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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the Quarterly Period Ended March 31, 2012

OR

For the transition period from              to             .

Commission file number 1-34907

STAG INDUSTRIAL, INC.

(Exact name of registrant as specified in its charter)

(617) 574-4777

(Registrant’s telephone number, including area code)

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

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common and preferred shares as of the latest practicable date.

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STAG INDUSTRIAL, INC.

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Part I. Financial Information

Item 1. Financial Statements

STAG Industrial, Inc.

Consolidated Balance Sheets

(unaudited, in thousands, except share data)

The accompanying notes are an integral part of these financial statements.

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STAG Industrial, Inc. and STAG Predecessor Group

Consolidated and Combined Statements of Operations

(unaudited, in thousands except per share data)

The accompanying notes are an integral part of these financial statements.

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STAG Industrial, Inc. and STAG Predecessor Group

Consolidated and Combined Statements of Stockholders’ Equity

(unaudited, in thousands, except share data)

The accompanying notes are an integral part of these financial statements.

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STAG Industrial, Inc. and STAG Predecessor Group

Consolidated and Combined Statements of Cash Flows

(unaudited, in thousands)

The accompanying notes are an integral part of these financial statements.

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STAG Industrial, Inc. and STAG Predecessor Group

Notes to Consolidated and Combined Financial Statements

(unaudited)

1. Organization and Description of Business

STAG Industrial, Inc. (the “Company”) is a Maryland corporation formed on July 21, 2010 that did not have any operating activity until the consummation of its initial public offering of common stock (the “IPO”) and the related formation transactions (the “formation transactions”) on April 20, 2011. The Company is the majority owner of the STAG Industrial Operating Partnership, L.P. (the “Operating Partnership”), which was formed as a Delaware limited partnership on December 21, 2009. STAG Industrial GP, LLC, which was formed as a Delaware limited liability company on December 21, 2009, is a wholly owned subsidiary of the Company and is the sole general partner of the Operating Partnership. As of March 31, 2012, the Company owned 66.63% of the Operating Partnership. The Company is engaged in the business of acquiring, owning, leasing and managing real estate, consisting primarily of industrial properties located throughout the United States.  As of March 31, 2012, the Company owned 110 properties in 28 states with approximately 18.3 million rentable square feet, consisting of 62 warehouse/distribution properties, 28 manufacturing properties and 20 flex/office properties. The Company’s properties were 94.2% leased to 95 tenants as of March 31, 2012. As used herein, “the Company” refers to STAG Industrial, Inc. and its consolidated subsidiaries and partnerships except where context otherwise requires.

The Company’s “predecessor” for accounting purposes is STAG Predecessor Group, which is not a legal entity, but a collection of the real estate entities that were owned by STAG Investments III, LLC (a Participant, as hereafter defined) prior to the IPO. STAG Predecessor Group also was engaged in the business of owning, leasing and operating real estate consisting primarily of industrial properties located throughout the United States. The financial information contained in this report that relates to the time periods on or prior to April 19, 2011 is STAG Predecessor Group’s financial information; the financial information contained in this report for any time period on or after April 20, 2011 is the Company’s financial information.  The Company did not exist before April 20, 2011 and as a result of our formation transactions, our Company is substantially different from STAG Predecessor Group.

On April 20, 2011, concurrent with the IPO, the members of limited liability companies affiliated with the Company (collectively, the “Participants”) that held direct or indirect interests in their real estate properties elected to take limited partnership units in the Operating Partnership (“common units”) in exchange for the contribution of their properties to the Company. The formation transactions were designed to (i) continue the operations of the Company’s predecessor business, (ii) enable the Company to raise the necessary capital to acquire certain other properties, repay mortgage debt relating thereto and pay other indebtedness, (iii) fund costs, capital expenditures and working capital, (iv) provide a vehicle for future acquisitions, (v) enable the Company to comply with requirements under the federal income tax laws and regulations relating to real estate investment trusts, and (vi) preserve tax advantages for certain Participants.

The operations of the Company are carried on primarily through the Operating Partnership. The Company intends to elect the status of and qualify as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with the 2011 tax year. The Company is fully integrated, self-administered, and self-managed.

2. Summary of Significant Accounting Policies

Interim Financial Information

The accompanying interim financial statements have been presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q of Regulation S-X for interim financial information.  Accordingly, these statements do not include all of the information and notes required by GAAP for complete financial statements.  In the opinion of management, the accompanying interim financial statements include all adjustments, consisting of normal recurring items, necessary for their fair presentation in conformity with GAAP.  Interim results are not necessarily indicative of results for a full year. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The information included in this Form 10-Q should be read in conjunction with the

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Company’s financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2011.

Basis of Presentation

The Company’s Consolidated Financial Statements include the accounts of the Company, the Operating Partnership and their subsidiaries. The equity interests of other limited partners in the 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 consolidation or combination of entities. The financial statements of the Company are presented on a consolidated basis, for all periods presented and comprise the consolidated historical financial statements of the transferred collection of real estate entities and holdings upon the IPO.  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 periods after April 19, 2011 include the financial information of the Company, the Operating Partnership and their subsidiaries. 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.

Consolidated and Combined Statements of Cash Flows—Supplemental Disclosures

The following table provides supplemental disclosures related to the Consolidated and Combined Statements of Cash Flows (in thousands):

Use of 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.

Restricted Cash

Restricted cash may include security deposits and cash held in escrow for real estate taxes and capital improvements as required in various mortgage loan agreements.  At March 31, 2012, restricted cash included $1.6 million that was held with the Company’s transfer agent for preferred stock dividends that were distributed subsequent to March 31, 2012.

Tenant Accounts Receivable, net

Tenant accounts receivable, net on the Consolidated Balance Sheets, includes both tenant accounts receivable, net and accrued rental income, net.  The Company provides an allowance for doubtful accounts against the portion of tenant accounts receivable that is estimated to be uncollectible. As of March 31, 2012 and December 31, 2011, the Company had an allowance for doubtful accounts of $0.8 million and $0.5 million, respectively.

The Company accrues rental revenue earned, but not yet received, in accordance with GAAP. As of March 31, 2012 and December 31, 2011, the Company had accrued rental revenue of $4.9 million and $4.5 million, respectively, which is reflected in tenant accounts receivable, net on the accompanying Consolidated Balance Sheets. The Company maintains an allowance for estimated losses that may result from those revenues. If a tenant fails to make contractual payments beyond any allowance, the

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Company may recognize additional bad debt expense in future periods equal to the amount of unpaid rent and accrued rental revenue. As of March 31, 2012 and December 31, 2011, the Company had an allowance on accrued rental revenue of $0.3 million and $0.4 million, respectively.

As of March 31, 2012 and December 31, 2011, the Company had a total of approximately $3.6 million of total lease security deposits available in existing letters of credit and $1.2 million of lease security deposits available in cash.

Deferred Costs

Deferred financing fees include costs incurred in obtaining mortgage notes payable that are capitalized. The deferred financing fees are amortized to interest expense over the life of the respective loans. Any unamortized amounts upon early repayment of mortgage notes payable are written off in the period of repayment.  During the three months ended March 31, 2012 and March 31, 2011, amortization of deferred financing fees included in interest expense was $0.3 million and $29 thousand, respectively. Fully amortized deferred charges are removed upon maturity of the underlying debt.

Fair Value of Financial Instruments

Financial instruments include cash and cash equivalents, tenant accounts receivable, interest rate swaps, accounts payable, other accrued expenses, mortgage notes payable and credit facility. 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. See Note 5 for the fair values of the Company’s debt. See Note 6 for the fair values of the Company’s interest rate swaps.

Revenue Recognition

By the terms of their leases, certain tenants are obligated to pay directly  the costs of their properties’ insurance, real estate taxes and certain other expenses and these costs, which costs are not reflected in the Company’s Consolidated Financial Statements. To the extent any tenant responsible for these costs under its respective lease defaults on its lease or it is deemed probable that the tenant will fail to pay for such costs, the Company would record a liability for such obligation.  The Company estimates that real estate taxes, which are the responsibility of these certain tenants, were approximately $1.5 million and $0.5 million for the three months ended March 31, 2012 and March 31, 2011, respectively, and this would have been the maximum liability of the Company had the tenants not met their contractual obligations.  The Company does not recognize recovery revenue related to leases where the tenant has assumed the cost for real estate taxes, insurance and certain other expenses.

Income Taxes

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

The Company intends to elect to be taxed as a REIT under the Code commencing with the taxable year ended December 31, 2011. To qualify as a REIT, the Company is required to distribute at least 90% of its REIT taxable income to its stockholders and meet the various other requirements imposed by the Code relating to such matters as operating results, asset holdings, distribution levels and diversity of stock ownership. Provided the Company qualifies for taxation as a REIT, the Company is generally not subject to corporate level income tax on the earnings distributed currently to its stockholders that it derives from its REIT qualifying activities. If the Company fails to qualify as a REIT in any taxable year, and is unable to avail itself of certain savings provisions set forth in the Code, all of the Company’s taxable income would be subject to federal income tax at regular corporate rates, including any applicable alternative minimum tax.

The Company will not be required to make distributions with respect to income derived from the activities conducted through subsidiaries that the Company elects to treat as taxable REIT subsidiaries (“TRS”) for federal income tax purposes. Certain activities that the Company undertakes must be conducted by a TRS, such as performing non-customary services for its tenants and holding assets that it cannot hold directly. A TRS is subject to federal and state income taxes.  The Company’s TRS did not have any activity during the three months ended March 31, 2012 and March 31, 2011.

The Company and certain of its subsidiaries are subject to certain state and local income, excise and franchise taxes. At December 31, 2011, the Company accrued an estimate of taxes for the period April 20, 2011 to December 31, 2011 in the amount of

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$0.3 million.  The Company accrued an estimate of the 2012 taxes in the amount of $50 thousand for the three months ended March 31, 2012.  There were no taxes recorded for the three months ended March 31, 2011.

The Company currently has no liabilities for uncertain tax positions.

3. Real Estate

As part of the formation transactions, STAG Investments IV, LLC and STAG GI Investments, LLC (which are certain of the Participants and, along with the members of the Management Company (defined below) are referred to as part of the “STAG Contribution Group” in this report) contributed 100% of their real estate entities and operations in exchange for 7,320,610 common units in the Operating Partnership valued at $13.00 per common unit. The members of STAG Capital Partners, LLC and STAG Capital Partners III, LLC (referred to in the aggregate as the “Management Company” in this report), contributed 100% of those entities’ assets and liabilities in exchange for 38,621 common units in the Operating Partnership valued at $13.00 per common unit. The contribution of interests in the STAG Contribution Group 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.

As of March 31, 2012, the Company had approximately $4.9 million of 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. No impairment charge was recognized for periods presented.

The following table summarizes the allocation of the consideration paid for the acquired assets and liabilities in connection with the acquisitions of manufacturing and distribution facilities at the date of acquisition (in thousands):

(1)                              Amounts in this column reflect the allocation of the consideration paid in connection with the acquisitions of properties in East Windsor, CT; South Bend, IN; Lansing, MI; Portland, ME; and Portland, TN, acquired on March 1, 2012, March 8, 2012, March 21, 2012, March 27, 2012, and March 30, 2012, respectively. Each of these properties was considered individually insignificant and therefore is presented combined.

The Company has included the results of operations for each of these acquired properties in its Consolidated Statement of Operations from the date of acquisition. For the three months ended March 31, 2012, the acquired entities contributed $0.1 million to total revenue and $0.3 million to net loss (including property acquisition costs of $0.2 million related to the acquisition of properties in East Windsor, CT; South Bend, IN; Lansing, MI; Portland, ME; and Portland, TN), respectively.

The accompanying unaudited pro forma information for the three months ended March 31, 2012 and March 31, 2011 is presented as if the acquisitions of the properties had occurred at January 1, 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.

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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. The results of operations for this property are reflected in income attributable to discontinued operations on the accompanying Consolidated Statement of Operations.

4. Deferred Leasing Intangibles

Deferred leasing intangibles included in total assets consisted of the following (in thousands):

Deferred leasing intangibles included in total liabilities consisted of the following (in thousands):

Amortization expense related to in-place leases, lease commissions and tenant relationships of deferred leasing intangibles was $5.0 million and $0.6 million for the three months ended March 31, 2012 and March 31, 2011, respectively. Rental income related to net amortization of above (below) market leases increased (decreased) by ($1.2) million and $4 thousand for the three months ended March 31, 2012 and March 31, 2011, respectively.

Amortization related to deferred leasing intangibles over the next five years is as follows (in thousands):

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5. Debt

Payments on mortgage notes are generally due in monthly installments of principal amortization and interest. The following table sets forth a summary of the Company’s outstanding indebtedness, including mortgage notes payable and borrowings under the Company’s secured corporate revolving credit facility (the “Credit Facility”) as of March 31, 2012 and December 31, 2011 follows (dollars in thousands):

(1)                                  Current interest rate as of March 31, 2012.  At March 31, 2012 and December 31, 2011, the one-month LIBOR rate was 0.241% and 0.295%, respectively.

(2)                                  Principal outstanding includes an unamortized fair market value premium of $44 thousand as of March 31, 2012.

(3)                                  This loan was assumed at the acquisition of the Berkeley, MO property and the principal outstanding includes an unamortized fair market value premium of $0.2 million as of March 31, 2012.

(4)                                  This loan was entered into at the acquisition of the Norton, MA property.

(5)                                 Principal outstanding includes an unamortized fair market value premium of $0.3 million as of March 31, 2012.

The Credit Facility was secured by, among other things, 20 properties at March 31, 2012.  The Company currently pays an unused commitment fee equal to 0.50% of the unused portion of the Credit Facility. During the three months ended March 31, 2012, the Company incurred $0.1 million in unused fees, which is included in interest expense on the Consolidated Statement of Operations.  At March 31, 2012, there was an outstanding balance of $40.0 million on the Credit Facility. The Credit Facility was utilized throughout the three months ended March 31, 2012 to fund the acquisitions of properties and general corporate purposes.

The Company was in compliance with all financial covenants as of March 31, 2012 and December 31, 2011.

The fair value of the Company’s debt was determined by discounting the future cash flows using the current rates at which loans would be made to borrowers with similar credit ratings for loans with similar remaining maturities and similar loan-to-value ratios. The fair value of the Company’s debt is based on Level 3 inputs.  The three-tier value hierarchy is explained in Note 6.   The following table presents the aggregate carrying value of the Company’s debt and the corresponding estimate of fair value as of March 31, 2012 and December 31, 2011 (in thousands):

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6. Use of Derivative Financial Instruments

The Company’s use of derivative instruments is limited to the utilization of interest rate swaps to manage interest rate risk exposures and not for speculative purposes. The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company’s operating and financial structure, as well as to hedge specific transactions.

STAG Predecessor Group entered into an interest rate swap (“Wells Fargo Master Loan Swap”) with a notional amount of $141.0 million to hedge against interest rate risk on its variable rate loan with Wells Fargo Master Loan, which was part of the debt contributed to the Company. The Wells Fargo Master Loan Swap was not designated as a hedge for accounting purposes and it expired on January 31, 2012.  There were no derivative instruments at March 31, 2012.  The fair value of the interest rate swap outstanding as of December 31, 2011 is as follows (in thousands):

The Company adopted the fair value measurement provisions for its interest rate swaps recorded at fair value. The guidance establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. As of December 31, 2011, the Company applied the provisions of this standard to the valuation of its interest rate swap, which was previously the only financial instrument measured at fair value on a recurring basis.

The Company recognized gains relating to the change in fair market value of the interest rate swaps of $0.2 million and $0.6 million for the three months ended March 31, 2012 and March 31, 2011, respectively.

The table below sets forth the Company’s financial instruments that are accounted for at fair value on a recurring basis as of December 31, 2011 (in thousands).  There were no financial instruments that are accounted for at fair value on a recurring basis outstanding as of March 31, 2012.

7. Stockholders’ Equity

Preferred Stock

Pursuant to its charter, the Company is authorized to issue 10,000,000 shares of preferred stock, par value $0.01 per share. On November 2, 2011, the Company sold 2,760,000 shares (including 360,000 shares pursuant to the full exercise of the underwriters’ overallotment option) of 9.0% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share (the “Series A Preferred

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Stock”) in an underwritten public offering, at a price to the public of $25.00 per share for net proceeds of $66.3 million, after deducting the underwriting discount and other direct offering costs of $2.7 million and indirect offering costs of $78 thousand.  Dividends on the Series A Preferred Stock are payable quarterly in arrears on or about the last day of March, June, September and December of each year. The Series A Preferred Stock ranks senior to the Company’s common stock with respect to dividend rights and rights upon the liquidation, dissolution or winding-up of the Company.

The Series A Preferred Stock has no stated maturity date and is not subject to mandatory redemption or any sinking fund. Generally, the Company is not permitted to redeem the Series A Preferred Stock prior to November 2, 2016, except in limited circumstances relating to the Company’s ability to qualify as a REIT and in certain other circumstances related to a change of control (as defined in the articles supplementary for the Series A Preferred Stock).

On March 6, 2012, the board of directors declared a record date of March 19, 2012 for holders of Series A Preferred Stock and confirmed the first quarter dividend of $0.5625 per share (equivalent to the fixed annual rate of $2.25 per share), and the Company accrued the first quarter dividend in the amount of $1.6 million, which was subsequently paid on April 2, 2012.

Common Stock

On April 20, 2011, the Company completed the IPO of its common stock. The IPO resulted in the sale of 13,750,000 shares of the Company’s common stock at a price of $13.00 per share. The Company received net proceeds of $166.3 million, reflecting gross proceeds of $178.8 million, net of underwriting fees of $12.5 million. On May 13, 2011, the underwriters of the Company’s IPO exercised their option to purchase an additional 2,062,500 shares of common stock at $13.00 per share, generating an additional $26.8 million of gross proceeds and $24.9 million of net proceeds after the underwriters’ discount and offering costs. The total gross proceeds to the Company from the IPO and the exercise of the overallotment option was approximately $205.6 million. The Company incurred formation transaction costs and offering costs of $6.2 million, of which $3.7 million was expensed and the remaining $2.5 million was deducted from the gross proceeds of the IPO. Total underwriters’ discounts, commissions and offering costs of $16.9 million are reflected as a reduction to additional paid-in capital in the Consolidated Balance Sheets of the Company.

On March 6, 2012, the board of directors declared the first quarter dividend of $0.26 per share (equivalent to an annualized rate of $1.04 per share) for all stockholders of record on March 30, 2012, and the Company accrued the first quarter dividend, which was subsequently paid on April 13, 2012.

All of the Company’s independent directors elected to receive shares of common stock in lieu of cash for their fees for serving as members and/or chairmen of various committees during 2012.  The independent directors received total compensation of $52 thousand for their services for the three months ended March 31, 2012.  On April 13, 2012, based on the trailing 10 day average common stock price, the Company issued an aggregate of 3,776 shares of common stock.  The shares have a fair value of approximately $50 thousand based on the common stock closing price of $13.22 on April 13, 2012.

Restricted Stock-Based Compensation

Concurrently with the closing of the IPO, the Company made grants of shares of restricted common stock to certain employees of the Company. These awards were made pursuant to the STAG Industrial, Inc. 2011 Equity Incentive Plan (the “2011 Plan”). At such time, the Company granted to such employees a total of 80,809 shares of restricted stock that are subject to time-based vesting with a fair value of $1.0 million ($12.21 per share). The awards are subject to time-based vesting and will vest, subject to the recipient’s continued employment, in five equal installments on each anniversary of the date of grant. Holders of restricted stock have voting rights and rights to receive dividends. Restricted stock may not be sold, assigned, transferred, pledged or otherwise disposed of and is subject to a risk of forfeiture prior to the expiration of the applicable vesting period. The restricted stock fair value on the date of grant is amortized on a straight-line basis as stock-based compensation expense over the service period during which term the stock fully vests.

On January 3, 2012, the Company granted 87,025 shares of restricted stock that are subject to time-based vesting with a fair value of $1.0 million ($11.89 per share) to certain employees of the Company pursuant to the 2011 Plan.

As of March 31, 2012 and December 31, 2011, none of the shares of restricted stock were vested.  The Company recognizes non-cash compensation expense ratably over the vesting period, and accordingly, the Company recognized $0.1 million and $0 in non-cash compensation expense for the three months ended March 31, 2012 and March 31, 2011, respectively.  Unrecognized compensation expense for the remaining life of the awards was $1.8 million and $0.8 million as of March 31, 3012 and December 31, 2011, respectively. As of March 31, 2012 and December 31, 2011, there were no forfeitures of shares of restricted stock.

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8. Noncontrolling Interest

Noncontrolling Common Units

Noncontrolling interests in the Operating Partnership are interests in the Operating Partnership that are not owned by the Company.  Noncontrolling interests consisted of 7,590,000 common units (the “noncontrolling common units”) and 419,081 LTIP units, which in total represented approximately 33.37% of the ownership interests in the Operating Partnership at March 31, 2012.  The noncontrolling common units were issued at fair value at the time of the formation transactions for an issuance price of $13.00 per common unit.  Common units and shares of the Company’s common stock have essentially the same economic characteristics in that common units and shares of the Company’s common stock share equally in the total net income or loss distributions of the Operating Partnership.  Investors who own common units have the right to cause the Operating Partnership to redeem any or all of their common units for cash equal to the then-current market value of one share of the Company’s common stock, or, at the Company’s election, shares of common stock on a one-for-one basis.  All common units will receive the same quarterly distribution as the per share dividends on common stock.

Upon a material equity transaction in the Operating Partnership which results in an accretion of the member’s capital account to the economic value equivalent of the common units, LTIP units can be converted to common units. As of March 31, 2012, none of the vested LTIP units met the aforementioned criteria.

The Company periodically adjusts the carrying value of noncontrolling interest to reflect its share of the book value of the Operating Partnership. Such adjustments are recorded to additional paid in capital as a reallocation of noncontrolling interest in the accompanying Consolidated Statement of Stockholders’ Equity.

LTIP Units

Pursuant to the 2011 Plan, the Company may grant LTIP units in the Operating Partnership. LTIP units, which the Company grants either as free-standing awards or together with other awards under the 2011 Plan, are valued by reference to the value of the Company’s common stock, and are subject to such conditions and restrictions as the compensation committee of the Company’s board of directors may determine, including continued employment or service, computation of financial metrics and achievement of pre-established performance goals and objectives. Vested LTIP units can be converted to common units in the Operating Partnership on a one-for-one basis once a material equity transaction has occurred that results in the accretion of the member’s capital account to the economic equivalent of the common unit. All LTIP units, whether vested or not, will receive the same quarterly per unit distributions as common units, which equal per share dividends on common stock.

Concurrently with the closing of the IPO, pursuant to the 2011 Plan, the Company granted a total of 159,046 LTIP units to certain executive officers pursuant to the terms of their employment agreements and a total of 41,395 LTIP units to its independent directors. These LTIP units vest quarterly over five years, with the first vesting date having commenced on June 30, 2011.  In addition, on January 3, 2012, the Company granted a total of 196,260 LTIP units to certain executive officers and 22,380 LTIP units to its non-employee, independent directors pursuant to the 2011 Plan.  As of March 31, 2012 and December 31, 2011, there were zero forfeitures of LTIP units. The total fair value of the LTIP units was approximately $4.8 million at the respective grants, which was determined by a lattice binomial option- pricing model based on a Monte Carlo simulation using a volatility factor of 55% and 50%, a risk-free interest rate of 2.10% and 3.40%, and terms of 10 years, respectively. As of March 31, 2012 and December 31, 2011, 51,020 and 30,066 LTIP units were vested, respectively.  The Company recognized $0.2 million and $0 in non-cash compensation expense for the three months ended March 31, 2012 and March 31, 2011, respectively.  Unrecognized compensation expense was $4.2 million and $2.0 million at March 31, 2012 and December 31, 2011, respectively.

9. Earnings Per Share

The Company uses the two-class method of computing earnings per common share, which is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings to common stockholders and undistributed earnings allocated to common stockholders by the weighted average number of common shares outstanding for the period.

A participating security is defined by GAAP as an unvested stock-based payment award containing non-forfeitable rights to dividends and must be included in the computation of earnings per share pursuant to the two-class method. Non-vested restricted stock are considered participating securities as these share-based awards contain non-forfeitable rights to dividends irrespective of whether the awards ultimately vest or expire. During the three months ended March 31, 2012, there were 167,834 unvested shares of restricted stock, that were considered participating securities, which were not dilutive.

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For purposes of calculating basic and diluted earnings per share, awards under the Company’s 2011 Outperformance Program (the “OPP”) that was approved by the compensation committee of the Company’s board of directors on September 20, 2011 are considered contingently issuable shares. Because the OPP awards require the Company to outperform absolute and relative return thresholds, unless such thresholds have been met by the end of the applicable reporting period, the Company excludes the awards from the basic and diluted earnings per share calculation. For the three months ended March 31, 2012, the absolute and relative return thresholds were not met and, as a result, the OPP awards have been excluded from the diluted earnings per share calculation.

The following tables set forth the computation of basic and diluted earnings per common share for the three months ended March 31, 2012 (in thousands, except share data):

Earnings per share are not presented for the three months ended March 31, 2011 as the IPO did not occur until April 20, 2011.

10. Commitments and Contingencies

The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are generally covered by insurance subject to deductible requirements. Management believes that the ultimate settlement of these actions will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

11. Concentrations of Credit Risk

Concentrations of credit risk arise when a number of tenants related to the Company’s investments or rental operations are engaged in similar business activities, are located in the same geographic region, or have similar economic features that would cause their inability to meet contractual obligations, including those to the Company, to be similarly affected. The Company regularly monitors its tenant base to assess potential concentrations of credit risk. Management believes the current credit risk portfolio is reasonably well diversified and does not contain any unusual concentration of credit risk. No tenant accounted for more than 10% of the base rents for the three months ended March 31, 2012 or March 31, 2011.  Recent developments in the general economy and the global credit markets have had a significant adverse effect on companies in numerous industries. The Company has tenants concentrated in various industries that may be experiencing adverse effects from the current economic conditions and the Company could be adversely affected if such tenants go into default on their leases.

12. Subsequent Events

GAAP requires an entity to disclose events that occur after the balance sheet date but before financial statements are issued or are available to be issued (“subsequent events”) as well as the date through which an entity has evaluated subsequent events. There are two types of subsequent events. The first type consists of events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements (“recognized subsequent events”). No significant recognized subsequent events were noted. The second type consists of events that provide evidence about conditions that did not exist at the date of the balance sheet but arose subsequent to that date (“non-recognized subsequent events”).

The following non-recognized subsequent events are noted:

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On April 2, 2012, the Company paid the first quarter 2012 dividend on the Series A Preferred Stock of $0.5625 per share to all record holders of Series A Preferred Stock as of March 19, 2012 in the amount of $1.6 million.

On April 2, 2012, the Company entered into a purchase and sale agreement with subsidiaries of Columbus Nova Real Estate Acquisition Group, Inc. (“CRAG”) to acquire six industrial properties representing approximately 750,000 square feet in total for an aggregate purchase price of $30 million, excluding closing costs.  Various conditions to closing for these properties have yet to be satisfied, so there are no assurances that the acquisitions will be consummated.

On April 5, 2012, the Company acquired an approximately 409,600 square foot 100% leased warehouse/distribution facility located in Spartanburg, South Carolina.  The purchase price of the acquisition was approximately $9.0 million, excluding closing costs, and was funded using cash on hand. Management has not finalized the acquisition accounting.

On April 13, 2012, the Company paid the first quarter dividend of $0.26 per share to all record stockholders and common unit holders as of March 30, 2012 in the amount of $6.2 million.

On April 13, 2012, the Company issued an aggregate of 3,776 shares of common stock with a fair value of approximately $50 thousand, to the Company’s independent directors in compensation for their services for the three months ended March 31, 2012.

On April 17, 2012, the Company acquired an approximately 703,500 square foot 100% leased warehouse/distribution facility located in Franklin, Indiana.  The purchase price of the acquisition was approximately $17.8 million, excluding closing costs, and was funded using cash on hand. Management has not finalized the acquisition accounting.

On April 18, 2012, the Company entered into an agreement with CRAG for CRAG to source sale leaseback transactions for potential acquisition by the Company.

On April 20, 2012, the Company sold an approximately 150,000 square foot vacant building in Youngstown, Ohio to a third party for a total purchase price of $3.4 million.  Prior to the sale, on July 8, 2011, the Company received a termination fee from the then tenant of the Youngstown property in the amount of $2.0 million of which $1.8 million was recognized as termination income during the period April 20, 2011 to December 31, 2011.

During the period April 1, 2012 to May 9, 2012, the Company incurred additional net borrowings of $26.3 million under the Credit Facility.

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Item 2.           Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion with the financial statements and related notes included elsewhere in Item 1 of this report and the audited financial statements as of December 31, 2011,and related notes thereto included in our most recent Annual Report on Form 10-K.

As used herein, “Company,” “we,” “our” and “us,” refer to STAG Industrial, Inc. and our consolidated subsidiaries and partnerships except where the context otherwise requires.  The combined financial information presented for periods on or prior to April 19, 2011 relate solely to the STAG Predecessor Group, our “predecessor” for accounting purposes. The consolidated financial statements for the quarter ended March 31, 2012 include the financial information of the Company, STAG Industrial Operating Partnership, L.P. (the “Operating Partnership”) and our subsidiaries. Where the “Company” is referenced in comparisons of financial results between the quarter ended March 31, 2012 and any quarter or period ended prior to April 20, 2011, the financial information for such quarter or period prior to April 20, 2011 relates solely to the STAG Predecessor Group, notwithstanding “Company” being the reference.

Forward-Looking Statements

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

·                  the factors included in this report and in our Annual Report on Form 10-K for the year ended December 31, 2011 filed with the SEC on March 9, 2012, including those set forth under the headings “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations;”

·                  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;

·                  international, national, regional and local economic conditions;

·                  the general level of interest rates;

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·                  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 real estate investment trust (“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

·                  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.

Overview

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

As of March 31, 2012, we owned 110 properties in 28 states with approximately 18.3 million rentable square feet, consisting of 62 warehouse/distribution properties, 28 manufacturing properties and 20 flex/office properties, and our properties were 94.2% leased to 95 tenants, with no single tenant accounting for more than 4.1% of our total annualized rent and no single industry accounting for more than 11.1% of our total annualized rent.

We were formed as a Maryland corporation on July 21, 2010 and our Operating Partnership, of which we, through our wholly owned subsidiary, STAG Industrial GP, LLC, are the sole general partner, was formed as a Delaware limited partnership on December 21, 2009. At March 31, 2012, we owned a 66.63% limited partnership interest in our Operating Partnership. On April 20, 2011, we completed our initial public offering of 13,750,000 shares common stock and the related formation transactions.  On May 13, 2011, the underwriters of our initial public offering exercised their option to purchase an additional 2,062,500 shares of common stock at a public offering price of $13.00 per share. On November 2, 2011, we sold 2,760,000 shares (including 360,000 shares pursuant to the full exercise of the underwriters’ overallotment option) of our 9.0% Series A Cumulative Redeemable Preferred Stock (the “Series A Preferred Stock”) in an underwritten public offering at a price to the public of $25.00 per share for gross proceeds of $69.0 million.

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 ended 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 stockholders and maintain our qualification as a REIT.

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. In general, the economic environment for our tenants appears to be improving due in particular to the increasing availability of financing accessible by mid-sized companies.

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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. As of March 31, 2012, our properties were approximately 94.2% leased. The amount of rental revenue generated by us also depends on our ability to maintain or increase rental rates at our properties. Future economic downturns or regional downturns affecting our submarkets that impair our ability to renew or re-lease space and the ability of our tenants to fulfill their lease commitments, as in the case of tenant bankruptcies, could adversely affect our ability to maintain or increase rental rates at our properties.

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 March 31, 2012, we had approximately 1.1 million rentable square feet of currently available space in our properties.  Of the 1.9 million square feet of leases that have expired or will expire in 2012, we have already renewed 1.3 million square feet of leases, resulting in a 68% tenant retention rate as of March 31, 2012.  We have renewed 100% of leases expiring during the first quarter of 2012.

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, 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.

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

Comparison of three months ended March 31, 2012 to the three months ended March 31, 2011