STAG Industrial, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; comparisons are with Q1 2013 unless noted. STAG is a REIT focused on owning and managing single-tenant, net-leased industrial buildings.
Business context
At quarter-end, STAG owned 212 buildings in 34 states, totaling approximately 39.0 million square feet, and was 95.3% leased to 193 tenants. No tenant contributed more than 2.7% of annualized rent. During the quarter, it acquired four buildings totaling approximately 975,000 square feet for $36.9 million.
Financial and operating performance
| Metric | Q1 2014 | Q1 2013 / prior date |
|---|---|---|
| Total revenue | $39.7 million | $30.0 million |
| Net income (loss) | $21,000 | $(418,000) |
| Net loss attributable to common stockholders | $(2.4) million; $(0.05) per share | $(1.8) million; $(0.04) per share |
| FFO attributable to common stockholders and unit holders | $17.0 million | $13.6 million |
| Net operating income (NOI), excluding discontinued operations | $31.6 million | $24.4 million |
| Cash provided by operating activities | $14.5 million | $12.6 million |
| Cash and cash equivalents, at quarter-end | $28.7 million | $6.7 million at Dec. 31, 2013 |
| Total debt, at quarter-end | $546.5 million | $556.1 million at Dec. 31, 2013 |
| Total assets / total equity, at quarter-end | $1.313 billion / $731.0 million | $1.270 billion / $674.6 million at Dec. 31, 2013 |
Revenue rose 32%, largely reflecting acquisitions. Total portfolio NOI increased about 29%; however, same-store revenue was nearly flat (down 0.2%) and same-store NOI fell 3.6% to $23.2 million. Same-store occupancy declined to 93.9% from 95.1%. Management attributed same-store expense pressure in part to unusually severe winter weather, including higher utilities and snow removal. Depreciation and amortization increased 28.9% to $19.9 million as the acquired-property base grew; interest expense rose 21.8% to $5.7 million. Accordingly, positive consolidated net income did not translate into positive common-stockholder earnings, partly because of preferred dividends.
Cash used in investing was $38.8 million, versus $62.3 million in Q1 2013. Financing provided $46.3 million, including common-stock proceeds; the company raised $76.4 million net through its two ATM programs during the quarter. Dividends and distributions paid were $18.8 million.
Debt, liquidity and capital
Debt consisted of $224.5 million of mortgage notes, $22.0 million drawn on the revolving credit facility, and $300.0 million of unsecured term loans. The revolver had stated borrowing capacity of $178 million at quarter-end, subject to facility terms. STAG entered into a new $150 million Wells Fargo term-loan facility in March, but had not drawn it by March 31. Of $300 million in unsecured term loans, $225 million was fixed through interest-rate swaps. STAG reported compliance with applicable debt covenants.
Management said operating cash flow and financing activities were expected to meet liquidity needs. Sources for longer-term needs could include operating cash flow, borrowings, securities issuance, dispositions and joint ventures. Contractual obligations totaled $657.9 million, including $546.2 million of principal payments across the disclosed maturity periods. A 100-basis-point rate increase, under the filing’s stated assumptions, would have increased quarterly interest expense by approximately $0.2 million.
Outlook, risks and unusual items
Management described the industrial real-estate outlook as positive, citing an improving economy, tenant financing availability, limited speculative development and supply-chain trends. It expected acquisition activity and available financing to support performance, but provided no quantified earnings or FFO guidance. The filing cautions that results depend on occupancy, rent levels, renewals, tenant credit, acquisitions, financing availability, interest rates, real-estate markets and continued REIT qualification.
- After quarter-end, STAG agreed to issue $100 million of senior unsecured notes at a fixed 4.98% rate, with expected draws in July and October 2014, subject to customary closing conditions.
- The former CFO resigned effective April 21, 2014 and agreed to serve as a financial adviser for one year. STAG expected approximately $2.8 million of related expense in April, including accelerated incentive awards and compensation.
- On May 5, the board approved a 5% increase in the monthly common dividend, from $0.105 to $0.11 per share, beginning with the July 2014 dividend.
- After quarter-end, 5,087,497 operating partnership units were redeemed one-for-one for common shares. The filing does not state the resulting post-redemption share count in the supplied text.
- STAG early adopted revised discontinued-operations guidance. The March sale of a Virginia building generated a $50,000 gain and was not classified as discontinued operations. Management said ordinary-course legal matters were not expected to have a material adverse effect; no material change to previously disclosed risk factors was reported.
Most important facts for investors to verify
- Whether same-store occupancy and NOI stabilize after the year-over-year declines, and how much of portfolio growth depends on acquisitions.
- Common-stockholder earnings and dividend coverage, considering preferred dividends, capital spending, leasing costs and the difference between FFO and cash available for distributions.
- Debt maturities, covenant headroom, availability and timing of the undrawn term-loan and private-note funding, and exposure to unhedged floating rates.
- The effect of ATM issuance and the post-quarter unit conversion on common-share dilution and per-share results.
- The realized cost and operational impact of the CFO transition and the approved common-dividend increase.