STAG Industrial, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. STAG is a U.S. industrial REIT focused on single-tenant properties. At quarter-end it owned 457 buildings with approximately 91.8 million rentable square feet.
Financial results and key metrics
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $117.6 million | $96.6 million | $236.2 million | $192.3 million |
| Net income | $19.3 million | $14.2 million | $84.4 million | $21.6 million |
| Net income attributable to common stockholders | $17.6 million | $12.4 million | $79.6 million | $18.2 million |
| Diluted EPS | $0.12 | $0.10 | $0.54 | $0.15 |
| Net cash from operations | Not separately presented for the quarter | $148.1 million | $110.6 million |
- Q2 total-portfolio NOI was $97.2 million, up 22.0%; same-store NOI was $74.1 million, down 0.2%. For the first half, total NOI was $193.8 million, up 24.3%, and same-store NOI was $149.0 million, up 1.0%.
- First-half FFO attributable to common stockholders and unit holders was $139.7 million, versus $109.0 million. FFO is a non-GAAP measure and should not be treated as cash available for dividends.
- Cash and cash equivalents were $102.1 million at June 30, versus $9.0 million at year-end; cash plus restricted cash totaled $114.6 million. Immediate liquidity was approximately $599.1 million, including $497.0 million of undrawn credit-facility capacity. Management reported total liquidity of approximately $741.4 million when also including forward equity proceeds and unused 1031 exchange proceeds.
- Debt principal outstanding was $1.603 billion, with a 3.48% weighted-average interest rate and 3.9-year weighted-average duration. Net debt to real estate cost basis was 31.8%; 3.3% of debt was secured and none was scheduled to mature in the next 12 months. STAG was in compliance with debt covenants.
- The board declared common dividends of $0.12 per share monthly for July, August, and September 2020; the Series C preferred dividend was declared at $0.4296875 per share for the quarter.
Changes versus prior comparable periods
- Q2 revenue rose 21.7% and net income rose 36.3%. First-half revenue rose 22.8% and net income rose 291.3%; the first-half earnings increase was substantially driven by a $47.8 million gain on property sales, compared with $1.6 million a year earlier.
- Same-store revenue grew modestly: 0.5% in Q2 and 0.7% for the first half. Same-store occupancy was 97.2%, compared with 96.2% a year earlier; the Operating Portfolio was 97.6% leased.
- Interest expense increased 25.8% in Q2 and 20.7% for the first half, reflecting additional term-loan borrowings. Depreciation and amortization also rose with the larger asset base. No impairment loss was recorded in the first half of 2020, compared with $5.3 million in 2019.
- Operating cash flow increased 33.9% to $148.1 million. Investing cash outflow fell to $55.1 million from $444.5 million, reflecting fewer acquisitions and higher disposition proceeds. Financing cash flow was $9.7 million, versus $321.0 million, including lower common-stock proceeds than in 2019.
- Common shares outstanding increased to 148.9 million from 142.8 million at year-end, including a January public offering that generated approximately $173.1 million in net proceeds from shares sold directly by STAG.
Outlook, risks, and unusual items
- Management said COVID-19 had not caused significant operational disruption through June 30, but tenants requested relief. A limited number of deferral agreements resulted in approximately $1.5 million of rent deferrals. The filing says the pandemic’s eventual effects remain uncertain.
- For six leases, management determined future collectability was not reasonably assured and shifted to cash-basis recognition. Q2 rental income was reduced by approximately $1.2 million from accrued-rent reversals and $0.6 million of unpaid contractual rent was not recognized.
- Management expects near-term aggregate industrial demand to weaken, while arguing that portfolio diversification, strong occupancy, e-commerce, supply-chain resilience, and potential slower development may support the business. No quantified earnings or FFO guidance is provided.
- STAG refinanced two term loans with a new $300 million Term Loan G in April and said it intends to use its two one-year extension options. The loan’s initial maturity is April 2021, with extensions subject to conditions and fees.
- Interest-rate swaps had a $50.7 million net liability fair value at quarter-end. The company estimated $17.5 million would be reclassified from accumulated other comprehensive loss as increased interest expense over the next 12 months. It reported no covenant breach or collateral posting related to swaps.
- Other unusual items included a $0.7 million gain from an eminent-domain taking and a $0.8 million debt-extinguishment loss. The filing reports no material litigation, no other material off-balance-sheet arrangements, and no subsequent events.
Important facts for investors to verify
- Whether tenant rent collections, deferrals, and lease collectability improved or deteriorated after June 30, particularly for the six cash-basis leases.
- How much of first-half earnings growth reflects recurring property operations versus the $47.8 million disposition gain; compare GAAP earnings with FFO and NOI.
- Current liquidity and debt capacity, the status of forward equity proceeds, and the eventual exercise and cost of Term Loan G extension options.
- Occupancy, leasing spreads, concessions, and upcoming expirations: leases representing 9.4% of annualized base rent were scheduled to expire from July 2020 through June 2021.
- Whether the declared common and preferred dividends remain supported by operating cash flow and capital needs.