NEW YORK ( TheStreet) -- Shares of Stag Industrial (STAG - Get Report) are up 60 percent in the past year. Talk about a REIT on a roll. Joining me to talk about what's driving the stock is CEO Ben Butcher. Welcome Ben. Tell me what's going on because your shares are hot.
Thanks for having me. It's great to be here. We have a differentiated strategy. I think people have learned to appreciate our strategy. Actually, close to 75 percent in the last 12 months including dividends, but that's just bragging.
All right. You invested in Class B real estate. What's special about Class B?
We're able to find in the Class B and secondary markets better returns. Both initial returns in terms of cap rate and long run returns simply because the assets are not as highly sought after. Less competitive market allows us to buy assets at better returns, a better cash flow for our shareholders.
Gregg Greenberg:Have you been shopping for new assets and if so where?
Ben Butcher:We were fortunate last year to buy a little over four hundred million dollars of assets. We buy assets all over the country. We're agnostic as the market. We're really just looking for the best deals for our shareholders. We frequently find them in secondary markets. Again, because the competition is a little less there. We are at a point of the year where typically our pipeline would be relatively low because at the end of the year things kind of slowed down as the year builds up, but we're probably at the highest it's ever been in terms of opportunity at this point.
Gregg Greenberg:Who is the competition and are they catching on because clearly as judging by your stock price, this is a sweet spot.
Ben Butcher:It's interesting. The public traded potential competitors in this space are not really interested in the secondary markets or in Class B assets. They're mostly interested in primary markets and Class A assets. Because of that, our competition tends to be smaller investors, the type of people that we typically buy from. Guys that own one to ten assets are also competing with the buy of the assets we buy. It's a very large market.
Gregg Greenberg:What kind of economic indicator is it when people are competing for Class B real estate?
Ben Butcher:I think it would be an indicator that there's been too much competition in the Class A area. The prices there have been driven down to unsustainable levels. You are seeing assets trade in the Inland Empire in California. Its sub five capitalization rates, so initial yields on cost that frankly have risk characteristics that are very similar to the characteristics that we're buying at nine caps or nine percent initial yield on cost.
Gregg Greenberg:You pay a 5.5 percent dividend right now. Any plans to hike it? What do you want to do with that?
Ben Butcher:Well, we're proud of the fact that we have a 5.5 percent dividend.
Gregg Greenberg:Hard to find yield out there so that's pretty nice.
Ben Butcher:We intend to be a durable payer of dividends going forward. We've messaged the market that we're likely to increase our dividend on an annual basis, likely early in the year and also that we will pay out approximately 90 percent of our AFFO, adjusted funds from operations, and we're currently running probably in the low eighties. There's a message there. My general council would probably not like it to go any further than that.
Gregg Greenberg:Well, the market has seen the message with regard to Stag. Good luck and thanks for coming on.
Ben Butcher:Thank you. My pleasure.
Gregg Greenberg:Thank you for watching The Street.
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