STAG Industrial Delivers Another Solid Quarter

By Markets Fool.com


STAG Industrial hasn't had to put many of these up, reporting solid occupancy and renewal rates. Image source: Getty Images.

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STAG Industrial Inc(NYSE: STAG) released its second quarter financial and operating results on August 2, reporting another quarter of steady growth in funds from operations, acquired 1.4 million square feet of new space to lease, and sold off 634,000 square feet of non-core real estate assets.

STAG's business, acquiring industrial properties that it can lease to single tenants for long-term contracts, continues to generate strong returns, and this quarter was no different. Let's take a closer look.

Solid -- and growing -- asset base continues to pay

STAG's revenues increased 14% in the quarter to $60.2 million, and funds from operations -- a key measure of cash flows for REITs like STAG -- was $0.38 per share, up 5.6% from the year-ago period. The company reported a net loss of $(13.8) million in the quarter, but as with many other REITs, STAG has huge non-cash depreciation/amortization expenses tied to its capital acquisitions that impact its GAAP results.

STAG acquired five buildings in the quarter for $58.2 million, consisting of 1.4 million square feet, while selling off seven buildings consisting of 634,404 square feet for $17.8 million.Since the end of the quarter, the company has entered into contract or letter of intent to buy another 23 buildings for $284 million. These buildings would add another 5.7 billion square feet to the company's property base, and management expects all of these properties to close before year-end.

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Looking out even further, the company said it has a pipeline of 38 million square feet of property that it is actively pursuing, a total of 164 properties worth almost $1.85 billion.

STAG ended the quarter with a 94.9% occupancy rate, signed leases for 2.3 million square feet of its properties, with 922,000 of that retention of existing tenants. According to the release, it retained over 75% of its square footage up for renewal in the quarter, achieving an average of 5.8% cash rent increase, and a 9.9% rent change on a GAAP basis.

STAG also raised $76.1 million in cash during the quarter via stock sales under its "at the market" -- or ATM -- stock selling program, selling 3.2 million new shares. The company used these proceeds to pay down its revolving credit facility due to the quarter's acquisition activity. The company also announced that it would continue its same dividend, paying 11.5 cents per share monthly for the remainder of 2016. That works out to almost a 5.7% yield at recent share prices.

Looking ahead

As a REIT, STAG must pay out a significant portion of its cash flows to shareholders, which means that a lot of its acquisitions will continue to be paid for with debt and stock sales. This past quarter was no exception, as the company issued another 3.2 million in shares that it will now have to add to the dividend mix. The good news is that STAG's management has proven adept at getting strong returns from each property that it buys and leases, and has stayed disciplined on the kinds of industrial properties that fit within its profile. And as the company reported, it already has a substantial number of properties lined up to buy before year-end, and a very deep pipeline of additional properties to target for the long-term.

Management is also convinced that the long-term prospects remain good, particularly with the continued growth of e-commerce driving demand for the kinds of large, geographically diverse, buildings that STAG continues to target. While there are certain to be speed bumps along the way, such as higher interest rates in coming years that could put a pinch on the company's growth rate down the road, the focused REIT continues to execute on its growth strategy. That's paid off for long-term investors in STAG so far.

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Jason Hall has no position in any stocks mentioned. The Motley Fool recommends Stag Industrial. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.