STAG Industrial, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. STAG is a U.S. industrial REIT focused on single-tenant properties. At quarter-end, it owned 517 buildings across 40 states, totaling approximately 103.4 million rentable square feet.
Financial and operating performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $142.1 million | $117.3 million | $414.5 million | $353.5 million |
| Net income | $49.6 million | $24.2 million | $108.3 million | $108.6 million |
| Net income attributable to common stockholders | $48.4 million | $22.4 million | $102.0 million | $102.0 million |
| Basic EPS | $0.30 | $0.15 | $0.64 | $0.69 |
| Net operating income (NOI) | $115.4 million | $96.5 million | $335.4 million | $290.3 million |
| FFO attributable to common stockholders and unit holders | $85.9 million | $70.7 million | $243.6 million | $210.4 million |
| Cash provided by operating activities | — | $254.6 million | $224.1 million |
Q3 revenue rose 21.2% year over year; nine-month revenue rose 17.3%. Q3 net income more than doubled, primarily reflecting a $22.7 million property-sale gain versus $9.1 million a year earlier. For the first nine months, net income was essentially flat as property-sale gains fell to $35.0 million from $56.9 million. FFO is a non-GAAP REIT measure and should be considered alongside GAAP results, not as a substitute for them.
Same-store NOI increased 2.3% in Q3 and 2.5% for the first nine months. Same-store occupancy was 96.5% at September 30, versus 97.3% a year earlier. Operating Portfolio occupancy was 96.8%. Combined new and renewal lease rent change was 14.7% on a straight-line basis and 8.0% on a cash basis in Q3; year-to-date figures were 15.8% and 8.4%, respectively.
Balance sheet, cash flow and capital
- At September 30, cash and cash equivalents were $42.0 million; cash plus restricted cash totaled $46.2 million. Total assets were $5.22 billion and total equity was $3.02 billion.
- Debt principal outstanding was approximately $1.98 billion, with a 3.20% weighted-average interest rate and 4.3-year weighted-average duration. Secured debt was 2.8% of debt; 7.6% was scheduled to mature in the next 12 months. Net debt to real estate cost basis was 33.5%.
- Immediate liquidity was approximately $739.9 million: $42.0 million cash and $697.9 million available on the credit facility, subject to covenant-based borrowing limits. The company reported compliance with debt covenants.
- Nine-month investing cash outflow was $603.0 million, primarily reflecting acquisitions; financing cash inflow was $374.2 million. STAG acquired 39 buildings totaling 6.65 million square feet for $654.2 million and sold 14 buildings for net proceeds of $77.9 million.
- STAG issued $325 million of long-term unsecured notes at fixed rates of 2.80% and 2.95%, and raised $371.9 million net through common-stock sales. It redeemed all $75 million of Series C preferred stock; no preferred shares remained outstanding at quarter-end.
Material changes and management outlook
- Growth reflected acquisitions and internal rent increases. Same-store revenue growth was partly offset by higher property costs and tenant vacancy; same-store occupancy declined from the prior-year level.
- Management reported no significant COVID-19-related business disruption and no rent-deferral agreements during the quarter or first nine months. It nevertheless said the pandemic’s ultimate effects remain uncertain and will depend on future health, economic and market developments.
- Management expects industrial demand to benefit over time from e-commerce, supply-chain resilience and domestic manufacturing trends. It cited portfolio diversification, strong occupancy, liquidity and limited floating-rate exposure as favorable factors. The filing does not provide specific earnings or growth guidance.
- Management expects leases representing 6.8% of annualized base rent to expire from October 2021 through September 2022 and anticipates a moderate revenue increase on that space based on its renewal and re-leasing assumptions.
- After quarter-end, STAG extended its $750 million credit facility maturity to October 2025 and reduced its current spread; it also extended the $150 million Term Loan A maturity to 2027 and reduced spreads on several term loans. On October 28, it sold a building for a contractual price of $78.0 million.
Risks, contingencies and unusual items
- Interest-rate exposure remains a risk: most variable-rate debt was hedged, but the $49.0 million credit-facility balance was not. Management estimated that a 100-basis-point rate increase would have added approximately $0.4 million of annual interest expense at that balance. Swap counterparty performance and refinancing conditions are additional risks.
- Tenant accounts receivable included $72.4 million of accrued rental income. Tenant defaults, vacancies, non-renewals, weaker markets and lease rollover could affect collections and revenue.
- Q3 general and administrative expense included approximately $2.1 million of costs associated with a former executive’s severance. The nine-month period also included $2.7 million of accelerated equity-compensation expense under a new vesting program and approximately $0.3 million related to litigation settlement.
- Legal matters arising in the ordinary course were not expected by management to have a material adverse effect. The company reported approximately $3.1 million of letters of credit and no other material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether rent increases and leasing activity offset vacancy and the year-over-year decline in same-store occupancy.
- How much reported earnings growth reflects property-sale gains, and how GAAP net income compares with FFO and operating cash generation.
- Collection quality and recoverability of accrued rental income and tenant receivables.
- Acquisition pricing, integration and returns, alongside continuing capital needs and equity issuance-related dilution.
- Post-quarter debt amendments, upcoming maturities, covenant headroom and unhedged interest-rate exposure.
- The eventual effects of COVID-19, supply-chain and economic conditions on tenants, occupancy and leasing demand.