STAG Industrial, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. STAG is a REIT focused on single-tenant industrial properties. At quarter-end it owned 456 buildings in 38 states, totaling approximately 91.8 million rentable square feet. Results are unaudited.
Financial performance and position
- Revenue: $118.5 million, up 23.9% from $95.7 million. Rental income rose 23.8% to $118.3 million; acquisitions drove much of the growth.
- Profit: Net income was $65.0 million versus $7.4 million; net income attributable to common stockholders was $62.1 million, or $0.42 per diluted share, versus $5.8 million, or $0.05. The comparison was heavily affected by a $46.8 million property-sale gain in Q1 2020, versus $1.3 million a year earlier.
- Operating measures: NOI was $96.6 million, up 26.8%; same-store NOI increased 2.2% to $74.9 million. FFO attributable to common stockholders and unit holders was $69.4 million, up from $52.2 million. Approximate total-portfolio NOI as a share of revenue was 81.5%, compared with 79.6%; these are non-GAAP operating measures and are not equivalent to a GAAP profit margin.
- Cash flow: Operating cash flow was $70.6 million, up 49.7%. Investing activities used $36.0 million, including $119.3 million of acquisitions and $99.7 million of net disposition proceeds. Financing activities provided $294.9 million, including common-stock proceeds and debt borrowings.
- Liquidity and debt: Cash and cash equivalents were $324.9 million; immediate liquidity, including $272.0 million available on the credit facility, was approximately $596.9 million. Management reported broader liquidity of approximately $746.7 million including forward equity proceeds available at the Company’s option and unused 1031 exchange proceeds. Debt principal was $1.83 billion, with a 3.28% weighted-average interest rate; net debt to real estate cost basis was 32.0%. The Company reported covenant compliance.
- Portfolio and distributions: Operating Portfolio occupancy was 97.0% (total portfolio occupancy 96.2%). Same-store occupancy was 96.3%, versus 96.0% a year earlier. Common dividends were $0.12 per share monthly; the board declared that rate for April through June 2020. The Series C preferred dividend remained $0.4296875 per share quarterly.
Material changes versus Q1 2019
- Revenue increased 23.9%, reflecting portfolio growth; same-store operating revenue increased 0.9% and same-store NOI increased 2.2%.
- Net income rose sharply, principally because the gain on property sales increased by $45.5 million. Excluding that gain and other REIT-specific adjustments, FFO attributable to common stockholders and unit holders increased approximately 33.1%.
- Depreciation and amortization increased 24.5% to $52.7 million, primarily due to the larger asset base. Interest expense increased 15.8% to $14.9 million.
- Cash and cash equivalents rose from $9.0 million at year-end 2019 to $324.9 million, following debt draws and equity financing. Debt principal increased from $1.65 billion at December 31, 2019 to $1.83 billion at March 31, 2020.
- The Company acquired nine buildings for $119.3 million and sold three buildings, generating $99.7 million of net proceeds. No impairment loss was recorded, compared with a $5.3 million impairment in Q1 2019.
Outlook, risks, and unusual items
- COVID-19: Management said there had been no significant operational disruption during Q1, but tenants had begun requesting rent deferrals or abatements. The Company was evaluating requests individually and said it could not predict the pandemic’s effect on financial results, tenants, or cash flows. No formal earnings guidance is provided in the filing.
- Management cited portfolio diversification, strong occupancy and liquidity as potential strengths, while expecting near-term aggregate industrial demand to weaken. It also identified e-commerce, domestic manufacturing and supply-chain changes as possible longer-term supports for industrial demand. These are management views, not assurances.
- In April 2020, the Company entered a $300 million term loan, used to repay Term Loans B and C. The new loan matures in April 2021 and has two conditional one-year extension options; related swaps fix LIBOR subject to the loan’s interest-rate floor.
- Interest-rate swaps had a $48.7 million liability fair value at quarter-end, compared with a $30.2 million loss on swaps recorded in other comprehensive income for the quarter. Management estimated $15.9 million would be reclassified from accumulated other comprehensive loss as increased interest expense over the next 12 months.
- Key risks include pandemic-related tenant distress or rent relief, lease defaults and vacancies, refinancing and capital-market access, acquisition execution, interest-rate exposure and swap-counterparty performance. The filing reported no material legal proceedings or other material off-balance-sheet arrangements; letters of credit totaled approximately $3.0 million.
Important facts for investors to verify
- How many tenant rent-relief requests became executed deferrals, abatements or lease modifications, and the resulting collections and credit-loss effects.
- Whether Q1 revenue, NOI and FFO growth persists when acquisition effects and the $46.8 million disposition gain are separated from recurring performance.
- Actual liquidity available after considering facility borrowing conditions, forward-equity settlement choices, and subsequent debt transactions.
- The effect of upcoming lease expirations—8.9% of annualized base rental revenue was scheduled to expire from April 2020 through March 2021—and tenant renewals or vacancies.
- Debt maturity and refinancing exposure, including the April 2020 term-loan refinancing, and the impact of unhedged floating-rate debt and swap valuations.