Stag Industrial (STAG -1.17%), a real estate investment trust (REIT) focused on industrial properties, released third-quarter earnings on Tuesday, Oct. 29, that topped analyst estimates for revenue. Total revenue hit $190.7 million against an estimate of $189.1 million. Core funds from operations (FFO) rose to $0.60 per diluted share, just ahead of last year's $0.59. However, net income per share fell to $0.23 from $0.28 a year earlier, indicating some profitability pressures.
Overall, the quarter exhibited stable performance in operational metrics but flagged areas of potential financial concern.
| Metrics | Q3 2024 | Analysts Estimate | Q3 2023 | Change (YOY) |
|---|---|---|---|---|
| Revenue | $190.7 million | $189.1 million | $179.3 million | 6.4% |
| Core FFO per share | $0.60 | N/A | $0.59 | 1.7% |
| Net income per share | $0.23 | N/A | $0.28 | (18%) |
| Cash available for distribution | $88.0 million | N/A | $96.8 million | (9.2%) |
Source: Stag Industrial. Note: Analyst consensus estimates for the quarter provided by FactSet. YOY = Year over year. FFO = Funds from operations.
Understanding Stag Industrial
Stag Industrial is primarily involved in the acquisition and operation of industrial properties across the United States. Its holdings include warehouses and light manufacturing buildings, constituting a robust and diversified portfolio. The company prioritizes strategic acquisitions, high occupancy rates, and lease growth, ensuring consistent cash flows.
Recently, the company has focused on selective acquisition outside super-primary markets and maintaining a diverse tenant base. This strategy has helped in mitigating risks associated with tenant defaults or industry downturns. High occupancy levels and positive changes in lease terms have been crucial indicators of its success.
Quarterly Performance Highlights
Stag Industrial's Q3 revenue of $190.7 million rose 6.4% year over year, indicating its robust leasing activities are growing. Core FFO, a key profitability measure for REITs indicating cash flow from regular operations, improved marginally by 1.7% to $0.60 per diluted share.
Stag Industrial also achieved notable lease growth. The cash and straight-line rent changes were 24.6% and 34.3%, respectively. Although tenant retention was lower at 62.5%, these lease changes reflect favorable leasing terms and market demand.
Despite these positives, net income per share dropped to $0.23 from $0.28 in the prior year. Cash available for distribution saw a 9.2% decline to $88 million. This decline could hint at increased capital expenditures or liquidity management issues. However, occupancy rates remained strong at 97.8% for the operating portfolio.
Noteworthy Events and Developments
The company's acquisition strategy added six buildings and two land parcels to its portfolio. This expansion came with a weighted average cash capitalization rate of 6.7%, contributing to long-term growth objectives. The strategic focus on acquisitions outside super-primary markets emphasizes diversification.
Operating efficiency remained evident as cash net operating income (NOI) of $148.4 million rose by 5.5% over the last year. While net income margins saw some pressure, refinancing efforts on the unsecured credit facility enhanced liquidity. The refinancing extended the maturity date to September 2028, potentially stabilizing operational financing.
While the general economic backdrop might present headwinds, Stag Industrial's commitment to high leasing spreads and occupancy provides a resilient market position. This focus could mitigate risks associated with tenant churn or market volatility.
Looking Forward
Stag Industrial's management provided no specific forward guidance in its latest report but it has said it remains optimistic about future growth in other published reports this year. It projects strong FFO growth driven by portfolio expansions and strategic acquisitions. Management expects cash leasing spreads between 27.5% and 30%, signaling healthy demand despite prevailing economic conditions.
Looking ahead, investors should watch for further acquisition activities and possible shifts in the macroeconomic landscape. Stag Industrial’s commitment to diversified investments across industrial markets and its focus on maintaining profitability will be crucial elements for stakeholders.
