Real Estate

6 Months Ended

Jun. 30, 2012

Real Estate

Real Estate

3. Real Estate

As part of the IPO and the related formation transactions, STAG Investments IV, LLC and STAG GI Investments, LLC contributed 100% of their real estate entities and operations in exchange for 7,320,610 common limited partnership units in the Operating Partnership (“common units”)  valued at $13.00 per common unit. The members of STAG Capital Partners, LLC and STAG Capital Partners III, LLC (referred to, together, as the “Management Company” in this report), contributed 100% of those entities’ assets and liabilities in exchange for 38,621 common units valued at $13.00 per common unit. The contribution of interests in the Management Company was accounted for as an acquisition under the acquisition method of accounting and recognized at the estimated fair value of acquired assets and assumed liabilities on the date of such contribution. STAG Predecessor Group, which includes the entity that is considered the Company’s accounting acquirer, is part of the Company’s predecessor business and therefore the assets and liabilities of STAG Predecessor Group were accounted for at carryover basis.

The fair values assigned to identifiable intangible assets acquired were based on estimates and assumptions determined by the Company’s management. Using information available at the time the acquisition closed, the Company allocated the total consideration to tangible assets and liabilities, identified intangible assets and liabilities, and goodwill.

On April 18, 2012, the Company entered into an agreement with affiliates of Columbus Nova Real Estate Acquisition Group, Inc. (“Columbus Nova”) to source sale leaseback transactions for potential acquisitions by the Company.  The agreement called for various fees to be paid to Columbus Nova for their services including acquisition fees and a one-time incentive fee if certain performance thresholds are met.  On June 15, 2012, the Company acquired six industrial properties representing approximately 750,000 square feet in total for an aggregate purchase price of $30 million from Columbus Nova.   At the June 15, 2012 acquisition of the six industrial properties referenced above, the Company paid Columbus Nova an acquisition fee in the form of 15,789 Operating Partnership common units with a fair value of approximately $0.2 million, which is included in property acquisition costs on the accompanying Consolidated Statements of Operations.  The issuance of the common units was effected in reliance upon an exemption from registration provided by Section 4(2) under the Securities Act of 1933, as amended. The Company relied on the exemption based on representations given by the holders of the common units.  For further details on the one-time incentive fee, refer to Note 10.

The following table summarizes the acquisitions of the Company since the IPO:

Six Months Ended June 30, 2012

Property Location	Date Acquired	Square Feet	Properties
East Windsor, CT	3/1/2012	145,000	1
South Bend, IN	3/8/2012	225,000	1
Lansing, MI	3/21/2012	129,325	1
Portland, ME	3/27/2012	100,600	1
Portland, TN	3/30/2012	414,043	1
Spartanburg, SC	4/5/2012	409,600	4
Franklin, IN	4/17/2012	703,496	1
Muhlenberg Township, PA	5/24/2012	394,289	1
Avon, CT	6/15/2012	78,400	1
Orlando, FL	6/15/2012	155,000	1
Pineville, NC	6/15/2012	75,400	1
Buffalo, NY	6/15/2012	117,000	1
Edgefield, SC	6/15/2012	126,190	1
Arlington, TX	6/15/2012	196,000	1

Period from April 20, 2011 to December 31, 2011

Property Location	Date Acquired	Square Feet	Properties
Various - Formation Transaction	4/20/2011	7,574,204	34
Lansing, MI	5/26/2011	231,000	1
Fort Worth, TX	6/30/2011	101,500	1
Gresham, OR	7/19/2011	420,690	1
Berkeley, MO	7/28/2011	305,550	1
Norton, MA	8/4/2011	200,000	1
Conyers, GA	9/2/2011	226,256	1
Louisville, KY	9/22/2011	497,820	2
Gahanna, OH	10/14/2011	383,000	1
Smithfield, NC	11/16/2011	191,450	1
North Jackson, OH	12/14/2011	307,315	1
Chippewa Falls, WI	12/15/2011	97,400	2
Rogers, AR	12/22/2011	400,000	1
Georgetown, KY	12/29/2011	97,500	1

The following table summarizes the allocation of the consideration paid during the six months ended June 30, 2012 and the year ended December 31, 2011 for the acquired assets and liabilities in connection with the formation transactions and acquisitions of manufacturing and distribution facilities at the date of acquisition identified in the table above (in thousands):

	Six Months Ended June 30, 2012			Weighted Average Amortization Period (years) Lease Intangibles	Period from April 20 to December 31, 2011			Weighted Average Amortization Period (years) Lease Intangibles
Land	$	10,770		N/A	$	46,806		N/A
Buildings and improvements	69,870			N/A	229,688			N/A
Tenant improvements	4,550			N/A	15,982			N/A
Cash escrow for capital additions	750			N/A	1,400			N/A
Above market rents	6,149			13.3	31,718			7.6
Below market rents	(2,830		)	9.2	(1,552		)	7.6
In place lease intangibles	16,581			8.1	54,801			6.5
Customer relationships	6,050			9.7	32,327			8.3
Other liabilities	—			N/A	(171		)	N/A
Interest rate swaps	—			N/A	(420		)	N/A
Goodwill	—			N/A	4,923			N/A
Above/below market assumed debt adjustment	—			N/A	(675		)	N/A
Total aggregate purchase price	111,890				414,827
Less: Long-term liabilities assumed	—				(206,253		)
Net assets acquired	$	111,890			$	208,574

The Company has included the results of operations for each of these acquired properties in its Consolidated Statements of Operations from the date of acquisition. For the three and six months ended June 30, 2012 the entities acquired during the six months ended June 30, 2012 contributed $2.0 million and $2.1 million, respectively, to total revenue and $0.5 million and $0.7 million to net loss (including property acquisition costs of $1.3 million related to the acquisition of properties), respectively.  The entities acquired during the period from April 20, 2011 to June 30, 2011 contributed $6.4 million to total revenue and $1.3 million to net loss (including property acquisition costs of $0.3 million related to the properties acquired in Lansing, MI and Fort Worth, TX) during the period from April 20, 2011 to June 30, 2011.

This pro forma information does not purport to represent what the actual results of operations of the Company would have been had the above occurred, nor do they purport to predict the results of operations of future periods.

Pro Forma	Six Months Ended June 30, 2012 (in thousands, except share data) (1)
Total revenue	$	41,809
Net income (loss) (2)	$	264
Net income (loss) attributable to common stockholders	$	(2,004	)
Weighted average shares outstanding	17,654,706
Net loss per share attributable to common stockholders	$	(0.11	)

(1) The unaudited pro forma information for the six months ended June 30, 2012 is presented as if the properties acquired during the six months ended June 30, 2012 had occurred at January 1, 2011

Pro Forma	Six Month Ended June 30, 2011 (in thousands, except share data) (3)
Total revenue	$	34,744
Net income (loss) (2)	$	(479	)
Net income (loss) attributable to common stockholders	$	(317	)
Weighted average shares outstanding	15,153,646
Net loss per share attributable to common stockholders	$	(0.02	)

(2)

The Net income (loss) for the six months ended June 30, 2012 excludes $1.3 million of property acquisition costs related to the acquisition of properties that closed during the six months ended June 30, 2012.  Net income (loss) for the six months ended June 30, 2011 excludes $0.3 million of property acquisition costs related to the acquisition of properties that closed during the period from April 20, 2011 to June 30, 2011.

(3)

The unaudited pro forma information for the six months ended June 30, 2011 is presented as if the properties acquired during the six months ended June 30, 2012 and the properties acquired during the period from April 20, 2011 to June 30, 2011 had occurred at January 1, 2011 and January 1, 2010, respectively.

On April 20, 2012, the Company sold a vacant warehouse and distribution facility located in Youngstown, OH containing 153,708 net rentable square feet.  The sales price was $3.4 million and the Company received net proceeds of $3.2 million.  At closing, the Company recognized a gain on sale of real estate in the amount of $0.2 million under the full accrual method of gain recognition, which is included in income attributable to discontinued operations on the accompanying Consolidated Statements of Operations.  In connection with the property sale, the Company paid down a portion of the master loan with Wells Fargo Bank, N.A. (“Wells Fargo”) for the related property debt.

On December 22, 2011, the Company sold a flex/office property located in Amesbury, MA containing approximately 78,000 net rentable square feet. The sales price was approximately $4.8 million and the Company received net proceeds of $4.5 million. In connection with the property sale, the Company paid down a portion of the master loan with Wells Fargo for the related property debt.  The results of operations for this property are reflected in income attributable to discontinued operations on the accompanying Consolidated Statement of Operations.