STAG Industrial, Inc. — Q2 2013 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2013. Amounts are in U.S. dollars; financial statement amounts below are in millions unless otherwise noted.
Business context
STAG is a REIT focused on acquiring, owning and managing single-tenant U.S. industrial properties. At quarter-end, it owned 194 buildings across 33 states, totaling approximately 33.3 million square feet; the portfolio was 93.9% leased to 174 tenants. No tenant represented more than 2.4% of annualized rent.
Financial results and key metrics
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Total revenue | $32.1 | $19.3 | $62.3 | $36.7 |
| Net loss | $(0.2) | $(1.5) | $(0.6) | $(2.9) |
| Net income (loss) attributable to STAG | $0.2 | $(0.6) | $0.02 | $(1.0) |
| Net loss attributable to common stockholders | $(2.4) | $(2.2) | $(4.2) | $(4.2) |
| Loss per common share | $(0.06) | $(0.11) | $(0.10) | $(0.24) |
| Operating cash flow | — | $33.7 | $17.6 |
Revenue growth primarily reflected acquisitions. Q2 total portfolio NOI, a non-GAAP measure, was $26.3 million versus $16.5 million; six-month NOI was $51.1 million versus $31.0 million. In contrast, same-store NOI fell 4.4% in Q2 and 3.2% for the six-month period. Same-store occupancy was 91.7% versus 95.0% at the comparable prior-year quarter-end, and 91.2% versus 94.7% on the six-month comparison.
Six-month investing cash use was $155.0 million, primarily reflecting property acquisitions; financing activities provided $122.0 million. Cash and cash equivalents were $19.8 million at June 30, excluding restricted cash of $9.3 million. The filing does not provide a conventional operating margin or net margin measure.
Balance sheet, debt and liquidity
- Total assets were $1.149 billion and total liabilities were $497.2 million at June 30, 2013. Total debt principal was approximately $452.9 million, compared with $479.2 million at December 31, 2012.
- Debt included $227.9 million of mortgage notes and $225.0 million of unsecured term loans. The revolving credit facility had no balance outstanding; approximately $200 million of capacity was available, subject to borrowing conditions. An additional $75 million was available under the Wells Fargo term loan at quarter-end, subject to stated conditions.
- The weighted-average debt interest rate was 3.92%. Of $225 million in variable-rate term debt, $125 million was swapped to fixed rates at quarter-end; a further $50 million swap became effective July 1, 2013. The company reported compliance with debt covenants.
- Common stock and Series B preferred offerings generated gross proceeds of $115 million and $70 million, respectively. Series B net proceeds were used to repay revolving borrowings and fund acquisitions; common-offering proceeds repaid the revolving facility. The company also issued $11.5 million of operating partnership units as partial consideration for an acquisition.
Material changes, outlook and risks
- STAG acquired 23 buildings totaling approximately 4.0 million square feet during the first half of 2013, for net assets acquired of $168.2 million. It sold one non-core Pittsburgh property and recorded a $0.5 million gain.
- Management said limited speculative development, improving tenant financing availability, low interest rates and attractively priced acquisition opportunities could support occupancy, rents and acquisition-led growth. No numerical earnings or acquisition guidance was provided.
- Management cited vacancies and lower renewal rents as pressures on same-store rental income; utilities and property costs also increased. Of approximately 2.2 million square feet of leases expiring in the first half, 1.6 million square feet had been renewed, a 72% retention rate. Approximately 2.0 million square feet remained available.
- Risks include tenant defaults or non-renewals, vacancies and rent declines, acquisition execution, real estate and economic conditions, higher interest rates, refinancing and financing availability, REIT qualification, and environmental or insurance exposures. A 100-basis-point rate increase on the $100 million of then-unhedged term debt would have increased six-month interest expense by an estimated $0.5 million.
- Ordinary-course legal matters were not expected by management to have a material adverse effect. No material risk-factor changes were reported. Subsequent to quarter-end, STAG drew $25 million under the Wells Fargo term loan; a director resigned and the company terminated a voting agreement with an investor affiliate.
Most important facts for investors to verify
- Whether same-store occupancy and NOI stabilize, and how available space and upcoming lease expirations affect rent and retention.
- Acquisition performance, including the returns and financing costs associated with rapid portfolio expansion.
- Debt covenant headroom, available borrowing capacity, maturity schedule and exposure to floating interest rates after the disclosed swaps.
- Cash available for common and preferred dividends after debt service, capital needs and acquisition spending; GAAP common-stockholder losses continued despite improved consolidated results.
- Definitions and reconciliations for non-GAAP NOI and FFO, which the filing cautions are not substitutes for GAAP results or measures of liquidity.