The Buy Thesis - STAG Industrial (STAG) is positioned for significant growth in AFFO/share, with organic growth projected at 3%-5% and higher cap rates making acquisitions and developments immediately accretive [1][2] Industrial Real Estate Environment - The industrial real estate landscape is evolving, with leasing dynamics favoring landlords and rental rates surging by up to 50% from 2021 to 2024 [3] - A wave of new industrial properties is being developed, particularly large logistics facilities, leading to a national vacancy rate of over 7%, which aligns with historical norms [4][5] - Existing leases are still below market rates, with STAG signing new leases at rates 38.1% higher than expiring leases [6][9] Leasing Dynamics - Market asking rents have stabilized, with cash rent changes of +27.2% in Q3 2025 and +16.3% in Q4 2025 [7] - STAG's same-store NOI growth is expected to be around 3.5% in 2026, contributing approximately $22 million annually to AFFO/share growth [11][13] Transaction Volumes and Cap Rates - Cap rates for industrial properties have risen to the mid-6% range, unlocking acquisition opportunities for REITs, with STAG's acquisition guidance for 2025 set at $350-$500 million [15][16] - STAG anticipates a return to average acquisition volumes of around $700 million in 2026, with a favorable spread of 75 basis points on cap rates [17][18] Developments - STAG has a healthy development pipeline, with several projects expected to deliver in late 2025 or early 2026, targeting yields of 7% or higher [20][23] - The total in-construction pipeline includes properties totaling approximately 1,259,293 square feet [22] Summary of Growth Levers - STAG is projected to achieve $0.19 of AFFO/share accretion, leading to an expected AFFO of $2.13 per share in 2025, representing a growth rate of about 9% [24][25] - The breakdown of accretion includes $22 million from same-store NOI growth, $11 million from acquisitions, and $2 million from developments [26] Conclusion - STAG is viewed as a strong investment opportunity with a projected annual return of 13% based on a 4% dividend yield and a favorable growth outlook [34][35]

Group 1 - STAG Industrial is positioned for approximately 9% annual growth in AFFO/share, benefiting from a favorable industrial real estate environment and increased acquisition activity [1][2][24] - The industrial real estate landscape is experiencing a shift, with market rental rates surging up to 50% from 2021 to 2024, leading to a balanced leasing environment as vacancy rates rise to over 7% [3][4][5] - STAG is signing new leases at rates 38.1% higher than expiring leases, indicating significant potential for revenue growth as legacy leases roll over [6][9] Group 2 - Cap rates for industrial properties have risen into the mid-6% range, unlocking acquisition opportunities for STAG, with a projected acquisition volume of $350-$500 million for 2025 and an anticipated increase to around $700 million in 2026 [14][16][17] - STAG's developments are also expected to contribute positively, with a pipeline of projects that are anticipated to yield around 7% to 9.3% upon stabilization, further enhancing AFFO growth [23][24] - The company is expected to achieve an additional $0.19 of AFFO/share accretion, with a consensus estimate of $2.13 per share of AFFO in 2025, reflecting strong growth potential [24][25][26]

Financial Data and Key Metrics Changes - The company reported a one-time revenue adjustment of $300,000 from terminating easement rights, which is not expected to recur in the future [13][16] - Overall average rent growth is approximately 2.5% per year based on lease escalations, indicating stable rental income trends [62] Business Line Data and Key Metrics Changes - The company has added another asset to the held-for-sale category, specifically the Clara property, with plans to sell it by early January [19][20] - The Costco property is still in the held-for-sale category, with an expected closing by December 15, pending a demolition permit [20][22] Market Data and Key Metrics Changes - Cap rates for properties being considered are primarily in the seven handles, with some reaching eight, indicating a competitive acquisition environment [30] - The company has observed an increase in acquisition opportunities recently, with a notable uptick in activity over the last week compared to the previous month and a half [24][27] Company Strategy and Development Direction - The company is focusing on systematic asset recycling to fund acquisitions, emphasizing a deliberate approach to selling non-core assets [32][35] - Management is optimistic about the potential for easing in capital markets, which could lead to more favorable conditions for acquisitions in the future [4][8] Management's Comments on Operating Environment and Future Outlook - Management expressed a sense of optimism despite market volatility, noting that the balance sheet is stronger and there is more clarity than a year ago [10][9] - The company is closely monitoring the economic environment, particularly regarding interest rates and their impact on REITs, indicating a cautious but hopeful outlook [4][45] Other Important Information - The company is not currently planning to attend the NAREIT conference, indicating a strategic decision to focus on internal matters rather than external engagements [69] Q&A Session Summary Question: Were there any one-time revenue adjustments in your other property income? - Yes, there was a $300,000 fee for terminating easement rights, which is a one-time event [13][16] Question: Can you provide details on the asset in the held-for-sale bucket? - The Clara property has been formally engaged for sale, with expectations to close by early January [19][20] Question: What are the current cap rates for properties being considered? - Cap rates are mainly in the seven handles, with some reaching eight, indicating a competitive market [30] Question: How does the company view the acquisition opportunities currently? - There has been an increase in acquisition opportunities recently, with more activity observed in the last week [24][27] Question: What is the outlook for same store rental income? - The company does not currently calculate same store rental income but plans to implement it in the future [61][62] Question: When is the Solar property expected to be resolved or sold? - The company anticipates that the property could be taken to market by early first-quarter 2026 [65]

Financial Data and Key Metrics Changes - The company reported an AFFO per share of $0.48 for Q3 2025, representing a 12% increase compared to Q3 2024 [16] - Total AFFO for the quarter was $96.2 million, up 24% from the same period in 2024 [16] - The company increased its 2025 AFFO per share guidance to a range of $1.87-$1.89 and established initial 2026 guidance of $1.98-$2.04, implying a growth rate of 6% to 8% [9][21] Business Line Data and Key Metrics Changes - The company executed $370 million in investments during the quarter, with a weighted average initial cash yield of 8% and a strong average gap yield of 10% [7][13] - Same-store rent growth was reported at 1.6%, an increase from 1.4% in the previous quarter, with overall portfolio rent coverage increasing to 3.6x from 3.4x [8][11] - The percentage of annual base rent (ABR) under one times rent coverage declined by 120 basis points [11] Market Data and Key Metrics Changes - The company ended the quarter with investments in 2,266 properties leased to over 400 tenants, maintaining a weighted average lease term of approximately 14 years [10] - The company expects to invest between $1 billion and $1.4 billion in 2026, with cap rates expected to compress modestly due to a stable interest rate environment [9][20] Company Strategy and Development Direction - The company continues to focus on middle-market sale-leasebacks with growing operators, highlighting a balanced investment sourcing strategy [7] - The company aims to maintain a well-capitalized balance sheet with low leverage and significant liquidity to support growth and tenant relationships [20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the investment market and capital markets, noting that the interest rate environment is more stable, contributing to lower cap rates [25][22] - The company anticipates continued strong portfolio performance and a pace of investments consistent with historical averages [9][21] Other Important Information - The company successfully executed a $400 million unsecured bond offering with a 5.4% coupon, improving its weighted average debt maturity by approximately 18% to 4.5 years [18] - The company declared a cash dividend of $0.30 in the quarter, resulting in an AFFO payout ratio of 63% [17] Q&A Session Summary Question: Expectations for lower cap rates and competition - Management indicated that lower cap rates are primarily driven by a stable interest rate environment and expressed confidence in sourcing sale-leaseback opportunities despite competition [25] Question: Industrial assets acquisition and future expectations - Management confirmed ongoing investment in industrial outdoor storage sites and expects growth in this asset type, focusing on granular, fungible assets [27] Question: Cap rate expectations and guidance - Management expects cap rates to compress modestly, with a potential static spread in the future, and noted that current assumptions are similar to those from the previous year [30][41] Question: Credit loss assumptions and portfolio performance - Management stated that credit loss assumptions for 2026 are consistent with previous years, with a focus on specific operators rather than macro trends [102] Question: Tenant credit watch list update - The tenant credit watch list has improved, currently sitting at 1.2x coverage, down 40 basis points quarter over quarter [91] Question: Investment opportunities by region - Management indicated that investment opportunities are prioritized based on tenant relationships rather than specific geographic regions [95] Question: Lease escalation risks - Management acknowledged that higher rent escalations could introduce credit risk but emphasized the importance of ensuring tenants can meet their obligations [96]