STAG Industrial, Inc. — Q1 2021 Form 10-Q
Business context and period. This unaudited filing covers the three months ended March 31, 2021, compared with Q1 2020. STAG is a U.S. industrial REIT focused on single-tenant properties. At quarter-end it owned 494 buildings across 39 states, with approximately 99.1 million rentable square feet.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Total revenue | $134.0 million | $118.5 million; up 13.0% |
| Net income | $25.3 million | $65.0 million |
| Net income attributable to common stockholders | $20.9 million; $0.13 per diluted share | $62.1 million; $0.42 per diluted share |
| FFO attributable to common stockholders and unit holders | $73.2 million | $69.4 million |
| Net operating income (NOI) | $107.0 million | $96.6 million; up 10.8% |
| Same-store NOI | $90.9 million | $91.1 million; down 0.2% |
| Operating cash flow | $73.5 million | $70.6 million |
| Cash and restricted cash | $22.3 million | $20.3 million at Dec. 31, 2020 |
| Total assets / total liabilities | $4.733 billion / $2.034 billion | $4.693 billion / $1.922 billion at Dec. 31, 2020 |
| Debt principal / weighted-average rate | $1.840 billion / 3.05% | $1.709 billion principal at Dec. 31, 2020 |
Revenue growth reflected acquisitions and same-store growth. NOI was approximately 79.8% of revenue in Q1 2021, versus 81.5% in Q1 2020; higher property costs weighed on the ratio. GAAP net income fell 61.0%, primarily because the prior-year quarter included a $46.8 million property-sale gain, compared with $6.4 million in Q1 2021. Q1 2021 also included $0.7 million of debt modification expense and a $2.6 million deemed dividend related to preferred-stock redemption.
Net cash used in investing was $79.5 million, versus $36.0 million in Q1 2020; financing provided $8.0 million, versus $294.9 million. Q1 2021 operating cash flow was below the $60.0 million of dividends and distributions paid, with cash, asset-sale proceeds, borrowing and equity issuance also contributing to funding needs.
Material changes and operating metrics
- Acquired six buildings totaling 1.25 million square feet for $100.2 million; sold four buildings totaling approximately 0.5 million square feet for net proceeds of $23.9 million.
- Operating Portfolio occupancy was 97.2%; same-store occupancy was 96.8%, down from 96.9% a year earlier. New and renewal leases together achieved 9.6% cash rent growth and 18.7% straight-line rent growth.
- Same-store revenue rose 2.4%, but same-store property expenses increased 14.9%, including higher real estate taxes and snow-removal costs.
- Redeemed all 3.0 million Series C preferred shares for $75.0 million; no preferred stock remained outstanding at quarter-end. Q1 common-stock ATM issuance generated $21.8 million net.
- Expanded the unsecured credit facility commitment from $500 million to $750 million. Amended Term Loan G to extend maturity to February 2026 and reduce its stated spread range.
Liquidity, outlook and risks
Management reported approximately $533.0 million of immediate liquidity at March 31, comprising $18.6 million of cash and $514.4 million of available credit-facility capacity. Including approximately $137.3 million of forward equity proceeds available at the company’s option, reported total liquidity was approximately $670.3 million. The company was in compliance with its debt covenants. Net debt to real estate cost basis was 34.4%; 3.1% of debt was secured, and 8.2% was scheduled to mature within 12 months.
Management gave no specific financial guidance. It said the pandemic caused no significant operating disruption in Q1 and no rent-deferral agreements were entered into during the quarter, but its ultimate impact remained uncertain. Management expects industrial demand to benefit over the longer term from e-commerce, supply-chain resilience and domestic manufacturing trends; it also cited strong occupancy, portfolio diversification and liquidity as supports. Common dividends were declared at $0.120833 per share monthly for April through June 2021.
- COVID-19, tenant payment or renewal difficulties, economic weakness, vacancies, and changes in industrial supply and demand could affect rents, occupancy and cash flows.
- Approximately 65.7% of debt was LIBOR-indexed; most variable-rate debt was hedged, but the $233 million credit-facility balance was not. The filing discusses uncertainty and potential costs associated with the LIBOR transition.
- Rates, refinancing access, acquisitions, equity-market conditions and forward-equity settlement may affect funding costs and liquidity. A 100-basis-point rate increase on the assumed outstanding credit-facility balance was estimated to add about $0.6 million in annual interest expense.
- The Employee Retirement Vesting Program added approximately $1.5 million to Q1 G&A; management estimated an approximately $2.4 million increase for full-year 2021. Other expenses included a litigation settlement related to a terminated acquisition contract.
- Ordinary-course legal matters were not expected by management to have a material adverse effect. The filing identifies no other material off-balance-sheet arrangements beyond approximately $2.6 million of letters of credit.
Important facts for investors to verify
- Whether same-store occupancy and rent growth can offset elevated property expenses and the slight same-store NOI decline.
- The sustainability and cash conversion of FFO, and the effect of property-sale gains and acquisition activity on reported GAAP earnings.
- Debt maturities, covenant-based borrowing capacity, unhedged credit-facility exposure and the costs or terms of the LIBOR transition.
- The availability and settlement terms of forward equity, subsequent ATM issuance and resulting share dilution.
- Tenant collections, lease expirations and the realized effects of COVID-19 on tenants, leasing and capital markets.