STAG Industrial, Inc. — Q2 2016 Form 10-Q
Business context and period. This REIT owns and operates single-tenant industrial properties across the U.S. The filing covers the quarter and six months ended June 30, 2016. At quarter-end, it owned 290 buildings totaling approximately 55.0 million rentable square feet; portfolio occupancy was 94.9%.
Key financial results
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Total revenue | $60.2 million | $52.8 million | $121.1 million | $103.8 million |
| Net income (loss) | $(10.5) million | $(5.2) million | $1.3 million | $(6.7) million |
| Net loss attributable to common stockholders | $(13.8) million | $(7.6) million | $(5.5) million | $(11.7) million |
| Basic and diluted loss per share | $(0.20) | $(0.12) | $(0.08) | $(0.18) |
| Net cash from operating activities | Not stated quarterly | Not stated quarterly | $59.8 million | $53.9 million |
| FFO attributable to common stockholders and unit holders | $24.3 million | $21.8 million | $45.7 million | $43.7 million |
Q2 total-portfolio NOI was $48.4 million versus $42.6 million; same-store NOI increased 0.5%. For the six-month period, total-portfolio NOI was $96.6 million versus $83.2 million, while same-store NOI rose 1.1%. FFO and NOI are non-GAAP measures; the filing cautions they are not substitutes for GAAP results or liquidity measures.
At June 30, total debt principal was $962.8 million, down from $986.7 million at December 31, 2015; weighted-average interest rate was 4.04%, weighted-average duration 6.1 years, secured debt 21%, and net debt to real estate cost basis 43%. Cash was $8.0 million. Immediate liquidity was approximately $437.6 million, including $429.6 million available under the unsecured facility and term loans. The company reported covenant compliance. Cash and restricted cash together were $22.6 million.
Changes versus comparable periods
- Q2 revenue grew 14.0%, primarily reflecting acquisitions; total-portfolio NOI increased 13.4%. Same-store occupancy fell to 95.8% from 96.8%.
- Q2 net loss widened as impairment expense rose to $11.2 million from $2.6 million. Depreciation and amortization also increased with portfolio growth. A $3.3 million property-sale gain partly offset higher expenses and interest costs.
- For the six months, revenue increased 16.7% and total-portfolio NOI rose 15.8%. Net income improved from a $6.7 million loss to $1.3 million, largely reflecting a $20.9 million gain on property sales; common stockholders still recorded a loss after preferred dividends.
- Same-store occupancy for the six-month comparison was 95.7%, down from 96.7%. GAAP rent on new and renewal leases increased 5.1% in Q2 and 4.9% over six months; cash rent change on comparable leases was negative 1.0% and negative 0.7%, respectively.
Outlook, risks, and unusual items
- Management described the outlook as positive but moderated, citing equity-market volatility, mixed economic data, and asset appreciation. It expected industrial demand to benefit from job growth, low interest rates, e-commerce, and limited supply, while monitoring increased development activity.
- Management noted potential pressures from tenant defaults or non-renewals, weaker rents or higher vacancy, acquisition execution, financing and interest-rate exposure, economic conditions, and property-market changes. It cited Brexit and oil-and-gas sector stress as sources of broader uncertainty, while stating direct UK exposure was limited.
- Leases representing 9.9% of annualized base rent were due to expire from July 2016 through June 2017. Under its assumptions, management expected rents on replacement leases generally to be lower than the expiring rents.
- The company recorded $11.2 million of impairment charges on nine buildings in Q2. It sold 11 buildings during the first half for net proceeds of $48.7 million and recorded a $20.9 million gain. One Pittsburgh property was held for sale at quarter-end.
- General and administrative expense included approximately $3.1 million of costs related to the former CFO’s departure, including accelerated equity compensation and severance-related items.
- After quarter-end, the company sold 3.2 million shares through its ATM program for $76.1 million gross proceeds ($75.0 million net), used to repay its credit facility. The filing provides no formal earnings or FFO guidance.
Important facts for investors to verify
- Whether occupancy, renewals, and rent growth can offset the lower cash rents on comparable lease rollovers and near-term expirations.
- How recurring operating performance compares with GAAP earnings, which were affected by impairments, sale gains, depreciation, and preferred dividends.
- Availability of committed borrowing capacity under debt covenants, upcoming maturities, and exposure to unhedged floating-rate debt; $64.0 million was outstanding on the unsecured credit facility.
- The impact of the post-quarter ATM issuance on common-share dilution and leverage, and the sustainability of common and preferred dividends.
- Tenant, market, and property-specific exposures underlying the impairment charges, lease expirations, and planned dispositions.