STAG Industrial(US:STAG)2020-07-29 22:03Financial Data and Key Metrics Changes - Core FFO for Q2 2020 was $0.47, an increase of 4.4% compared to Q2 2019 [18] - Net debt to runway adjusted EBITDA was 4.3 times, and 3.9 times when factoring in equity proceeds from a January offering [18] - Same-store cash NOI grew by 2.1% for the quarter and 2.3% year-to-date, driven by a retention rate of 95% [20][27] Business Line Data and Key Metrics Changes - Acquisition volume for Q2 totaled $11.9 million, with year-to-date acquisitions at $131.3 million [18] - 2.7 million square feet of operating leasing activity commenced with cash and straight-line reducing spreads of 1.6% and 9.6%, respectively [18] - Retention rate was 100% for the quarter and 95% for the year [20] Market Data and Key Metrics Changes - Amazon accounted for 2.5% of annualized base revenue, highlighting the importance of e-commerce in industrial real estate [11] - The company has seen a healthy amount of leasing activity in its properties, particularly in e-commerce supply chain demand [12][16] Company Strategy and Development Direction - The company plans to increase acquisition activity in the second half of the year, maintaining an expected acquisition volume of $300 million to $600 million [25][26] - The strategy includes focusing on stabilized assets with expected cash cap rates between 6.25% and 6.75% [26] - The company is also evaluating development opportunities on adjacent land parcels to enhance value [63] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in operations despite uncertainties related to COVID-19 and the upcoming presidential election [9] - The company anticipates that changes in consumer behavior due to the pandemic may lead to permanent shifts in demand for e-commerce and industrial space [10] - Management is optimistic about the leasing velocity and expects to outperform initial leasing estimates for certain properties [12][16] Other Important Information - The company has received rent relief requests totaling 5.3% of ABR, with $2.1 million granted [22] - A total of $1.5 million in credit loss was incurred related to six tenants, impacting the company's credit loss guidance for 2020 [23] Q&A Session Summary Question: Can you walk us through the downside scenario factored into your unchanged guidance range? - Management indicated that retention numbers are expected to decline due to specific properties, but they remain confident in operations [37] Question: Can you discuss the percentage of leases signed on a short-term basis this quarter? - Management noted an increase in short-term leases due to COVID-related delays in tenant moves [39] Question: Any insights on the yield on cost for value-add projects? - Management reported that the yield on cost for development projects was significantly higher than expectations, near double digits [41] Question: How is the acquisition pipeline shaping up? - Management expects an increase in acquisitions in Q3 and Q4, with a current pipeline of $1.8 billion [44] Question: Can you provide more color on larger blocks of available space? - Management expressed confidence in securing leases for larger spaces, including the Solo Cup and GSA properties, sooner than expected [58][60] Question: What is the outlook for e-commerce demand? - Management noted that while initial demand surged, it is stabilizing, but they expect continued strong demand as e-commerce grows [53][54] Question: How are rent negotiations and market rates evolving? - Management indicated that while there was a pause initially, rent levels have remained stable without significant declines [71] Question: What is the company's appetite for riskier assets? - Management is open to acquiring riskier assets if compensated adequately for the risks involved [77]