The industrial real estate market has done extremely well, and STAG Industrial (NYSE: STAG) has taken advantage of favorable conditions with its simple strategy of acquiring and managing a growing portfolio of attractive properties. Over the past several years, good conditions have led to strong returns for STAG, and coming into Thursday's fourth-quarter financial report, STAG investors wanted to see further gains in revenue and funds from operations. The REIT's results showed that the market remains healthy, and STAG has high hopes for the coming year.
Continue Reading Below
Let's take a closer look at STAG Industrial to see how it did and what lies ahead for the industrial REIT in 2017.
Image source: STAG Industrial.
STAG keeps investors happy
STAG Industrial's fourth-quarter results were quite favorable. Total revenue climbed 13% to $66.5 million, which slightly exceeded the growth rate that most investors were looking to see. Net income attributable to common shareholders of $28.6 million reversed a year-earlier loss, and the more important core funds from operations (FFO) figure gained 17%, producing per-share core FFO of $0.42.
Looking more closely at the report, STAG kept following its overall long-term acquisition strategy with a busy schedule of purchases during the quarter. STAG acquired 24 buildings during the quarter, spending nearly $220 million for property with a total of more than 4.5 million square feet. Occupancy in those buildings was fairly high at 89%, and average lease terms came in at about seven years. That accounted for more than half of STAG's purchases for the year, and the REIT reported that it has made seven more acquisitions during early 2017 to add another 1.65 million square feet, spending $63.8 million more. STAG also sold 10 buildings containing 2.2 million square feet, reaping $103 million in proceeds from the sales.
STAG's leasing operations were relatively quiet. The REIT executed 12 leases covering 1.5 million square feet, including 400,000 square feet of temporary leases and a predominance of renewals over new lease agreements. Retention rates for the quarter came in at 69%, and overall occupancy was solid at 95.7%.
What's next for STAG in 2017?
CEO Ben Butcher didn't have much to say about the company's performance. "The strong fourth quarter results cap an impressive 2016 for the company," Butcher said, and the CEO pointed to "historic acquisition levels and health portfolio operating metrics along with prudent capital allocation" in explaining STAG's success.
STAG also continued to work toward arranging for the capital it needs to sustain its acquisition efforts. During the quarter, the company raised $182 million in equity financing by selling stock into the market, and it has since raised another $39 million since the end of the fourth quarter. STAG used part of those proceeds to redeem outstanding preferred stock that carried a 9% dividend rate, and the REIT also refinanced two unsecured bank term loans for $150 million each in order to obtain more favorable pricing terms. The reductions in the variable interest rate were just 0.35 and 0.4 percentage points for each loan, but those rate cuts will have a modest benefit to STAG's bottom line at a time when rates are seen rising in the near future.
STAG investors didn't have a huge immediate response to the results, and the stock didn't move in after-hours trading following the announcement. What's more important for STAG going forward is that conditions in the commercial real estate market should remain good and that capital availability should remain plentiful. That way, the real estate investment trust will be able to take maximum advantage of the opportunities it sees in front of it and can focus on following its successful strategic vision into the future.
10 stocks we like better than Stag IndustrialWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Stag Industrial wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of February 6, 2017