STAG industrial is a Real Estate Investment Trust focused on the rental of single tenant warehouses and offices.STAG primarily focuses on the development of warehouses. STAG owns all of their assets under management. Holding over 517 properties spread across the United States with 103.4 million in warehouses and offices.
Bill Crooker, President and CFO, said on the Q3-21 earnings call:
“The broad-based demand for our assets is robust and has resulted in numerous instances of available space being backfilled immediately with minimal to no downtime “When adjusted for immediate backfills, retention was 77.7% for the third quarter and 89.8% for the year. Cash same-store NOI [net operating income] grew 2.9% for the quarter and 3.4% year-to-date. This metric continues to be a high watermark for STAG, driven by strong rental escalators, cash leasing spreads, and lower average downtime per vacancy.”
Rent escalators are now more important than ever with inflation kicking into high gear with CPI numbers rising. STAG is well prepared to adjust to the risk of inflation and the pandemic is not a threat with the near 90% retention rate and low down time when they are looking for new tenants.
STAG is well diversified geographically with their top 10 cities comprising 46% of their portfolio. More importantly STAG is diversified well across different companies and different sectors. Big names such as Amazon (3.8%) FedEx (1%) Ford (.7%) Costco (.7%) within their top ten, Amazon being their biggest renter.
The demand for industrial real estate has only grown as our economy demands for more online shopping and large facilities required to hold/produce large amounts of products. The industrial market is estimated to grow exponentially, upwards of 10x as large businesses focus on online shopping and warehouses to hold large quantities of goods.
Concerns with STAGs recent acquisitions are currently heavily leveraged in debt. I would anticipate them to slow down and pay off their debt before focusing on growth again. Their current debt is sitting at 2.03 billion which has their total debt to equity at 67% and their debt to free cash flow at 15.27. Their current cash is 44.06 million so I would anticipate building up their cash while paying down their debt which would leave little to no room for large acquisitions.
Reasons to be bullish
With the acquisitions that have been made by STAG it is easy to anticipate dividend growth from them because as a REIT they are legally obligated to pay out 80% of their net earnings. Many people will avoid REITs because of the higher taxes that you face with their dividends but the huge advantage of REITs is that they pay no corporate taxes as long as they maintain their high payout ratio. Your dividends aren't being double taxed by the government which is an advantage to being able to earn more in dividends even if its at a higher rate.
STAG released a statement covering the topic of their solar development on the rooftops of their warehouses.
BOSTON, Nov. 12, 2020 /PRNewswire/ -- STAG Industrial, Inc. (the "Company") (NYSE: STAG) today announced the groundbreaking of its first onsite solar installation in Illinois, and its fifth solar installation in Massachusetts. Facilitated by Black Bear Energy in partnership with STAG, and developed by Green Street Power Partners ("GSPP"), these systems have an aggregate capacity of 3.5 MW and will generate over 4.4 million kWh of electricity annually - the equivalent of powering nearly 361 homes with solar. With the addition of these sites, STAG now hosts over 13.5 MW of solar nationally.
STAG's ability to innovate new sources of income to maximize their square footage makes me hopeful for their future in continuing to be a well diversified cash cow. Not only are they collecting rent but they are generating long term income from the solar network they are developing within their portfolio.
STAG currently has 7 years of consistent dividend growth. STAG only has grown the dividend by a mere 1.4% per year average raise by .01 per year from 2017-2021. I would anticipate the yield to increase over the next 12 months but I wouldn't hold my breath for a large increase in the near future as history would be on the low end. STAG is a monthly payer but that has little to no impact on the stock and is just a nice feature if anything. I am cautiously optimistic on STAGs dividend growth as I expect it to grow when the company slows down to pay down debt and rebalance their books.
Their Earnings per share have increased so I am not worried about share dilution. The shares have been diluted over the past 2 years but that is typical for a REIT in order to build up cash for acquisitions which they have used appropriately.
“Industrial real estate demand is expected to increase by 850 million square feet, to 14.8 billion square feet, by 2023.” Deloitte Insights The Future of the Industrial Real Estate Market. I am bullish on the growth of the market and I am not concerned about STAG in a high inflation economy with rent escalators built into their leases. I think the innovation is there for the company to use their cash well to build for decades to come. I am not impressed with the dividends but STAG makes up for it in capital appreciation. I strongly believe STAG is a buy and hold and is fairly priced at $43.19 at the time of this article being written.
Please give me feedback on this analysis and I look forward to your comments