STAG Industrial, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This annual filing also reports fourth-quarter results. STAG is a U.S. industrial-property REIT focused primarily on single-tenant warehouse, distribution, and light-manufacturing buildings.
Business context and portfolio
- At year-end, STAG owned 450 buildings across 38 states, totaling approximately 91.4 million rentable square feet, leased to 414 tenants. Portfolio occupancy was 95.0%; the Operating Portfolio was 96.6% leased.
- No tenant represented more than approximately 1.9% of annualized base rental revenue; no tenant industry exceeded 11.1%. The largest industry was auto components (11.1%).
- Weighted average lease term was approximately 5.2 years. Leases representing 32.3% of annualized base rent were scheduled to expire by the end of 2022.
Financial and operating results
| Metric | 2019 | 2018 | Change or context |
|---|---|---|---|
| Total revenue | $406.0 million | $351.0 million | Up 15.7% |
| Net income | $50.7 million | $96.2 million | Down 47.4% |
| Net income attributable to common stockholders | $43.8 million | $82.4 million | Basic and diluted EPS: $0.35 and $0.35, versus $0.80 and $0.79 |
| Net operating income (NOI, non-GAAP) | $330.8 million | $282.0 million | Up 17.3%; approximately 81.5% of revenue in 2019 |
| Funds from operations attributable to common stockholders and unit holders (FFO, non-GAAP) | $232.1 million | $186.5 million | Up 24.5% |
| Net cash provided by operating activities | $233.4 million | $197.8 million | Up 18.0% |
| Net cash used in investing activities | $1,222.6 million | $507.2 million | Primarily reflects increased acquisitions |
| Net cash provided by financing activities | $978.5 million | $303.8 million | Included substantial equity proceeds and borrowing |
| Total debt, carrying value | $1,645.0 million | $1,325.9 million | Principal outstanding was $1,651.1 million; weighted average interest rate 3.48% |
- Same-store revenue increased 2.0% and same-store NOI increased 1.7%. Same-store occupancy declined to 95.6% from 96.6%.
- On Operating Portfolio leases commencing in 2019, combined new and renewal leases recorded 18.2% straight-line rent growth and 10.0% cash rent growth versus comparable leases.
- Common dividends declared were $1.430004 per share for 2019. The monthly dividend was $0.119167 at year-end; the board declared $0.12 per share monthly for January through March 2020. The Series C preferred dividend was $1.71875 per share for 2019.
Material changes versus 2018
- Revenue and NOI increased with portfolio expansion: STAG acquired 69 buildings for approximately $1.204 billion in 2019, compared with 53 buildings for approximately $676.5 million in 2018.
- Reported net income fell despite higher revenue and NOI, largely because the gain on property sales dropped to $7.4 million from $72.2 million. Interest expense rose to $54.6 million from $48.8 million, while impairment losses increased to $9.8 million from $6.2 million.
- Operating cash flow rose, but acquisition spending drove investing cash outflow materially higher. Equity issuance provided approximately $852.4 million of net proceeds in 2019, and year-end debt increased by approximately $319.1 million on a carrying-value basis.
- Same-store occupancy decreased by about one percentage point. Same-store leasing spreads strengthened: combined straight-line rent change increased to 18.2% from 15.2% in 2018, and cash rent change rose to 10.0% from 7.9%.
Liquidity, debt, outlook, and risks
- Year-end immediate liquidity was approximately $460 million: $9.0 million cash and cash equivalents plus $451.0 million of availability under the unsecured credit facility and term loans. Cash and restricted cash totaled $11.9 million.
- Debt capital structure included 3% secured debt, net debt to real estate cost basis of 35%, and weighted average debt duration of 3.8 years. Approximately 9% of principal was due within 12 months; contractual principal payments for 2020 were $152.0 million. STAG reported compliance with applicable debt covenants.
- Most variable-rate debt was hedged with swaps; the company reported $246.0 million of variable-rate debt not fixed by swaps at year-end. A 100-basis-point rate increase on that exposure was estimated to add approximately $2.5 million in annual interest expense. STAG also identified uncertainty around the planned transition from LIBOR after 2021.
- Management described the outlook as positive but moderated, citing rental-rate growth, strong occupancy, and favorable industrial supply-demand conditions. It highlighted e-commerce, U.S. manufacturing and distribution demand, and transportation infrastructure as supportive trends, while saying rising development activity bears monitoring. No numerical earnings or acquisition guidance was provided.
- Key risks include tenant default or non-renewal, vacancy and re-leasing costs, lease expirations, industrial-market downturns, acquisition execution and capital access, refinancing and interest-rate exposure, and environmental, climate, insurance, and REIT-qualification risks. The filing states no legal proceeding was expected to have a material effect.
- Unusual or notable items: adoption of the new lease accounting standard in 2019 added right-of-use assets and lease liabilities; 2019 impairment charges were $9.8 million. Two California properties classified as held for sale were sold in January 2020 for a contractual $88.0 million. A January 2020 stock offering included direct net proceeds of approximately $173.1 million, with additional forward-sale shares subject to later settlement.
Most important facts for investors to verify
- Whether acquisition-led NOI and FFO growth translates into sustainable per-share cash flow, considering substantial share issuance and dilution.
- The causes and trajectory of same-store occupancy weakness, upcoming lease expirations, and achievable renewal and cash rent spreads.
- Debt maturity and refinancing plans, covenant headroom, unhedged variable-rate exposure, and LIBOR-transition provisions.
- Dividend coverage using operating cash flow and appropriate REIT measures; FFO is non-GAAP and the filing cautions it is not a liquidity measure or a direct measure of funds available for dividends.
- Completion and proceeds from the held-for-sale property transaction and settlement terms for the 2020 forward equity sales.