STAG Industrial, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; comparisons are with Q1 2012 unless stated otherwise. STAG is a self-managed REIT focused on single-tenant industrial properties.
Business context and portfolio
- At quarter-end, STAG owned 179 properties in 33 states, totaling approximately 31.2 million square feet, and leased 95.4% of its space to 161 tenants.
- During the quarter, it acquired seven properties totaling about 1.8 million square feet for approximately $60.5 million. No tenant represented more than 2.6% of annualized rent.
Financial and operating performance
- Revenue: $30.3 million, up 73.0% from $17.5 million. Rental income rose to $26.3 million from $15.2 million, primarily reflecting portfolio acquisitions.
- Profit/loss: Consolidated net loss was $0.4 million, improving from a $1.4 million loss. Net loss attributable to common stockholders was $1.8 million, or $0.04 per share, versus $1.9 million, or $0.12 per share. Preferred dividends and the substantially larger weighted-average common share count affect the per-share comparison.
- FFO: Funds from operations attributable to common stockholders and unit holders was $13.6 million, compared with $5.9 million. FFO is a non-GAAP measure and is not a substitute for cash flow or GAAP earnings.
- Property operations: Total-portfolio NOI was $24.7 million. Same-store NOI declined 1.6% to $14.0 million; same-store operating revenue increased 1.3%, while same-store operating expenses increased 16.1%.
- Cash flow: Operating cash flow was $12.6 million, up from $7.9 million. Investing used $62.3 million, principally for property investment and leasing intangibles; financing provided $42.7 million. Cash and cash equivalents ended at $12.0 million, excluding $7.5 million of restricted cash.
- Balance sheet and debt: Total assets were $1.049 billion and total liabilities $462.9 million. Debt principal outstanding was $423.8 million, down from $479.2 million at December 31, 2012; debt carrying value was $423.8 million. STAG reported compliance with debt covenants.
- Liquidity: At March 31, $20 million was drawn on the $200 million unsecured revolving facility, with approximately $180 million of capacity available. The company reported paying the facility in full by May 7, using proceeds that included its subsequent preferred-stock offering.
Material changes versus the prior period
- Revenue and NOI grew substantially on a total-portfolio basis as acquisitions expanded the portfolio; same-store NOI was lower year over year.
- Depreciation and amortization increased to $15.6 million from $8.8 million, and general and administrative expense rose to $4.5 million from $3.0 million. Interest expense increased to $4.7 million from $4.1 million.
- Net proceeds of approximately $110.1 million from a January common-stock offering were used to repay the revolving facility. STAG also entered a $150 million Wells Fargo unsecured term-loan agreement in February and drew $25 million by quarter-end.
Outlook, risks and unusual items
- Management expected limited speculative development, improving tenant financing availability, and acquisition activity to support occupancy, rents and performance; it described low interest rates and available acquisition opportunities as supportive. The filing gives no numeric earnings or FFO guidance.
- Approximately 0.9 million square feet of leases expired in the quarter, and STAG reported renewing all of that space as of March 31. Approximately 1.4 million square feet was available for lease.
- Of $195 million in variable-rate borrowings described in the filing, $125 million of term-loan balances was hedged with swaps. STAG estimated that a 100-basis-point rate increase, under its stated assumptions, would raise quarterly interest expense by $0.2 million.
- Key risks include tenant default or non-renewal, vacancies and rent pressure, acquisition and integration performance, real-estate and local economic conditions, refinancing and interest-rate exposure, REIT qualification, environmental matters, and cyberattacks or other IT disruption.
- Subsequent events included an April 16 offering of 2.8 million Series B preferred shares at $25 per share, generating $70 million gross proceeds; proceeds were used to repay the revolving facility and fund acquisitions. The board declared Q2 common and preferred dividends in May.
- Management said ordinary-course legal matters were not expected to have a material adverse effect. No significant recognized subsequent events or material off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Acquisition contributions to revenue, cash generation and future property-level returns, compared with the weaker same-store NOI trend.
- Lease renewal and occupancy performance, including how available space and future expirations develop.
- Debt balances, borrowing capacity, covenant headroom, upcoming maturities and the effects of interest-rate movements.
- Dividend coverage using operating cash flow and recurring capital needs; GAAP common-stockholder losses remain distinct from reported FFO.
- The net proceeds and uses of the Series B offering, and the company’s post-quarter-end revolving-credit balance.