STAG Industrial, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. STAG owns and operates single-tenant industrial properties and reported a portfolio of 563 buildings across 41 states, totaling approximately 111.6 million rentable square feet.
Financial and operating highlights
| Metric | Q3 2022 | Prior period | Nine months 2022 | Prior period |
|---|---|---|---|---|
| Total revenue | $166.3 million | $142.1 million | $487.0 million | $414.5 million |
| Net income | $64.7 million | $49.6 million | $151.8 million | $108.3 million |
| Net income attributable to common stockholders per diluted share | $0.35 | $0.30 | $0.83 | $0.63 |
| FFO attributable to common stockholders and unit holders | $102.6 million | $85.9 million | $301.6 million | $243.6 million |
| Net cash from operating activities | Not provided for quarter | Not provided for quarter | $297.9 million | $254.6 million |
| Net cash used in investing activities | Not provided for quarter | Not provided for quarter | $397.3 million | $603.0 million |
- Q3 revenue grew 17.0%; nine-month revenue grew 17.5%. Growth reflected acquisitions and higher same-store rents.
- Same-store occupancy was 98.9%, versus 97.4% a year earlier. Same-store NOI increased 5.4% in Q3 and 3.3% for the nine-month period.
- For leases commencing in the first nine months, reported cash rent change was 24.0% and straight-line rent change was 14.3% on a weighted-average basis.
- At September 30, total debt principal was $2.469 billion, with a 3.29% weighted-average interest rate, 5.4-year weighted-average duration, and 35.6% net debt to real estate cost basis. Secured debt was 0.3% of debt; 4.1% was scheduled to mature within 12 months.
- Immediate liquidity was approximately $873.8 million: $13.4 million cash and $860.4 million available under the unsecured credit facility. STAG reported compliance with debt covenants.
- Declared common dividends were $0.121667 per share monthly for October, November, and December 2022.
Material changes and notable items
- Q3 net income rose 30.5%; nine-month net income rose 40.1%. Gains on rental-property sales were $33.2 million for Q3 and $57.5 million for nine months, materially contributing to reported GAAP income.
- Q3 interest expense increased $5.4 million year over year to $21.2 million; nine-month interest expense increased $9.9 million to $56.3 million, primarily reflecting additional unsecured notes.
- Depreciation and amortization increased with the larger asset base. The company recorded a $1.8 million impairment in Q3 related to a Hartford property after a change in its estimated holding period.
- During the first nine months, STAG acquired 25 buildings and land parcels for $464.6 million and sold six buildings and one land parcel, generating $130.9 million in net proceeds.
- In 2022, STAG issued $400 million of 4.12% unsecured notes due 2032, entered into two $187.5 million term loans due 2028, and increased its revolving credit facility commitment from $750 million to $1.0 billion. It repaid $325 million of earlier term loans and a $46.6 million mortgage.
- Interest-rate swap assets were valued at $77.5 million at quarter-end; nine-month other comprehensive income included $89.4 million of swap-related income. Management estimated $25.4 million would be reclassified from accumulated other comprehensive income as a reduction to interest expense over the next 12 months.
Outlook, risks, and contingencies
Management cited inflation, rising interest rates, geopolitical tensions, supply-chain bottlenecks, and increased recession risk as sources of uncertainty. It said the portfolio remained supported by competitive rents and strong occupancy, and pointed to e-commerce and supply-chain resilience as potential long-term demand drivers. Management also stated that the diversified portfolio, liquidity, and hedging position it to manage volatility. The filing provides no quantified earnings or acquisition guidance.
- Nearly all outstanding variable-rate debt, except the $136 million credit-facility balance, was fixed with swaps through maturity. Higher rates could still raise costs on unhedged borrowings and affect refinancing, asset values, cash flow, and distributions.
- Leases representing approximately 7.2% of annualized base rental revenue expire from October 2022 through September 2023. Management expected replacement rents to exceed expiring rents, based on its renewal and downtime assumptions.
- Management reported no significant COVID-related disruptions or rent deferral agreements in the period. It identified tenant defaults, vacancies, weaker economic conditions, financing access, and acquisition execution among relevant risks.
- Ordinary-course legal proceedings were not expected to have a material adverse effect. The filing reported $3.6 million of letters of credit related to construction and other agreements and no other material off-balance-sheet arrangements.
Important facts for investors to verify
- How much earnings and FFO growth persists after excluding property-sale gains and considering acquisition-related depreciation and interest costs.
- Whether high same-store occupancy and rent increases continue, and how upcoming lease expirations affect renewal rates, downtime, and leasing costs.
- Debt maturities, borrowing costs, covenant headroom, and the exposure remaining on the floating-rate credit facility as interest rates change.
- Whether reported liquidity and operating cash flow adequately support acquisitions, capital spending, debt service, and dividends.
- The assumptions behind the impaired property’s valuation and the fair-value and effectiveness of interest-rate hedges.