STAG Industrial, Inc. — Q1 2012 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2012. STAG owned 110 industrial properties across 28 states, totaling approximately 18.3 million rentable square feet. The portfolio was 94.2% leased to 95 tenants; no tenant represented more than 4.1% of annualized rent. STAG owned 66.63% of its operating partnership.
Comparisons with Q1 2011 require caution: 2012 results are for the public company after its April 2011 IPO and formation transactions, while Q1 2011 results represent the predecessor group. The filing says the comparison is not meaningful as a measure of operating performance.
Financial results and position
- Revenue: $18.0 million, up $11.3 million (167%) from $6.7 million, primarily reflecting properties contributed in the formation transactions and later acquisitions.
- Expenses and earnings: Expenses were $15.4 million versus $4.0 million. Net loss was $1.4 million versus a $0.1 million predecessor loss. After preferred dividends and noncontrolling interests, loss attributable to common stockholders was $1.9 million, or $0.12 per share. The filing does not present comparable Q1 2011 earnings per share.
- FFO: $7.5 million; FFO attributable to common stockholders and unit holders was $5.9 million. FFO is a non-GAAP measure and is not a measure of liquidity or cash available for dividends.
- Cash flow: Operating activities provided $7.9 million; investing activities used $38.6 million, mainly for property additions; financing activities provided $32.7 million. Cash and cash equivalents were $18.5 million at quarter-end, and restricted cash was $8.2 million.
- Debt and liquidity: Debt totaled $337.3 million, including $40.0 million drawn on the secured credit facility. The facility had approximately $26.4 million of available capacity. Weighted average debt rate was 4.55%; $172.7 million was variable-rate debt, with no interest-rate swaps outstanding at quarter-end. Management reported compliance with financial covenants.
- Equity and distributions: The company declared a common dividend of $0.26 per share for the quarter and a preferred dividend of $0.5625 per share. Total equity was $301.2 million; total assets were $657.2 million.
Material changes and notable items
- Five properties were acquired during the quarter. Their combined purchase price was approximately $38.1 million; they contributed $0.1 million of revenue and $0.3 million of net loss in the period, including acquisition costs.
- Interest expense rose $0.9 million year over year, partly due to credit-facility borrowings and debt associated with acquisitions. Depreciation and amortization increased $6.9 million, reflecting the larger asset base. These comparisons also reflect the change from predecessor to public-company reporting.
- The $141 million notional Wells Fargo interest-rate swap expired January 31, 2012. The Wells Fargo loan consequently returned to a floating rate; the quarter-end rate was LIBOR plus 3.00%. A $0.2 million swap gain was recognized in Q1.
- After quarter-end, STAG acquired a fully leased South Carolina property for approximately $9.0 million and an Indiana property for approximately $17.8 million, funded with cash. It also agreed to buy six properties for $30 million, subject to closing conditions, and reported $26.3 million of additional net credit-facility borrowings through May 9.
- No off-balance-sheet arrangements were reported. Management said ordinary-course legal matters were not expected to have a material adverse effect; no material risk-factor changes were reported. Disclosure controls were deemed effective.
Outlook, risks, and contingencies
Management expected acquisition activity to support financial performance and viewed low interest rates, available properties, and improving tenant financing conditions as favorable. It also cited limited speculative development as potentially supportive of occupancy and rents. No numerical earnings or FFO guidance was provided.
Key risks include vacancies, lower rents, tenant defaults or bankruptcies, acquisition execution, refinancing availability and cost, and higher interest rates. Management estimated that a 100-basis-point rate increase, assuming quarter-end variable borrowings throughout the quarter, would have increased quarterly interest expense by $0.4 million. The company stated that REIT qualification requires meeting applicable rules, including distributing at least 90% of REIT taxable income.
Important facts for investors to verify
- Whether portfolio occupancy, tenant retention, and rent levels hold up as leases expire; 1.1 million square feet was available and reported retention on 2012 expirations was 68% at quarter-end.
- Acquisition outcomes and funding, including the post-quarter purchases, proposed CRAG transaction, and subsequent credit-facility borrowings.
- Exposure to floating rates and debt maturities, particularly the Wells Fargo loan maturing in 2013 and the $40 million credit-facility balance maturing in 2014.
- Cash generation relative to common and preferred distributions, capital needs, and debt service; reported FFO should not be treated as cash available for dividends.
- Comparability of reported results: Q1 2011 is predecessor information, not a like-for-like public-company comparison.