STAG Industrial, Inc. (NYSE: STAG) is a real estate investment trust (REIT) focused on the acquisition, ownership, and operation of industrial properties throughout the United States. The company has established itself as a leading player in the industrial real estate sector, leveraging its expertise and diversified portfolio to deliver consistent financial results.
Financials
For the fiscal year ended December 31, 2023, STAG Industrial reported annual net income of $192,845,000, annual revenue of $707,835,000, annual operating cash flow of $391,092,000, and annual free cash flow of $264,774,000. These strong financial metrics demonstrate the company's ability to generate consistent and reliable returns for its shareholders.
In the first quarter of 2024, the company reported core FFO per share of $0.59, an increase of 7.3% compared to the same period in the prior year. Cash available for distribution totaled $98.1 million, an increase of 8.9% compared to the prior period. The company retained approximately $29.5 million of cash flow after dividends paid, providing ample liquidity for future investment opportunities, debt repayment, and general corporate purposes.
Business Overview
Diversified Portfolio and Geographic Footprint
As of March 31, 2024, STAG Industrial owned 570 industrial buildings in 41 states with approximately 113.0 million rentable square feet. The company's portfolio is well-diversified, with its top 20 markets accounting for 57.6% of total annualized base rental revenue. The company's largest markets include Chicago, IL (6.8%), Greenville, SC (5.4%), and Pittsburgh, PA (4.1%).
In terms of tenant industry diversification, STAG's top 20 tenant industries account for 82.7% of total annualized base rental revenue. The company's largest tenant industries include Air Freight & Logistics (11.5%), Containers & Packaging (8.3%), and Automobile Components (7.0%).
Acquisition and Development Activity
During the first quarter of 2024, STAG acquired a 697,500 square foot Class A cross-docked warehouse in the West Chester submarket of Northern Cincinnati for $50.1 million. The acquisition was completed at cash and straight-line cap rates of 6.1% and 6.8%, respectively, with the building leased to a tenant with an internal credit rating of BB and a remaining lease term of 6.8 years.
Subsequent to the first quarter, the company acquired three additional buildings for $85 million at a 6.4% cash cap rate. On the development front, STAG has over 1.2 million square feet of activity across three projects located in the Southeastern U.S., with estimated stabilization dates ranging from the second quarter of 2025 to late 2025.
Operational Performance
STAG's same-store portfolio, which represents approximately 96.4% of its total portfolio, achieved same-store cash NOI growth of 7.1% in the first quarter of 2024. This strong performance was driven by the impact of substantial leasing spreads achieved at two Burlington, New Jersey assets in the second half of 2023, as well as the benefit of free rent provided in the first quarter of 2023.
During the first quarter, the company commenced 29 leases totaling 4.3 million square feet, which generated cash and straight-line leasing spreads of 30.5% and 43.6%, respectively. Retention for the quarter was 84.2%.
Liquidity
STAG has been active in the capital markets, issuing 794,000 shares on a forward basis under its ATM program at a gross average share price of $38.94, resulting in gross proceeds of $31 million. As of the end of the first quarter, the company had approximately $72 million of forward equity proceeds available to fund acquisitions and development projects.
On the debt front, the company entered into a note purchase agreement to issue $450 million of fixed-rate senior unsecured notes with a weighted average interest rate of 6.17%. Additionally, the company refinanced its $200 million term loan F, extending the maturity to March 2027 with two one-year extension options.
Liquidity remains strong, with the company reporting $1.1 billion in total liquidity at the end of the first quarter, inclusive of available forward ATM proceeds and committed private placement debt proceeds.
Outlook
Given the relative health of its portfolio and the strong first-quarter results, STAG is maintaining its guidance for the full year 2024. The company continues to expect market rent growth in the mid-single digits for its portfolio, driven by the volatile interest rate environment and a decrease in forecasted deliveries for 2024 and 2025.
While the company has seen pockets of softness in certain markets and longer decision-making timelines for some tenants, management remains confident in the company's ability to navigate the current market conditions and deliver consistent performance.
Conclusion
STAG Industrial's diversified portfolio, disciplined acquisition and development strategy, and strong operational execution have positioned the company for continued success. With a focus on industrial real estate, the company is well-poised to capitalize on the growing demand for well-located, functional distribution and logistics space. As STAG continues to execute on its strategic initiatives, investors can expect the company to maintain its track record of delivering consistent financial results and creating value for its shareholders.