STAG Industrial(STAG) - 2021 Q3 - Quarterly Report

PART I. Financial Information Financial Statements (unaudited) This section presents STAG Industrial, Inc.'s unaudited consolidated financial statements, including balance sheets, operations, and cash flows, for Q3 and nine months ended September 30, 2021 Consolidated Balance Sheets As of September 30, 2021, total assets increased to $5.22 billion from $4.69 billion, liabilities to $2.20 billion from $1.92 billion, and equity to $3.02 billion from $2.77 billion Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $5,216,022 | $4,692,646 | | Total rental property, net | $4,992,049 | $4,525,193 | | Cash and cash equivalents | $42,001 | $15,666 | | Total Liabilities | $2,195,019 | $1,921,594 | | Unsecured notes, net | $896,809 | $573,281 | | Total Equity | $3,021,003 | $2,771,052 | Consolidated Statements of Operations For Q3 2021, total revenue grew to $142.1 million (21.2% increase) and net income more than doubled to $49.6 million; nine-month revenue was $414.5 million with net income stable at $108.3 million Statement of Operations Summary (in thousands) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $142,114 | $117,295 | $414,536 | $353,460 | | Total Expenses | $99,477 | $87,883 | $294,305 | $257,359 | | Gain on sales of rental property, net | $22,662 | $9,060 | $35,047 | $56,864 | | Net Income | $49,583 | $24,209 | $108,314 | $108,563 | | Net Income per Share (diluted) | $0.30 | $0.15 | $0.63 | $0.69 | Consolidated Statements of Cash Flows For the nine months ended September 30, 2021, net cash from operating activities increased to $254.6 million, while net cash used in investing activities significantly rose to $603.0 million due to higher property acquisitions Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $254,613 | $224,131 | | Net cash used in investing activities | ($602,983) | ($114,041) | | Net cash provided by (used in) financing activities | $374,204 | ($47,194) | | Increase in cash and cash equivalents | $25,834 | $62,896 | Notes to Consolidated Financial Statements The notes provide detailed disclosures on the company's organization, accounting policies, acquisition and disposition activities, debt financing, derivative instruments, and equity transactions - The company is an industrial REIT focused on single-tenant properties, owning 517 buildings in 40 states, totaling approximately 103.4 million rentable square feet[21][22] - The company did not incur significant disruptions from the COVID-19 pandemic during the first nine months of 2021 and entered into no new rent deferral agreements[24] - During the nine months ended September 30, 2021, the company acquired 39 buildings for a total purchase price of $654.2 million and sold 14 buildings for net proceeds of $77.9 million, recognizing a gain of $35.0 million[38][43] - On March 31, 2021, the company redeemed all 3,000,000 outstanding shares of its 6.875% Series C Cumulative Redeemable Preferred Stock for a cash price of $25.00 per share[82] - Subsequent to the quarter end, on October 26, 2021, the company amended its unsecured credit facility and several unsecured term loans to extend maturities and reduce interest rates On October 28, 2021, it sold a building for a contractual price of $78.0 million[137][138][140] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and results, highlighting portfolio performance, revenue growth from acquisitions, operating expenses, liquidity, and capital resources, noting strong industrial demand trends Portfolio and Leasing Activity As of September 30, 2021, the Operating Portfolio was 96.8% leased, with new and renewal leases totaling 10.1 million square feet achieving a 15.8% Straight-Line Rent Change and 8.4% Cash Rent Change Leasing Activity (9 Months Ended Sep 30, 2021) | Lease Type | Square Feet | Cash Rent Change | SL Rent Change | Weighted Avg. Lease Term (years) | | :--- | :--- | :--- | :--- | :--- | | New Leases | 3,327,309 | 8.0% | 13.9% | 5.6 | | Renewal Leases | 6,803,405 | 8.6% | 16.7% | 5.5 | | Total/Weighted Avg. | 10,130,714 | 8.4% | 15.8% | 5.6 | - Leases expiring between October 1, 2021, and September 30, 2022, represent 6.8% of annualized base rental revenue[179] Portfolio by Building Type (as of Sep 30, 2021) | Building Type | Number of Buildings | % of Square Footage | % of Annualized Base Rental Revenue | | :--- | :--- | :--- | :--- | | Warehouse/Distribution | 434 | 90.6% | 89.8% | | Light Manufacturing | 69 | 8.1% | 9.5% | | Total Operating Portfolio | 503 | 98.7% | 99.3% | Results of Operations For Q3 2021, total portfolio net income increased 104.8% YoY to $49.6 million, driven by higher property sales gains and a 19.6% increase in NOI, with nine-month net income nearly flat at $108.3 million Same Store Portfolio Performance (in thousands) | Period | Same Store NOI | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | | Q3 2021 vs Q3 2020 | $91,081 | $2,036 | 2.3% | | 9M 2021 vs 9M 2020 | $274,403 | $6,788 | 2.5% | - The increase in Q3 2021 net income was primarily driven by a $13.6 million increase in gain on sales of rental property and a $5.3 million increase in same-store rental income[200][202][219] - The slight decrease in nine-month 2021 net income was primarily due to a $21.8 million decrease in gain on sales of rental property compared to the prior year, which offset strong NOI growth from acquisitions and same-store performance[221][223][241] Non-GAAP Financial Measures The company provides reconciliations for non-GAAP measures FFO and NOI, with Q3 2021 FFO at $85.9 million and total portfolio NOI at $115.4 million, a 19.6% YoY increase FFO Reconciliation (in thousands) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $49,583 | $24,209 | $108,314 | $108,563 | | Adjustments (Depreciation, Gain on Sale, etc.) | $36,533 | $44,765 | $139,778 | $106,315 | | FFO | $86,116 | $72,174 | $248,092 | $214,878 | NOI Reconciliation (in thousands) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $49,583 | $24,209 | $108,314 | $108,563 | | Adjustments (G&A, D&A, Interest, etc.) | $65,789 | $72,269 | $227,122 | $181,741 | | Net Operating Income | $115,372 | $96,478 | $335,436 | $290,304 | Liquidity and Capital Resources The company maintained strong liquidity with $739.9 million available as of September 30, 2021, from cash and its unsecured credit facility, supported by new unsecured notes and preferred stock redemption - As of September 30, 2021, the company had total immediate liquidity of approximately $739.9 million, comprising $42.0 million in cash and $697.9 million available on its unsecured credit facility[259] Debt Capital Structure (as of Sep 30, 2021) | Metric | Value | | :--- | :--- | | Total principal outstanding | $1.98 billion | | Weighted average duration | 4.3 years | | % Secured debt | 2.8% | | Net Debt to Real Estate Cost Basis | 33.5% | - On September 28, 2021, the company issued $275.0 million of Series I Unsecured Notes due 2031 at 2.80% and $50.0 million of Series J Unsecured Notes due 2033 at 2.95%[278] - The company redeemed all 3,000,000 shares of its Series C Preferred Stock on March 31, 2021, and has no preferred stock outstanding as of September 30, 2021[284] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate risk on its variable rate debt, with a hypothetical 100 basis point increase in rates impacting interest expense by approximately $0.4 million for the year ended September 30, 2021 - The company's primary market risk exposure is interest rate risk, using derivative financial instruments, primarily interest rate swaps, to manage this risk[298] - As of September 30, 2021, all outstanding variable rate debt was fixed with interest rate swaps, with the exception of the $49.0 million balance on the unsecured credit facility[299] - A hypothetical 100 basis point increase in interest rates would have increased interest expense by approximately $0.4 million for the year ended September 30, 2021, based on the unhedged balance of the unsecured credit facility[300] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting during the third quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[301] - There were no changes to internal control over financial reporting during the quarter ended September 30, 2021, that materially affected, or are reasonably likely to materially affect, internal controls[302] PART II. Other Information Legal Proceedings The company is not currently a party to any legal proceedings expected to have a material effect on its business, financial condition, or results of operations - The company is not currently involved in any legal proceedings that are expected to have a material adverse effect on its business[305] Risk Factors No material changes have occurred in the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020, as updated in the Q1 2021 Form 10-Q - No material changes have occurred in the risk factors since the last disclosure in the Q1 2021 Form 10-Q[306] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2021, the Operating Partnership issued 51,984 common units upon exchange of LTIP units, and the company issued 51,984 shares of common stock upon redemption of common units - In Q3 2021, the company issued 51,984 shares of common stock upon redemption of 51,984 common units in the Operating Partnership[308] - The Operating Partnership also issued 51,984 common units in exchange for outstanding long-term incentive plan (LTIP) units[307] Other Information This section discloses material events after the reporting period, including amendments to the unsecured credit facility and multiple unsecured term loans to extend maturities and reduce interest rates - On October 26, 2021, the company amended its unsecured credit facility, extending the maturity to October 24, 2025, and reducing the current interest rate spread to 0.775% over LIBOR[315] - On the same date, the Unsecured Term Loan A was amended to extend its maturity to March 15, 2027, and reduce its interest rate spread to 0.85% over LIBOR[316] - Amendments were also made to Unsecured Term Loans D, E, F, and G to reduce interest rate spreads or conform provisions to the credit facility[317][318] Exhibits This section lists the exhibits filed with the Form 10-Q, including the Note Purchase Agreement, CEO and CFO certifications, and XBRL data files