STAG Industrial, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2011. STAG completed its IPO and formation transactions on April 20, 2011; therefore, 2011 results combine predecessor results through April 19 with STAG results thereafter, while 2010 comparisons are predecessor results. Comparisons reflect a substantially larger portfolio and are not fully like-for-like.
Business context and portfolio
STAG acquires, owns, leases and manages primarily single-tenant industrial properties. At quarter-end it owned 99 properties in 26 states, comprising approximately 15.9 million rentable square feet. The portfolio was 92.2% leased to 83 tenants; no tenant represented more than 4.8% of annualized rent, and no industry more than 12.1%. Eight properties were acquired after the formation transactions.
Financial performance and position
| Metric | Reported result |
|---|---|
| Q3 revenue | $17.0 million, up 154.8% from $6.7 million in Q3 2010 |
| Q3 net loss | $0.6 million, versus a $2.0 million predecessor loss in Q3 2010; loss attributable to STAG was $0.4 million, or $0.02 per share |
| Q3 expenses | $13.8 million, including $8.3 million of depreciation and amortization and $0.4 million of property acquisition costs |
| Q3 FFO | $7.8 million before noncontrolling interest; FFO is a non-GAAP measure and is not a measure of liquidity or funds available for dividends |
| Nine-month combined results | Revenue of $36.4 million and net loss of $6.7 million, versus predecessor revenue of $21.7 million and net loss of $4.0 million in 2010. The 2011 period includes predecessor results through April 19. |
| Nine-month combined cash flows | $12.9 million provided by operations, $72.6 million used in investing, and $70.1 million provided by financing |
| Quarter-end liquidity | Cash and cash equivalents of $12.0 million; restricted cash of $7.3 million. The secured revolving facility had $17.5 million outstanding at September 30; usable availability was subject to borrowing-base and coverage tests. |
| Debt and equity | Total debt carrying amount of $308.6 million; estimated fair value of $310.3 million. Weighted-average debt rate was 5.50%. Total assets were $580.9 million and total equity was $253.0 million. |
Material changes and unusual items
- Q3 revenue growth primarily reflected properties contributed at formation and subsequent acquisitions. It also included approximately $1.8 million of income from a partial lease termination; this was a one-time item.
- Q3 depreciation and amortization rose to $8.3 million from $3.1 million in the prior-year quarter, principally reflecting the larger acquired asset base. General and administrative costs also increased following the transition to a public, internally managed company.
- Net loss improved year over year in Q3, but the nine-month combined net loss increased, reflecting the changed entity and reporting periods, acquisition-related costs, and higher operating and depreciation expenses. Formation transaction costs were $3.8 million for the post-IPO period.
- The company declared a $0.26-per-share Q3 common dividend, paid October 14, 2011.
Outlook, risks and contingencies
- No quantitative earnings or acquisition guidance was provided. Management expected limited speculative development, continued low interest rates and attractively priced properties to support occupancy, rents and acquisition opportunities.
- Management said liquidity needs were expected to be met through operating cash flow, financing and selective property sales. Future needs include debt service, capital spending, acquisitions and distributions. The company was in compliance with loan covenants at quarter-end.
- Approximately $140.1 million of Anglo Irish master-loan debt was due October 2013. Its related interest-rate swap, covering approximately $141 million, expired January 31, 2012. The filing identifies refinancing, interest-rate, tenant-default, vacancy, rent, acquisition and economic risks.
- Subsequent to quarter-end, STAG amended its credit facility on October 17 to improve pricing, increase capacity and provide covenant flexibility. On November 2 it issued 2.76 million shares of 9.0% Series A preferred stock for $69.0 million gross and approximately $66.1 million net proceeds; the proceeds were used to repay the revolving facility in full, with remaining funds intended for acquisitions and general purposes. Preferred dividends rank senior to common dividends.
- Management reported no material legal proceedings, no material change to previously disclosed risk factors, and no off-balance-sheet arrangements. It reported no impairment charges. STAG intended to qualify as a REIT beginning with the 2011 tax year.
Most important facts for investors to verify
- Separate post-IPO STAG results from predecessor results when assessing growth and earnings comparability.
- Review debt maturities, the October 2013 master-loan refinancing, swap expiration and actual credit-facility availability after the amendment and repayment.
- Track occupancy, the approximately 1.24 million square feet of available space, lease retention and tenant credit quality.
- Assess recurring operating performance apart from the lease-termination income, formation costs and acquisition-related expenses; do not treat FFO as cash available for dividends.
- Confirm REIT qualification and the capacity to fund common and preferred dividends alongside debt service, capital needs and acquisitions.