400,000 shares will be sold in this offering for net proceeds of approximately $57.4 million after deducting the underwriting discounts and estimated offering expenses payable by us of approximately $2.6 million. See "Use of Proceeds."

(2)
Does not include underwriters' option to purchase up to 360,000 additional shares of preferred stock.

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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 our company and STAG Predecessor Group. On a pro forma basis, we will own 102 properties. Included in the 102 properties are two properties under contract, which we consider to be probable; however, we can make no assurance that we will acquire these properties or, if we do, what the terms or timing will be.

        You should read the following selected 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 consolidated financial statements of the Company, 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 the acquisitions, including two probable acquisitions, subsequent to June 30, 2011 had occurred on June 30, 2011, and the unaudited pro forma statements of operations and other data for the six months ended June 30, 2011 and the year ended December 31, 2010, are presented as if the formation transactions, initial public offering and acquisitions, including two probable acquisitions, subsequent to April 19, 2011 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 June 30, 2011 or what our actual results of operations would have been assuming these events had occurred on June 30, 2011 or January 1, 2010, respectively, nor does it purport to represent our future financial position or results of operations.

        The selected historical consolidated balance sheet information as of June 30, 2011, and STAG Predecessor Group's historical combined statement of operations data for the periods from January 1, 2011 to April 19, 2011 and the six months ended June 30, 2010, and STAG Industrial, Inc.'s historical consolidated statements of operations data for the period from April 20, 2011 to June 30, 2011, have been derived from the unaudited financial statements of STAG Industrial, Inc. included elsewhere in this prospectus. 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 selected historical 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 selected 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
Industrial, Inc.
Historical
  STAG Predecessor Group Historical  
 
  Six Months
Ended
June 30,
2011
   
  Period from
April 20,
to June 30
2011
  Period from
January 1,
to April 19,
2011
  Six months
ended
June 30,
2010
  Year Ended December 31,    
 
 
  Year Ended
December 31,
2010
  Period Ended
December 31,
2006
 
 
  2010   2009   2008   2007(1)  
 
  (unaudited)
  (unaudited)
  (unaudited)
  (unaudited)
  (unaudited)
   
   
   
  (unaudited)
  (unaudited)
 
 
  (dollars in thousands)
 

Statement of Operations Data:

                                                             

Revenue

                                                             

Rental income

  $ 28,873   $ 59,831   $ 9,670   $ 7,027   $ 12,574   $ 24,249   $ 25,658   $ 27,319   $ 11,162   $ 941  

Tenant recoveries

    3,542     7,222     1,073     1,218     2,445     3,761     4,508     3,951     1,326      

Other

    626     1,252     267                                
                                           

Total revenue

    33,041     68,305     11,010     8,245     15,019     28,010     30,166     31,270     12,488     941  
                                           

Expenses

                                                             

Property

    5,578     10,513     1,672     2,145     3,314     6,123     8,409     5,813     1,437     11  

General and administrative

    4,756     9,513     2,060     497     528     937     1,078     1,112     648     29  

Property acquisition costs

            327                                

Depreciation and amortization

    16,880     32,993     6,446     2,459     5,326     9,514     10,257     12,108     4,687     336  

Loss on impairment of assets

                                3,728          
                                           

Total expenses

    27,214     53,019     10,505     5,101     9,168     16,574     19,744     22,761     6,772     376  
                                           

Other income (expense)

                                                             

Interest income

    10     16     9     1     2     16     66     140     163     4  

Interest expense

   
(9,824

)
 
(19,326

)
 
(3,185

)
 
(4,136

)
 
(6,934

)
 
(14,116

)
 
(14,328

)
 
(15,058

)
 
(7,861

)
 
(616

)

Gain (loss) on interest rate swaps

    1,313     (210 )   500     762     (935 )   (282 )   (1,720 )   (1,275 )        

Formation transaction costs

            (3,728 )                                        
                                           

Total other income (expense)

    (8,501 )   (19,520 )   (6,404 )   (3,373 )   (7,867 )   (14,382 )   (15,982 )   (16,193 )   (7,698 )   (612 )
                                           

Net loss

  $ (2,674 ) $ (4,234 ) $ (5,899 ) $ (229 ) $ (2,016 ) $ (2,946 ) $ (5,560 ) $ (7,684 ) $ (1,982 ) $ (47 )
                                           

Net loss per share attributable to the Company

    (0.11 )   (0.18 )   (0.26 )                            
                                           

Balance Sheet Data (End of Period):

                                                             

Rental property, before accumulated depreciation

  $ 484,114         $ 426,688               $ 210,186   $ 210,009   $ 208,948   $ 212,688   $ 31,998  

Rental property, after accumulated depreciation

    460,391           402,965                 190,925     195,383     200,268     210,294     31,808  

Total assets

    609,459           531,619                 211,004     220,116     229,731     242,134     35,976  

Total debt

    333,314           255,870                 207,550     212,132     216,178     217,360     31,877  

Total liabilities

    349,927           272,087                 219,340     221,637     223,171     220,548     32,305  

Owners'/shareholders' equity (deficit)

    259,532           259,532                 (8,336 )   (1,521 )   6,560     21,586     3,671  

Other Data (unaudited):

                                                             

Cash flow provided by operating activites

              $ 1,786   $ 2,359   $ 4,726   $ 9,334   $ 8,365   $ 8,431   $ 3,488   $ 273  

Cash flow used in investing activities

                (21,799 )   (581 )   (1,130 )   (2,088 )   (2,040 )   (411 )   (203,669 )   (30,041 )

Cash flow (used in) provided by financing activities

                33,043     (3,070 )   (3,979 )   (8,451 )   (6,921 )   (8,524 )   204,581     35,315  

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SELECTED FINANCIAL INFORMATION



 
  Company Pro Forma   STAG
Industrial, Inc. Historical
  STAG Predecessor Group Historical  
 
  Six Months
Ended
June 30,
2011
   
  Period from
April 20,
to June 30
2011
  Period from
January 1,
to April 19,
2011
  Six months
ended
June 30,
2010
  Year Ended December 31,    
 
 
  Year Ended
December 31,
2010
  Period Ended
December 31,
2006
 
 
  2010   2009   2008   2007(1)  
 
  (unaudited)
  (unaudited)
  (unaudited)
  (unaudited)
  (unaudited)
   
   
   
  (unaudited)
  (unaudited)
 
 
  (dollars in thousands)
 

Statement of Operations Data:

                                                             

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

                                                             

Revenue

                                                             

Rental income

  $ 28,873   $ 59,831   $ 9,670   $ 7,027   $ 12,574   $ 24,249   $ 25,658   $ 27,319   $ 11,162   $ 941  

Tenant recoveries

    3,542     7,222     1,073     1,218     2,445     3,761     4,508     3,951     1,326      

Other operating income

    626     1,252     267                              

Property expenses

    (5,578 )   (10,513 )   (1,672 )   (2,145 )   (3,314 )   (6,123 )   (8,409 )   (5,813 )   (1,437 )   (11 )
                                           

Net operating income (NOI)

  $ 27,463   $ 57,792   $ 9,338   $ 6,100   $ 11,705   $ 21,887   $ 21,757   $ 25,457   $ 11,051   $ 930  
                                           

Net loss

  $ (2,674 ) $ (4,234 ) $ (5,899 ) $ (229 ) $ (2,016 ) $ (2,946 ) $ (5,560 ) $ (7,684 ) $ (1,982 ) $ (47 )

Interest income

    (10 )   (16 )   (9 )   (1 )   (2 )   (16 )   (66 )   (140 )   (163 )   (4 )

(Gain) loss on interest rate swaps

    (1,313 )   210     (500 )   (762 )   935     282     1,720     1,275          

Formation transaction costs

            3,728                              

Property acquisition costs

            327                              

Depreciation and amortization

    16,880     32,993     6,446     2,459     5,326     9,514     10,257     12,108     4,687     336  

Interest expense

    9,824     19,326     3,185     4,136     6,934     14,116     14,328     15,058     7,861     616  

General and administrative expenses

    4,756     9,513     2,060     497     528     937     1,078     1,112     648     29  

Loss on impairment

                                3,728          
                                           

Net operating income (NOI)

  $ 27,463   $ 57,792   $ 9,338   $ 6,100   $ 11,705   $ 21,887   $ 21,757   $ 25,457   $ 11,051   $ 930  
                                           

EBITDA (unaudited)(2):

                                                             

Net loss

  $ (2,674 ) $ (4,234 ) $ (5,899 ) $ (229 ) $ (2,016 ) $ (2,946 ) $ (5,560 ) $ (7,684 ) $ (1,982 ) $ (47 )

Interest expense

    9,824     19,326     3,185     4,136     6,934     14,116     14,328     15,058     7,861     616  

Interest income

    (10 )   (16 )   (9 )   (1 )   (2 )   (16 )   (66 )   (140 )   (163 )   (4 )

Depreciation and amortization

    16,880     32,993     6,446     2,459     5,326     9,514     10,257     12,108     4,687     336  
                                           

EBITDA

  $ 24,020   $ 48,069   $ 3,723   $ 6,365   $ 10,242   $ 20,668   $ 18,959   $ 19,342   $ 10,403   $ 901  
                                           

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

                                                             

Net loss

  $ (2,674 ) $ (4,234 ) $ (5,899 ) $ (229 ) $ (2,016 ) $ (2,946 ) $ (5,560 ) $ (7,684 ) $ (1,982 ) $ (47 )

Depreciation and amortization

    16,880     32,993     6,446     2,459     5,326     9,514     10,257     12,108     4,687     336  
                                           

Funds from operations (FFO)

  $ 14,206   $ 28,759   $ 547   $ 2,230   $ 3,310   $ 6,568     4,697   $ 4,424   $ 2,705   $ 289  
                                           

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

                                                             

FFO

  $ 14,206   $ 28,759   $ 547   $ 2,230   $ 3,310   $ 6,568   $ 4,697   $ 4,424   $ 2,705   $ 289  

Impairment charges

                                3,728          

Straight line rental revenue adjustment

    (755 )   (2,081 )   (326 )   (16 )   (464 )   (641 )   (817 )   (1,187 )   (415 )   (61 )

Deferred financing cost amortization

    289     968     264     31     59     118     466     522     160     30  

Above/below market lease amortization

    2,188     3,930     869     (2 )   (14 )   (34 )   284     (563 )   (23 )   (15 )

(Gain) loss on interest rate swaps

    (1,313 )   210     (500 )   (762 )   935     282     1,720     1,275          

Formation transaction costs(3)

            3,728                              

Property acquisition costs(4)

            327                              

Amortization of non-cash compensation

    332     664     156                              

Recurring capital expenditures

    (147 )   (293 )           (131 )   (279 )   (164 )   (118 )        

Lease renewal commissions and tenant improvements

    (78 )   (156 )   (25 )   (24 )   (22 )   (156 )   (20 )            
                                           

Adjusted funds from operations (AFFO)

  $ 14,722   $ 32,001   $ 5,040   $ 1,457   $ 3,673   $ 5,858   $ 6,166   $ 8,081   $ 2,427   $ 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.

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(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 costs incurred related to the initial public offering and formation transactions which closed on April 20, 2011.

(4)
Represents direct costs incurred for the acquisition of our properties.

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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 unaudited financial statements and notes thereto as of June 30, 2011 of STAG Industrial, Inc. and 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. The financial information presented for periods on or prior to April 19, 2011 relate solely to the STAG Predecessor Group. The financial statements for the six months ended June 30, 2011 include the financial information of STAG Industrial, Inc. and our consolidated subsidiaries for the period from April 20, 2011 to June 30, 2011 and STAG Predecessor Group for the period from January 1, 2011 to April 19, 2011. 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 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 were formed in 2010 to 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 $1.5 billion of capital, representing the acquisition of 229 properties totaling approximately 37.7 million rentable square feet in 152 individual transactions. We completed our initial public offering on April 20, 2011.

        As of June 30, 2011, we owned 93 properties in 26 states with approximately 14.2 million rentable square feet, consisting of 46 warehouse/distribution properties, 26 manufacturing properties and 21 flex/office properties. As of June 30, 2011, our properties were 91.0% leased to 74 tenants, with no single tenant accounting for more than 5.3% of our total annualized rent and no single industry accounting for more than 14.1% 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 were formed as a Maryland corporation on July 21, 2010 and our operating partnership, of which we, through our wholly owned subsidiary, STAG Industrial GP, LLC, are the sole general partner, was formed as a Delaware limited partnership on December 21, 2009. We are organized and conduct our operations to qualify as a REIT under the Code, and generally are not subject to federal taxes on our income to the extent we 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 of June 30, 2011, we owned a 67.1% limited partnership interest in our operating partnership.

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        As a result of our initial public offering and formation transactions, our financial condition and results of operations as of and for periods ending after April 19, 2011 will differ significantly from, and will not be comparable with, the historical financial position and results of operations of STAG Predecessor Group, which represents only a part of our company. 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 of our company as if our acquisition of the acquisition properties had occurred on June 30, 2011 for the pro forma consolidated balance sheet and on January 1, 2010 for the pro forma consolidated statements 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.

    Formation Transactions

        Concurrent with our initial public offering on April 20, 2011, we completed our formation transactions, pursuant to which we acquired, 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 acquired our initial property portfolio together with the other assets and operations of the management company. In consideration for the contributions, we issued an aggregate of 7,590,000 common units with an aggregate value of $98.7 million, based on the initial public offering price of $13.00 per share, to the contributors of the management company, Fund III, Fund IV and STAG GI. We also repaid with the proceeds of the initial public offering approximately $162.2 million of debt and assumed approximately $256.4 million in principal amount of mortgage debt secured by contributed properties that was not repaid with proceeds of our initial public offering.

        Our management determined that common control did not exist among the entities constituting our predecessor business; accordingly, our formation transactions were accounted for as a business combination. Any interests in the entities contributed by Fund III were 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 were 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 was 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 evaluated the time period over which such occupancy level would be achieved and included an estimate of the net operating costs (primarily real estate taxes, insurance and utilities) incurred during the lease-up period, which generally ranges from 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

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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.

        Since the consummation of our formation transactions and our initial public offering, our operations have been carried on through our operating partnership. Our formation transactions were designed to:

    consolidate the ownership of the property portfolio under our operating partnership and its subsidiaries;

    consolidate our acquisition and asset management businesses into a subsidiary of our operating partnership;

    enable us to qualify as a REIT for U.S. federal income tax purposes commencing with the taxable year ending December 31, 2011;

    defer the recognition of taxable gain by certain continuing investors; and

    enable prior investors to obtain liquidity (common units) for their investments.

        As a result, we are now a fully integrated, self-administered and self-managed real estate company with 27 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

    Outlook

        The lack of speculative development generally across the country and specifically in our markets may improve occupancy levels and rental rates in our owned portfolio. In addition, our acquisition activity is expected to enhance our overall financial performance. The continuation of low interest rates combined with the availability of attractively priced properties should allow us to deploy our capital on an attractive "spread investing" basis.

    Business and Strategy

        We are continuing 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.

    Rental Revenue

        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 September 30, 2011, our properties were approximately 92.2% leased. The amount of rental revenue generated by us also depends on our ability to maintain or increase

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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.

        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.

    Scheduled Lease Expirations

        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 September 30, 2011, we had approximately 1.3 million rentable square feet of currently available space in our properties and we had no leases scheduled to expire prior to December 31, 2011. Of the 661,911 square feet of leases originally scheduled to expire in 2011, we have renewed 582,731 square feet or 88.0% as of September 30, 2011.

    Conditions in Our Markets

        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.

    Rental Expenses

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

    General and Administrative Expenses

        Since our initial public offering, we have incurred 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 27 employees to between 28 and 30 employees during the next 12 to 24 months and, as a result, our general and administrative expenses will further increase.

Critical Accounting Policies

        Our discussion and analysis of the historical financial condition and results of operations of STAG Industrial, Inc. and STAG Predecessor Group are based upon their financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements in conformity

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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 consolidated and combined financial statements of STAG Industrial, Inc. and 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 Industrial, Inc." interchangeably. Except where specifically stated to the contrary, the critical accounting policies of STAG Industrial, Inc. are substantially similar to those of the STAG Predecessor Group.

    Basis of Presentation

        Our consolidated financial statements include the accounts of the company, our operating partnership and our subsidiaries. The equity interests of other limited partners in our operating partnership are reflected as noncontrolling interest. The combined financial statements of STAG Predecessor Group include the accounts of STAG Predecessor Group and all entities in which STAG Predecessor Group had a controlling interest. All significant intercompany balances and transactions have been eliminated in the combination of entities. The financial statements of the company are presented on a consolidated basis, for all periods presented and include the consolidated historical financial statements of the transferred collection of real estate entities and holdings, upon the initial public offering. The combined financial information presented for periods on or prior to April 19, 2011 relate solely to the STAG Predecessor Group. The financial statements for the quarter ending June 30, 2011 include the financial information of the company, our operating partnership, our subsidiaries and STAG Predecessor Group.

        Where the "company" is referenced in comparisons of financial results for any date prior to and including April 19, 2011, the financial information for such period relates solely to the STAG Predecessor Group, notwithstanding "company" being the reference.

    Estimates

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

    Rental Property and Depreciation

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

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the asset's carrying value exceeds the estimated fair value. Estimating future cash flows is highly subjective and such estimates could differ materially from actual results. For the periods presented, no impairment charges were recognized.

        For properties considered held for sale, we cease depreciating the properties and value the properties at the lower of depreciated cost or fair value, less costs to dispose. If circumstances arise that were previously considered unlikely, and, as a result, we decided not to sell a property previously classified as held for sale, we will reclassify such property as held and used. Such property is measured at the lower of its carrying amount (adjusted for any depreciation and amortization expense that would have been recognized had the property been continuously classified as held and used) or fair value at the date of the subsequent decision not to sell. We classify properties as held for sale when all criteria within the Financial Accounting Standards Board's (the "FASB") Accounting Standard Codification ("ASC") 360 Property, Plant and Equipment ("ASC 360") (formerly known as Statement of Financial Accounting Standard ("SFAS") No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets) are met.

        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.

        We account for all acquisitions in accordance with ASC 805, Business Combinations, (formerly known as SFAS No. 141(R)). Upon acquisition of a property, we allocate the purchase price of the property based upon the fair value of the assets and liabilities acquired, which generally consist of land, buildings, tenant improvements and intangible assets including in-place leases, above market and below market leases and tenant relationships. We allocate the purchase price to the fair value of the tangible assets of an acquired property by valuing the property as if it were vacant. Acquired above and below market leases are valued based on the present value of the difference between prevailing market rates and the in-place rates measured over a period equal to the remaining term of the lease for above market leases and the initial term plus the term of any below market fixed rate renewal options for below market leases that are considered bargain renewal options. The above market lease values are amortized as a reduction of rental income over the remaining term of the respective leases, and the below market lease values are amortized as an increase to rental income over the remaining initial terms plus the terms of any below market fixed rate renewal options that are considered bargain renewal options of the respective leases.

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

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leasing commissions, above and below market leases, the in-place lease value and tenant relationships are immediately written off.

    Tenant Accounts Receivable, Net

        We provide an allowance for doubtful accounts against the portion of tenant accounts receivable which is estimated to be uncollectible.

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

    Goodwill

        The excess of the cost of an acquired business over the net of the amounts assigned to assets acquired (including identified intangible assets) and liabilities assumed is recorded as goodwill. Goodwill of the company represents amounts allocated to the assembled workforce from the acquired management company. The company's goodwill has an indeterminate life and is not amortized, but is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired.

    Fair Value of Financial Instruments

        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 because of the short term maturity of these instruments.

    Derivative Financial Instruments and Hedging Activities

        We account for interest rate swaps in accordance with FASB's ASC 815, Derivatives and Hedging. We have not designated the interest rate swaps as hedge instruments for accounting purposes. Accordingly, we recognize the fair value of the interest rate swaps as an asset or liability on the consolidated balance sheets with the changes in fair value recognized in the consolidated statements of operations.

        By using interest rate swaps, we expose ourself to market and credit risk. Market risk is the risk of an adverse effect on the value of a financial instrument that results from a change in interest rates. Credit risk is the risk of failure of the counterparty to perform under the terms of the contract. We minimize the credit risk in an interest rate swap by entering into transactions with high-quality counterparties. Our exposure to credit risk at any point is generally limited to amounts recorded as assets or liabilities on the consolidated balance sheets.

    Revenue Recognition

        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.

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

        We earn revenues from asset management fees, which are included in our statements of operations in other income. We recognize revenues from asset management fees when the related fees are earned and are realized or realizable.

        Certain tenants are obligated to pay directly their obligations under their leases 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 the company's consolidated financial statements. To the extent any tenant responsible for these costs under their respective lease defaults on its lease or it is deemed probable that it will fail to pay for such costs, we would record a liability for such obligation. We do not recognize recovery revenue related to leases where the tenant has assumed the cost for real estate taxes, insurance, and certain other expenses.

Historical Results of Operations of STAG Industrial, Inc. and STAG Predecessor Group

        Within the following Historical Results of Operations, the six months ended June 30, 2011 consists of the STAG Predecessor Group's operations for the period January 1 to April 19, 2011 and the company's operations for the period April 20 to June 30, 2011. The six months ended June 30, 2010 consists of the STAG Predecessor Group's operations.

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    Comparison of six months ended June 30, 2011 to the six months ended June 30, 2010

        The following table summarizes our historical results of operations for the six months ended June 30, 2011 and 2010 (unaudited).

 
  Six Months Ended
June 30,
   
   
 
 
   
  %
Change
 
 
  2011(1)   2010   Change  
 
  (unaudited)
 
 
  (dollars in thousands)
 

Revenue

                         

Rental income

  $ 16,697   $ 12,574   $ 4,123     33 %

Tenant recoveries(2)

    2,291     2,445     (154 )   (6 )%

Other income

    267         267     100 %
                   
 

Total revenue

    19,255     15,019     4,236     28 %
                   

Expenses

                         
 

Property

    1,990     1,745     245     14 %
 

General and administrative

    2,378     231     2,147     929 %
 

Real estate taxes and insurance

    1,827     1,569     258     16 %
 

Asset management fees

    179     297     (118 )   (40 )%
 

Property acquisition costs

    327         327     100 %
 

Depreciation and amortization

    8,905     5,326     3,579     67 %
                   
   

Total expenses

    15,606     9,168     6,438     70 %
                   

Other income (expense)

                         
 

Interest income

    10     2     8     400 %
 

Interest expense

    (7,321 )   (6,934 )   (387 )   6 %
 

Gain (loss) on interest rate swaps

    1,262     (935 )   2,197     235 %
 

Formation transaction costs

    (3,728 )       (3,728 )   100 %
                   
   

Total other income (expense)

    (9,777 )   (7,867 )   (1,910 )   24 %
                   

Net loss

  $ (6,128 ) $ (2,016 ) $ (4,112 )   204 %
                   

Net loss attributable to non-controlling interest

  $ (1,996 ) $   $ (1,996 )   100 %
                   

Net loss attributable to the company

  $ (4,132 ) $ (2,016 ) $ (2,116 )   104 %
                   

(1)
We have prepared the results of operations for the six months ended June 30, 2011 by combining amounts for 2011 obtained by adding the results of operations for STAG Predecessor Group for the period January 1, to April 19, 2011 and the results of operations for STAG Industrial Inc. for the period April 20 to June 30, 2011. Although this combined presentation does not comply with GAAP, we believe that it provides a meaningful method of comparison.

(2)
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.

    Revenue

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

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        Total revenue increased by $4.2 million, or 28%, to $19.3 million for the six months ended June 30, 2011 compared to $15.0 million for the six months ended June 30, 2010. The increase was primarily attributable to additional revenue from properties contributed to our company as part of the formation transactions as well as the acquisitions of two properties during the six months ended June 30, 2011. The increase was also attributable to asset management and administrative fees earned in 2011. The increase was partially offset due to terminated or expired leases at two of our properties prior to the six months ended June 30, 2011.

    Expenses

        Total expenses increased by $6.4 million, or 70%, to $15.6 million for the six months ended June 30, 2011 compared to $9.2 million for the six months ended June 30, 2010. The increase was primarily attributable to $327,000 of property acquisition costs related to the acquisition of the properties during the six months ended June 30, 2011, $3.6 million of depreciation and amortization and $2.1 million of increased general and administrative expenses following our initial public offering and formation transactions. For the six months ended June 30, 2010, we reported the results only of STAG Predecessor Group. General and administrative expenses increased due to the inclusion of salary and other compensation costs as well as office expenses following the formation transactions. The increase was partially offset by accelerated amortization of lease intangibles recorded during the six months ended June 30, 2010 in connection with certain lease terminations. Additionally, depreciation and amortization increased as the properties acquired in the formation transactions resulted in an increased asset base to depreciate.

    Other Income (Expense)

        Total other income (expense) consists of interest income, interest expense, gain (loss) on interest rate swaps and transaction costs. Interest expense includes interest paid and accrued during the period as well as adjustments related to amortization of financing costs.

        Total other expense increased $1.9 million, or 24%, to $9.8 million for the six months ended June 30, 2011 compared to $7.9 million for the six months ended June 30, 2010. The increase was primarily attributable to $3.7 million of formation transaction costs incurred in connection with the formation transactions. The increase was partially offset by an increase in gain on interest rate swaps of $2.2 million.

    Income (loss) from Non-controlling Interest

        We consolidate and are the majority owner of our operating partnership. Income (loss) from non-controlling interest is an allocation of income (loss) to the limited partners of our operating partnership. There was $0 of non-controlling interest at June 30, 2010, resulting in an increase of $2.0 million to loss from non-controlling interest.

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    Comparison of year ended December 31, 2010 to year ended December 31, 2009

        The following table summarizes historical results of operations of STAG Predecessor Group 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.

    Revenue

        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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    Expenses

        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.

    Other Income (Expense)

        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.

    Comparison of year ended December 31, 2009 to year ended December 31, 2008

    Revenue

        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.

    Expenses

        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.

    Other Income (Expense)

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

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        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.

Cash Flows

    Comparison of the six months ended June 30, 2011 to the six months ended June 30, 2010

        The following table summarizes our cash flows for the six months ended June 30, 2011 (inclusive of STAG Predecessor Group from the period January 1 to April, 19, 2011 and STAG Industrial, Inc. from the period April 20 to June 30, 2011) compared to STAG Predecessor Group's combined cash flows for the six months ended June 30, 2010:

 
  Six Months Ended
June 30,
   
   
 
 
   
  %
Change
 
 
  2011(1)   2010   Change  
 
  (unaudited)
   
   
 
 
  (dollars in thousands)
   
   
 

Cash provided by operating activities

  $ 4,145   $ 4,726     (581 )   (12 )%

Cash used in investing activities

    (22,380 )   (1,130 )   (21,250 )   1,881 %

Cash (used in) provided by financing activities

    29,973     (3,979 )   33,952     (853 )%

(1)
We have prepared the results of operations for the six months ended June 30, 2011 by combining amounts for 2011 obtained by adding the results of operations for STAG Predecessor Group for the period January 1 to April 19, 2011 and the results of operations for STAG Industrial Inc. for the period April 20 to June 30, 2011. Although this combined presentation does not comply with GAAP, we believe that it provides a meaningful method of comparison.

        Net cash provided by operating activities.    Net cash provided by operating activities decreased $0.6 million to $4.1 million for the six months ended June 30, 2011 compared to $4.7 million for the six months ended June 30, 2010. The decrease in cash provided by operating activities was primarily attributable to the net changes in current assets and liabilities due in large part to the formation transactions. Also, we had a net loss of $6.1 million for the six months ended June 30, 2011 compared to a net loss of $2.0 million for the STAG Predecessor Group for the six months ended June 30, 2010. The primary cash changes included in net loss relate to additional general and administrative expenses and formation transaction costs related to the formation transactions and initial public offering.

        Net cash used in investing activities.    Net cash used in investing activities increased by $21.3 million to $22.4 million for the six months ended June 30, 2011 compared to $1.1 million for the six months ended June 30, 2010. The change is primarily attributable to additions of property, specifically two properties which were purchased subsequent to the formation transactions.

        Net cash provided by (used in) financing activities.    Net cash provided by (used in) financing activities increased $34.0 million to $30.0 million for the six months ended June 30, 2011 compared to

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$(4.0) million for the six months ended June 30, 2010. The change is primarily attributable to the net proceeds from our initial public offering, offset by the repayment of mortgage notes payable with offering proceeds during the six months ended June 30, 2011.

    Comparison of year ended December 31, 2010 to the year ended December 31, 2009

        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 an 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.

    Comparison of year ended December 31, 2009 to year ended December 31, 2008

        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 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

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$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.

Off Balance Sheet Arrangements

        As of June 30, 2011, we had no off-balance sheet arrangements.

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:

    interest expense and scheduled principal payments on outstanding indebtedness,

    general and administrative expenses, and

    capital expenditures for tenant improvements and leasing commissions.

        In addition, we will require funds for future dividends expected to be paid to our common shareholders and unit holders in our operating partnership. On May 2, 2011, our board of directors declared a second quarter dividend of $0.2057, payable on July 15, 2011 to all shareholders of record on June 30, 2011. The dividend payment was based on a quarterly dividend rate of $0.26 per share pro-rated for the portion of the second quarter that we had been in existence as a public company. On September 15, 2011, our board of directors declared a third quarter dividend of $0.26, which was paid on October 14, 2011 to all shareholders of record on September 30, 2011.

        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 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.

    Indebtedness Outstanding

        We are a party to a master loan agreement with Anglo Irish Bank Corporation Limited ("Anglo Irish"). As of June 30, 2011, the outstanding balance under this loan agreement was approximately $140.7 million. As part of our formation transactions, the maturity date of the Anglo Irish master loan was extended from January 2012 to October 2013. In addition, upon consummation of our formation transactions, we assumed the following debt:

    our acquisition loan facility with CIGNA that was originally entered into in July 2010 (the "CIGNA-1 facility") with an outstanding balance of approximately $60.7 million and an interest rate of 6.50% per annum, scheduled to mature on February 1, 2018 (which had no remaining borrowing capacity);

    the CIGNA-2 facility, which had an outstanding balance of approximately $34.6 million and an interest rate of 5.75% per annum, scheduled to mature on February 1, 2018 (which had approximately $30.4 million in borrowing capacity remaining as of the completion of our formation transaction); and

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    a loan from CIBC, Inc. with an estimated outstanding balance of $8.5 million and an interest rate of 7.05% per annum, scheduled to mature on August 1, 2027. The 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 but is prepayable at par from May 1, 2012 through and including August 1, 2012.

        The following table sets forth certain information with respect to the indebtedness outstanding as of June 30, 2011:

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

   
   
   

Anglo Irish Master Loan

  $ 140,688   LIBOR + 3.00%(1)     5.165 % Oct-31-2013

CIGNA-1

    60,714   Fixed     6.50 % Feb-1-2018

CIGNA-2(2)

    45,943   Fixed     5.75 % Feb-1-2018

CIBC, Inc. 

    8,525   Fixed     7.05 %(3) Aug-1-2027

Credit Facility

    0   LIBOR + 3.00%     3.186 % Apr-20-2014
                 

Total/Weighted Average

  $ 255,870         5.65 %  
                 

(1)
Swapped for a fixed rate of 2.165% plus the 3.00% spread for an effective fixed rate of 5.165%. The swap expires January 31, 2012.

(2)
As of June 30, 2011, we had approximately $19.1 million of borrowing capacity under this acquisition loan facility.

(3)
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, but is prepayable at August 31, 2012.

        On July 8, 2011, we entered into the CIGNA-3 facility, a $65 million acquisition loan facility with CIGNA with an interest rate of 5.88% per annum and scheduled to mature in September 2019.

        Certain of our loan agreements contain financial covenants, including loan-to-value requirements with respect to the collateral properties, a minimum debt service coverage ratio, 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.

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

    Secured Corporate Revolving Credit Facility

        On April 20, 2011, we closed a loan agreement for our credit facility of up to $100.0 million with Bank of America, N.A. as administrative agent and Merrill Lynch, Pierce, Fenner & Smith Incorporated as lead arranger. On October 17, 2011, we closed on an amendment to the credit facility to improve pricing, increase the advance rate and create additional flexibility in our covenants. The credit facility is secured, among other things, by mortgages granted by various indirect subsidiaries of our operating partnership. In connection with the closing of our initial public offering, we borrowed

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approximately $11.0 million under the credit facility to pay down indebtedness we assumed pursuant to our formation transactions. On May 17, 2011, we used a portion of the proceeds from the exercise of the overallotment option to repay the $11.0 million outstanding under the credit facility. Proceeds from the credit 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 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 accordion feature that allows us to request an increase in the total commitments of up to $100.0 million to $200.0 million under certain circumstances. During the second quarter, we incurred unused fees of $0.1 million for this facility. On July 18, 2011, September 26, 2011 and October 12, 2011, we borrowed $13.5 million, $4.0 million and $6.0 million, respectively, for acquisition financings and other corporate purposes.

        Availability under the credit facility is the lesser of (i) the aggregate commitment, (ii) prior to satisfaction of an appraisal condition with respect to the collateral pool, 50% 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 1.75x 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.

        Interest and Fees:    The applicable interest rate under the credit facility generally depends 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 2.25%, (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 2.50%, (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 2.75%, (iv) if our ratio of consolidated debt to total asset value is greater than 55%, the spread over LIBOR will be 3.25%. 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 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, including an unused fee equal to 0.50% of the unused balance of the credit facility if usage is less than 50% of the capacity and 0.35% if usage is greater than 50%.

        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

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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 1.75 to 1.0 through the quarter ending June 30, 2012, increasing to 2.0 to 1.0 for each quarter thereafter, provided if we complete a preferred offering the ratio shall not be less than 1.5 to 1.0 through the quarter ending March 31, 2012, increasing to 1.75 to 1.0 as of each quarter thereafter, 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 our initial public 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.

        The foregoing is only a summary of the material terms of our credit facility. For more information, see the credit agreement, which is filed as an exhibit to the registration statement of which this prospectus is a part.

    Contractual Obligations

        The following table reflects our contractual obligations as of June 30, 2011, specifically our obligations under long-term debt agreements, and operating and ground lease agreements (dollars in thousands):

 
  Payments by Period
(unaudited)
 
Contractual Obligations(1)(2)
  Total   2011   2012 - 2013   2014 - 2015   Thereafter  

Principal payments

  $ 255,729   $ 2,179   $ 142,304   $ 3,347   $ 107,899  

Interest payments

  $ 67,321   $ 7,203   $ 27,204   $ 14,018   $ 18,896  

Obligations under ground leases

  $ 5,133   $ 110   $ 225   $ 230   $ 4,568  
                       

Total

  $ 328,183   $ 9,492   $ 169,733   $ 17,595   $ 131,363  
                       

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

(2)
The terms of the Anglo Irish master loan 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. The terms of the loan agreements for each of the CIGNA-1, CIGNA-2 and CIGNA-3 acquisition loan facilities also stipulate that

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


    general reserve escrows be funded monthly in an amount equal to eight basis points of the principal of the loans outstanding at the time.

        The following table reflects our pro forma contractual obligations as of June 30, 2011, specifically our obligations under long-term debt agreements, and operating and ground lease agreements (dollars in thousands): </