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STAG Industrial, Inc. (NYSE:STAG) Q1 2024 Earnings Call Transcript

STAG Industrial, Inc. (NYSE:STAG) Q1 2024 Earnings Call Transcript May 1, 2024

STAG Industrial, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings, and welcome to the STAG Industrial, Inc. First Quarter 2024 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Xiarhos. Thank you. Mr. Xiarhos, you may begin.

Steven Kimball: Thank you. Welcome to STAG Industrial's conference call covering the First Quarter 2024 Results. In addition to the press release distributed yesterday, we have posted an unaudited quarterly supplemental information presentation on the company's website at, under the Investor Relations section. On today's call, the company's prepared remarks and answers to your questions will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. Examples of forward-looking statements include forecast of core FFO, same-store NOI, G&A, acquisition disposition volumes, retention rates and other guidance, leasing prospects, rent collections, industry and economic trends and other matters.


We encourage all listeners to review the more detailed discussion related to these forward-looking statements contained in the company's filings with the SEC and the definitions and reconciliations of non-GAAP measures contained in the supplemental information package available on the company's website. As a reminder, forward-looking statements represent management's estimates as of today. STAG Industrial assumes no obligation to update any forward-looking statements. On today's call, you'll hear from Bill Crooker, our Chief Executive Officer; and Matt Pinard, our Chief Financial Officer. Also here with us today is Mike Chase, our Chief Investment Officer; and Steve Kimball, EVP of Real Estate Operations were available to answer questions specific to the areas of focus.

I will now turn the call over to Bill.

William Crooker: Thank you, Steve. Good morning, everybody, and welcome to the first quarter earnings call for STAG Industrial. We are pleased to have you join us and look forward to telling you about the first quarter 2024 results. The first quarter reflects the continuation of our strong operating results achieved last year. Our view on the business remains consistent with our fourth quarter call. As anticipated, there are pockets of softness in certain markets, which is driven by increased supply coming online. Additionally, tenants are taking longer to make leasing decisions, which is impacting market occupancy. These dynamics were incorporating our initial view for the year. We continue to expect market rent growth in the mid-single digits for our portfolio, primarily driven by the volatile interest rate environment, forecasted deliveries for 2024 and 2025 are expected to decrease to just 2.1% and 1.6% of stock, respectively.

This is a decrease as compared to the forecast 90 days ago. Interest rate volatility has reemerged today after stability in the first 3 months of the year. This will likely pressure the transaction market, which saw increased activity earlier in the year. In the first quarter, we closed on a 700,000 square foot Class A cross-stocked warehouse for $50.1 million. This building was acquired at cash and straight-line cap rates of 6.1% and 6.8%, respectively. Located in the West Chester submarket of Northern Cincinnati, the building benefits from its multiple access points and proximity to I-75. The building is leased to a tenant with an internal credit rating of BB. The lease has 6.8 years of remaining term and weighted average rental escalators of 4.1%, providing stable NOI growth throughout the term.

Aerial view of a large industrial property, with its single-tenant structure.
Aerial view of a large industrial property, with its single-tenant structure.

These rents were also 13% below market and acquisition. Subsequent to quarter end, we acquired 3 buildings for $85 million at a 6.4% cash cap rate. On the development front, we have over 1.2 million square feet of activity across 3 projects located in the Southeastern U.S. 2 projects are in the Greenville, Spartanburg, South Carolina market. The first is our 2-building, 715,000 square foot development project in Greer, located next to the airport, BMW manufacturing facility, inland port and I-85. Remaining construction, including 4 offices for multi-tenant use was completed in February 2024. Stabilization is projected to occur in Q2 2025. The second project is a 233,000 square foot development in Spartanburg. The building was purchased during construction in Q4 2023 with a Q2 2024 estimated delivery date.

Stabilization is projected to occur in Q2 2025. The third development project is our 2-building, 298,000 square foot project in Tampa, Florida. These buildings are under construction with a Q4 2024 estimated delivery date and stabilization in late 2025. The suite sizes of approximately 50,000 square feet aligned well with demand in this high barrier to entry low vacancy market. With that, I will turn it over to Matt who will cover our remaining results and updates to guidance.

Matts Pinard: Thank you, Bill, and good morning, everyone. Core FFO per share was $0.59 for the quarter, an increase of 7.3% as compared to last year. Cash available for distribution totaled $98.1 million, an increase of 8.9% as compared to the prior period. We retained approximately $29.5 million of cash flow after dividends paid to March 31. These dollars are available for incremental investment opportunities, debt repayment and other general corporate purposes. Leverage remains low with net debt to annualized run rate adjusted EBITDA equal to 4.9x. Liquidity stood at $1.1 billion at quarter end, inclusive of available forward proceeds and committed private placement debt proceeds. During the quarter, we 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 was 84.2%. Same-store cash NOI growth of 7.1% for the quarter. The 2 primary drivers include the impact of substantial leasing spreads achieved at 2 Burlington, New Jersey assets in the second half of 2023. This contributed to same-store growth in the beginning of 2024 versus the comparison period. We also benefited this quarter from free rent provided in the first quarter of 2023. Moving to capital market activity. Year-to-date, we've issued 794,000 shares on a forward basis under ATM program, a gross average share price of $38.94, resulting in gross proceeds of $31 million. As of today, we have approximately $72 million of forward equity proceeds available to fund at our discretion. Equity will be used to pay down the revolver and match under acquisition and development pipeline.

On March 13, the company entered into a note purchase agreement to issue $450 million of fixed rate senior unsecured notes in a private placement offering. The notes consisted of 5, 7 and 10-year tenors with a weighted average fixed interest rate of 6.17%. The notes will be funded on May 28. On March 25, the company refinanced the $200 million term loan F, which was scheduled to mature in January 2025. The term loan now matures March 25, 2027, with 2 1-year extension options. The term loan bears an aggregate fixed interest rate, inclusive of interest rate swaps of 2.94% until January 15, 2025, and will bear an aggregate fixed interest rate inclusive of interest rate swaps of 4.83% from January 15, 2025 through maturity of March 25, 2027. We experienced 9 basis points of credit loss in the first quarter, which is in line with our initial guidance of 50 basis points.

Given the relative health of our portfolio described by Bill and reflect in our quarterly results, we are maintaining guidance at this time. I will now turn it back over to Bill.

William Crooker: Thank you, Matt. I want to thank our team for their continued hard work and achievement towards our 2024 goals. Our team continues to drive value in all macro environments. We are well positioned for sustained growth through our operating and acquisition platform. We'll now turn it back to the operator for questions.

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