STAG Industrial, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. STAG is a U.S. REIT focused on owning and operating single-tenant industrial properties. At quarter-end it owned 462 buildings across 38 states, totaling approximately 92.3 million rentable square feet.
Financial and operating performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $117.3 million | $102.4 million | $353.5 million | $294.8 million |
| Net income | $24.2 million | $11.2 million | $108.6 million | $32.7 million |
| Net income attributable to common stockholders | $22.4 million | $9.5 million | $102.0 million | $27.7 million |
| Diluted earnings per share | $0.15 | $0.07 | $0.69 | $0.23 |
| FFO attributable to common stockholders and unit holders | $70.7 million | $59.3 million | $210.4 million | $168.3 million |
| Net operating income (NOI) | $96.5 million | $84.3 million | $290.3 million | $240.1 million |
| Cash provided by operating activities | — | $224.1 million | $174.9 million |
- Q3 revenue rose 14.5%; nine-month revenue rose 19.9%. Acquisitions drove much of the growth: same-store revenue increased only 0.3% in Q3 and 0.6% for nine months.
- Operating Portfolio occupancy was 96.9%; total portfolio occupancy was 96.3%. Combined new and renewal lease cash rent change was 1.3% in Q3 and 1.7% for nine months; straight-line rent change was 4.7% and 7.4%, respectively.
- At September 30, cash and cash equivalents were $70.1 million, compared with $9.0 million at year-end 2019. Cash and restricted cash totaled $74.8 million. Operating cash flow increased 28.1% year over year for the nine-month period.
- Principal debt outstanding was $1.603 billion, versus $1.651 billion at December 31, 2019; weighted average interest rate was 3.62%, and net debt to real estate cost basis was 32.3%. Secured debt was 3.3% of debt. The company reported compliance with all debt covenants.
Material changes and notable items
- Net income growth substantially reflects property-sale gains: $9.1 million in Q3 and $56.9 million for the nine-month period, compared with $1.7 million and $3.3 million in the prior-year periods. Nine-month results also included a $2.2 million gain on an eminent-domain taking and a $0.8 million debt-extinguishment loss. GAAP net income therefore includes significant items beyond recurring property operations.
- Nine-month NOI increased 20.9%, while same-store NOI grew 0.6%. Acquisitions completed after year-end 2018 contributed $62.7 million of NOI for the nine-month period, versus $13.4 million a year earlier.
- Depreciation and amortization rose 19.7% for nine months, primarily due to acquisitions. Interest expense increased 18.0%, reflecting additional term-loan borrowings.
- During the nine months, STAG acquired 16 buildings for approximately $195.9 million and sold five buildings, receiving net proceeds of approximately $121.3 million. The sales generated the $56.9 million gain noted above.
- Financing included approximately $173.1 million of net proceeds from the January common-stock offering. Shares outstanding increased to 149.2 million from 142.8 million at year-end 2019. The board maintained the common dividend at $0.12 per share monthly and declared the same rate for October through December 2020.
Liquidity, outlook, risks, and contingencies
- Management reported approximately $567.1 million of immediate liquidity at quarter-end: $70.1 million cash and $497.0 million of availability on the unsecured credit facility. Including approximately $132.5 million of potential forward-equity proceeds available at the company’s option through January 13, 2021, stated total liquidity was approximately $699.6 million.
- All $975 million of term-loan variable-rate debt was hedged through maturity; the revolving credit facility had no outstanding balance. The $300 million Term Loan G initially matures in April 2021, with two one-year extension options; management said it intended to exercise both.
- COVID-19 had not caused significant operating disruption through the reported period, but tenants requested rent relief. Deferral agreements resulted in approximately $1.9 million of rent deferrals for the nine months. The company moved 10 tenants across 11 leases to cash-basis rent accounting after collectability was no longer reasonably assured; this reduced recognized rental income. Management said the pandemic’s ultimate effects could not be predicted.
- Management cited portfolio diversification, strong occupancy, liquidity and capital access as strengths. It expected e-commerce growth and supply-chain resilience needs to support longer-term industrial demand, while acknowledging possible near-term demand weakness and uneven effects across industries and markets. No quantitative earnings or FFO guidance is provided in the filing.
- Approximately 9.3% of annualized base rental revenue is associated with leases expiring from October 2020 through September 2021. Management expected replacement rents on that space to be generally similar to expiring rents, subject to renewal and re-leasing outcomes.
- Subsequent to quarter-end, STAG acquired nine buildings totaling approximately 3.7 million square feet for a contractual purchase price of approximately $256.5 million; acquisition accounting was not finalized. Ordinary-course litigation was not expected by management to have a material adverse effect. The filing identifies pandemic, tenant credit, leasing, acquisition, financing, interest-rate and property-market risks.
Important facts for investors to verify
- How much of reported earnings and per-share growth is recurring, given the large property-sale gains and other unusual items?
- Whether tenant collections, cash-basis leases, rent deferrals and accrued rental income (approximately $54.6 million at quarter-end) develop as expected.
- Whether occupancy and leasing spreads hold up as leases expire, particularly the 9.3% of annualized rent due to expire over the next 12 months.
- Whether the post-quarter $256.5 million acquisition and planned Term Loan G extensions are completed on the stated terms, and how these affect leverage and liquidity.
- How much forward-equity capacity is ultimately settled, and the resulting impact on share count and per-share performance.
FFO and NOI are non-GAAP supplemental measures; the filing cautions that neither replaces GAAP results or measures liquidity.