STAG Industrial, Inc. — Q2 2022 Form 10-Q
Business context and reporting period
STAG is a U.S. industrial real estate REIT focused on single-tenant properties. This unaudited filing covers the quarter and six months ended June 30, 2022. At quarter-end, STAG owned 559 industrial buildings in 40 states, totaling approximately 111.5 million rentable square feet.
Financial and operating highlights
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $161.5 million | $138.4 million | $320.7 million | $272.4 million |
| Net income | $33.1 million | $33.4 million | $87.1 million | $58.7 million |
| Net income attributable to common stockholders per diluted share | $0.18 | $0.20 | $0.48 | $0.33 |
| FFO attributable to common stockholders and unit holders | $101.8 million | $84.5 million | $199.0 million | $157.6 million |
| Net cash provided by operating activities | — | $191.2 million | $162.4 million |
- Q2 revenue increased 16.7% year over year, while net income declined 0.9%. For the first half, revenue rose 17.7% and net income rose 48.3%.
- Q2 total portfolio NOI was $132.6 million, up 17.3%; first-half NOI was $260.1 million, up 18.2%. Same-store NOI increased 1.8% in Q2 and 2.3% for the first half.
- Same-store occupancy was 98.7% at June 30, compared with 97.6% a year earlier. Operating Portfolio cash rent change on new and renewal leases was 14.1% for Q2 and 14.6% for the first half; straight-line rent change was 21.9% and 23.6%, respectively.
- Cash and cash equivalents were $12.6 million; immediate liquidity was approximately $643.0 million, including $630.4 million available under the credit facility. Total debt principal was approximately $2.445 billion, at a reported weighted-average interest rate of 3.25%. Net debt to real estate cost basis was 35.8%; secured debt was 2.2% of debt.
- Operating cash flow was $191.2 million. Investing activities used $334.9 million, including $337.3 million of property acquisitions; financing activities provided $136.4 million. Cash and restricted cash totaled $15.8 million at period-end.
Changes versus the prior comparable period
- Revenue growth reflected acquisitions as well as existing-property performance: STAG acquired 17 buildings and land parcels for $337.3 million in the first half. Total portfolio rental income increased 16.9% in Q2 and 17.7% year to date.
- Depreciation and amortization increased 20.8% in Q2 and 18.1% in the first half, largely due to acquisitions. Interest expense increased 17.2% in Q2 and 14.8% year to date, partly reflecting prior unsecured note issuance.
- First-half net income included $24.3 million of gains on property sales, versus $12.4 million a year earlier. Q2 gains were $0.4 million, compared with $6.0 million in Q2 2021.
- Debt principal increased from $2.226 billion at December 31, 2021 to $2.445 billion at June 30, 2022, including $400 million of 4.12% senior unsecured notes issued June 28, 2032-maturity.
Outlook, risks, and notable items
- Management provided no specific earnings or operating guidance in the filing. It cited economic uncertainty from high inflation, rising interest rates, COVID-19, geopolitical tensions, supply-chain bottlenecks, and recession risk, while expressing confidence in portfolio diversification, occupancy, rental rates, liquidity, and long-term industrial demand.
- Management noted that leases representing 7.2% of annualized base rental revenue expire from July 1, 2022 through June 30, 2023, and expects new lease rates on that space to exceed expiring rates, subject to renewals, vacancies, and downtime.
- Most variable-rate debt was hedged through swaps; the $116 million credit-facility balance was unhedged. STAG estimated a 100-basis-point rate increase would have raised first-half interest expense by approximately $0.6 million, assuming that balance remained outstanding.
- After quarter-end, STAG increased credit-facility commitments from $750 million to up to $1.0 billion and changed the reference rate from LIBOR to SOFR plus an adjustment. It also replaced $325 million of term loans maturing in 2023 and 2024 with $375 million of term loans maturing in 2028; the new loans were swapped to a fixed SOFR rate of 2.579%.
- Effective July 1, 2022, William R. Crooker became CEO and board member; Benjamin S. Butcher became Executive Chair. Management said COVID-19 had not caused significant disruption or rent deferrals in the reported periods, but its ultimate effects remained uncertain.
- STAG reported compliance with debt covenants and no legal proceedings expected to have a material adverse effect. It disclosed $3.6 million of letters of credit related to construction and other agreements. The board declared monthly common dividends of $0.121667 per share for July through September 2022.
Important facts for investors to verify
- Whether strong leasing spreads and high occupancy persist as leases roll and economic conditions change.
- Acquisition returns and funding costs, including the effect of the new debt terms and higher benchmark rates on interest expense.
- Debt maturities, available borrowing capacity, covenant headroom, and ongoing liquidity needs for acquisitions, capital spending, and dividends.
- The sustainability of reported earnings and FFO, considering property-sale gains, acquisition-related depreciation, and the distinction between FFO and cash available for dividends.
- Tenant credit and collections, particularly the recorded $84.0 million of accrued rental income, as well as the effect of inflation, recession risk, and tenant vacancies.