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## THE PAST YEAR 

2014 was another very successful year for our Company. There were solid achievements in all facets of our business – both external and internal. Our accretive acquisition targets were met or exceeded, our internal growth metrics (tenant retention and positive leasing spreads) were above expectations and our capital markets efforts continued to drive our overall cost of capital lower. I believe that the fundamental reasons for our success can be traced to some pretty simple realities. 

First, the STAG team of bright, curious and energetic individuals is second to none in their execution of our investment strategy and operational mandates. Second, we have a supportive and knowledgeable Board that understands the significant opportunities available to our Company and empowers us to take full advantage of those opportunities. Third, our differentiated investment strategy allows us to operate broadly across the industrial landscape to acquire assets that we believe offer “above market” long term returns – the elusive ‘alpha’ of investing. 

## OUR STRATEGY 

Although I am a big fan of architecture as an art form, the fundamental beauty of real estate, from an investment standpoint, is its ability to produce predictable cash flows. We believe that virtually all of the parameters that will affect the cash flows to be derived from owning an asset are subject to analysis and projection … that the all too common use of ‘decision rules’ has no place in real estate investment decisions. We have developed (and continue to refine) a proprietary risk-assessment model that allows us to evaluate/project the cash flows expected from an asset on a RE risk and credit neutral basis. This allows us to identify, evaluate, triage and acquire assets that we believe will deliver above average, long term returns …. delivering not just growth but accretive growth to our shareholders. 

## DEAR FELLOW STOCKHOLDERS 

## STAG GLYPH<two.lin> . GLYPH<zero.lin> 

By almost any measurement standard, our nearly four years as a public company have been a great success. The tendency might be for us to rest on our laurels, or perhaps to try and conform more generally to ‘mainstream’ REIT practices. Instead, STAG 2.0 is, and will be, a continuation and ampli- fication of what has brought us success thus far. 

With the support of our Board, we have committed to building on and improving the “STAG machine.” This is evidenced by increased headcount in our outward facing positions (acquisitions and asset management), increased investment in internal support functions (people, systems and processes) and a focus on being ready to capture the opportunities that we are certain will present themselves in the coming years. We expect that the inherent scalability of our business model will allow us to leverage this marginal cost to maintain or enhance our accretive growth rates. 

One of the big focuses for 2015 at STAG will be improving our use of data to better identify opportunities and more confidently predict outcomes from investment and leasing decisions. On a relative basis, we believe that we are already one of the more sophisticated users of data in the REIT world – utilizing both internal and external data sources. Our 2015 data initiative is intended to extend that advantage through improved accessibility to data across the organization, increased flexibility in utilization of existing data and the melding of multiple data sources. 

## STRENGTH IN FUNDAMENTALS 

Tenant demand for industrial space is, and has been strong due to a combination of both GDP growth and a ‘catching up’ from the demand dormancy that existed during the global financial crisis and its aftermath. On a macro basis, the past two years have seen extremely strong national net absorption of industrial space (on the order of 200 to 250 million square feet per year) – well above long term averages. New supply has been a fraction of that amount. This supply/demand imbalance has led to continued declines in vacancy and to increasing market rental rates. We expect that these net absorption numbers will taper somewhat as the world ‘normalizes’ post the global financial crisis 

but do not expect excess supply to be a significant issue in this cycle. There are many markets (Los Angeles is frequently cited) where vacancy has dropped to levels where it may be difficult for those markets to function efficiently. 

The low vacancy levels have led (and should continue to lead) to above normal market rental rate increases – a combination of reversion to long term rental trends (following the global financial crisis) and, in some (mostly primary) markets, the pendulum swinging beyond long term trends. We expect that the supply/demand imbalance will persist longer in secondary markets (where the majority of our assets are located) than in primary markets (where new supply is focused). We expect that this period of heightened rental rate increases will persist for a number of years and will benefit all of the industrial operating REITs (like STAG) with their laddered lease maturity schedules. 

## HEARTFELT THANKS 

On behalf of the Company and my fellow Board members, I would like to thank Kathryn Arnone, who resigned in December, for her many years of devoted service to the Company as our General Counsel. Her wisdom, wit and wealth of knowledge were essential elements of our growth and success both as a private and public company. 

## OUR PROMISE 

We at STAG will continue to execute our investment strategy and maintain our pricing/ return discipline as we continue to accretively grow our portfolio. We are committed to maintaining our impeccable reputation for integrity and good corporate governance. In the practice of real estate acquisition and management, cash flow is what matters. Our promise to you, our fellow shareholders, is to maintain our focus on delivering the best, risk-adjusted cash flow returns available. 

Sincerely, 

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