Business context and reporting period
STAG Industrial, Inc. is a U.S. industrial REIT focused on single-tenant properties. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2021. At quarter-end, STAG owned 501 buildings in 39 states, totaling approximately 100.1 million rentable square feet.
Financial and operating performance
Amounts are in millions except per-share data. Quarter comparisons are against Q2 2020; six-month comparisons are against the first half of 2020.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $138.4 | $117.6 | $272.4 | $236.2 |
| Net income | $33.4 | $19.3 | $58.7 | $84.4 |
| Net income attributable to common stockholders | $32.6 | $17.6 | $53.5 | $79.6 |
| Diluted net income per share | $0.20 | $0.12 | $0.33 | $0.54 |
| FFO attributable to common stockholders and unit holders | $84.5 | $70.3 | $157.6 | $139.7 |
| Net cash provided by operating activities | Not separately provided for the quarter | $162.4 | $148.1 |
- Q2 rental income grew 17.3% to $137.8 million. Management-defined net operating income (NOI) was $113.1 million, up 16.3%; NOI was approximately 81.7% of total revenue.
- Same-store NOI increased 5.3% in Q2 and 2.6% in the first half. Same-store occupancy was 96.8% at June 30, down from 97.6% a year earlier.
- The Operating Portfolio was 97.2% leased. Combined new and renewal leases in that portfolio recorded cash rent growth of 8.1% and straight-line rent growth of 15.1% in Q2; first-half increases were 8.7% and 16.5%, respectively.
- Cash and cash equivalents were $14.6 million, with $3.9 million restricted. Total assets were $4.81 billion and total equity was $2.72 billion.
- Debt principal outstanding was $1.89 billion; the weighted-average interest rate was 2.99%. Net debt to real estate cost basis was 34.8%; secured debt represented 3.0% of principal and 7.9% matured within 12 months. Management reported compliance with debt covenants.
- Immediate liquidity was approximately $477.7 million, including cash and $463.1 million of available credit-facility capacity. Including available forward equity proceeds, management reported total liquidity of approximately $661.8 million.
Material changes versus the prior period
- Q2 net income rose 72.8%, reflecting higher rental revenue and a larger property-sale gain. First-half net income fell 30.4%, largely because the prior-year period included $47.8 million of property-sale gains versus $12.4 million in 2021.
- First-half acquisitions comprised 15 buildings and approximately 2.6 million square feet for a purchase price of $226.9 million. Six buildings totaling approximately 0.9 million square feet were sold, producing net proceeds of $39.6 million and a $12.4 million gain.
- First-half operating cash flow increased 9.6% to $162.4 million. Investing cash outflow increased to $202.0 million, mainly due to higher acquisition spending and lower property-sale proceeds.
- Debt principal increased from $1.71 billion at year-end 2020 to $1.89 billion at June 30, 2021. The credit facility’s capacity was increased from $500 million to as much as $750 million; Term Loan G was extended to 2026 with amended pricing.
- STAG redeemed all $75 million of its 6.875% Series C preferred stock in March 2021. It raised $63.4 million net through settled ATM common-stock sales during the first half and had a separate $50 million forward equity sale outstanding.
Outlook, commentary, and risks
- No quantified earnings or operating guidance is provided in the filing. Management cited strong industrial demand, historically low market availability, e-commerce growth, and supply-chain resilience trends as potential supports for longer-term demand, while noting economic and pandemic uncertainty.
- Management said COVID-19 caused no significant disruption in the quarter or first half and that no rent deferral agreements were entered into during those periods. It nevertheless said the pandemic’s ultimate effects remain uncertain and tenant relief requests will be considered individually.
- Management expected rents on leases expiring from July 2021 through June 2022 to be generally similar to existing rents, based on its renewal and downtime assumptions. Those leases represented 9.2% of annualized base rental revenue.
- Key risks include tenant defaults or non-renewals, vacancy and rent changes, acquisition performance, economic and pandemic effects, refinancing and capital-market access, interest rates, swap-counterparty performance, and maintaining REIT status.
- Most variable-rate debt was hedged with swaps, but the $284 million credit-facility balance was not. The filing estimates a 100-basis-point rate increase would add approximately $1.4 million to annual interest expense at that balance.
- After quarter-end, STAG agreed to a future $325 million private placement of senior unsecured notes: $275 million at 2.80% due 2031 and $50 million at 2.95% due 2033, subject to closing conditions. Common dividends declared for July through September remained $0.120833 per share monthly.
- Unusual items included $2.9 million of first-half additional G&A expense from an employee retirement vesting program and $0.7 million of debt modification expense. Management estimated the vesting program would add approximately $2.4 million to 2021 G&A.
- Management stated that ordinary-course legal matters were not expected to have a material adverse effect. The filing reported no material change to previously disclosed risk factors and no material change in internal control over financial reporting.
Important facts for investors to verify
- Review the quality and collectability of tenant receivables, including the $68.7 million of accrued rental income included in receivables, and monitor tenant credit, renewals, and the 2021–2022 lease expirations.
- Assess whether same-store rent growth can offset rising property expenses: first-half same-store property expenses increased 14.7% while same-store NOI grew 2.6%.
- Confirm acquisition yields and integration against the $226.9 million first-half purchase price, and distinguish recurring operating performance from property-sale gains when evaluating net income.
- Track refinancing requirements, covenant headroom, floating-rate exposure, and the expected closing and terms of the $325 million post-quarter-end note placement.
- Consider equity dilution and cash distributions alongside liquidity: common shares outstanding increased during the period, and the company uses ATM and forward equity programs.