STAG Industrial Q4 2024 Earnings Call Transcript

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February 13, 2025
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Operator

Greetings, and welcome to the STAG Industrial Inc. Fourth Quarter twenty twenty four Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.

Operator

It is now my pleasure to introduce your host, Steve Zarrows, Vice President, Investor Relations. Thank you, sir. You may begin.

Steve Xiarhos
Steve Xiarhos
Vice President - Capital Markets & Investor Relations at STAG Industrial

Thank you. Welcome to STAG Industrial's conference call covering the fourth quarter twenty twenty four results. In addition to the press release distributed yesterday, we have posted an unaudited quarterly supplemental information package on the company's website at www.stagindustrial.com under the Investor Relations section. On today's call, the company's prepared remarks and answers to your questions will contain forward looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward looking statements address matters that are subject to risks and uncertainties and may cause actual results to differ from those discussed today.

Steve Xiarhos
Steve Xiarhos
Vice President - Capital Markets & Investor Relations at STAG Industrial

Examples of forward looking statements include forecasts of core FFO, same store NOI, G and A, acquisition and disposition volumes, retention rates and other guidance, leasing prospects, rent collections, industry and economic trends and other matters. We encourage all listeners to review the more detailed discussion related to these forward looking statements contained in the company's filings with the SEC and the definitions and reconciliations of non GAAP measures contained in the supplemental information package available on the company's website. As a reminder, our forward looking statements represent management's estimates as of today. Sac Industrial assumes no obligation to update any forward looking statements. On today's call, you will hear from Bill Crooker, Chief Executive Officer and Matt Spenard, our Chief Financial Officer.

Steve Xiarhos
Steve Xiarhos
Vice President - Capital Markets & Investor Relations at STAG Industrial

Also here with us today is Mike Chase, our Chief Investment Officer and Steve Kimbell, EVP of Real Estate Operations, who are available to answer questions specific to their areas of focus. I'll now turn the call over to Bill.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Thank you, Steve. Good morning, everybody, and welcome to the fourth quarter earnings call for STAG Industrial. We're pleased to have you join us and look forward to discussing the fourth quarter and full year 2024 results. We will also provide our initial 2025 guidance. 2024 ended with an improved industrial supply backdrop and another solid quarter of operating results produced by our team.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Supply pipeline continues to contract with deliveries down over 30% and this is expected to continue in 2025. In aggregate, 2024 national industrial leasing demand was muted compared to recent years. However, much of the weakness was specific to certain markets. Many of the markets we operate in remain healthy from both a supply and demand standpoint. We are seeing an increase in tenant demand since the election spanning a broad array of industries.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Most active tenant industries have been commercial services, building products and air freight and logistics. In 2024, within our portfolio, we witnessed the strongest market rent growth in our non coastal and manufacturing markets. Airshoring and onshoring projects continue to progress. This along with pent up demand from delayed decision making by tenants should result in growing warehouse demand. Leasing activity has reaccelerated with tenants committing to space to serve their warehousing needs.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

This is demonstrated in the leasing progress we have achieved to date in our 2025 business plan. I'm happy to report that we've already leased 70% of our operating portfolio square feet we currently expect to lease in 2025, achieving cash leasing spreads of 23.8%. This level of leasing is on a similar place to last year and consistent over the last few years. With an update to last quarter, American Tire Distributors is still working through the bankruptcy process. As of today, all leases are current with zero missed rental payments.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

The ATD credit exposure is reflected in our initial 2025 guidance provided in yesterday's earnings release, including same store NOI and core FFO per share for the year. Moving to acquisitions, volume for the fourth quarter totaled $294,000,000 This consisted of 15 buildings with cash and straight line cap rates of six point two percent and six point nine percent respectively. In December, we closed on a portfolio of five single tenant buildings totaling 726,000 square feet and three different submarkets of Chicago. We acquired the portfolio for $73,000,000 at a cash cap rate of 6.5%. The portfolio was 100% occupied with a weighted average lease term of seven point one years and rents 12% below market.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

This transaction offered an attractive combination of current income and long term NOI growth. Subsequent to quarter end, we acquired one building for $16,600,000 at a 6.4% cash cap rate. The recent volatility with interest rates caused an initial slowdown in the transaction market to start the year. We anticipate the acquisition market will gain momentum as we move through the year. In terms of dispositions this quarter, we sold two buildings for aggregate proceeds of $29,000,000 1 of those buildings was a non core asset.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

The other building was in Pleasant Prairie, Wisconsin, resulting in proceeds of $26,000,000 reporting a cash cap rate of 5.7. In January, the company sold one building in Nashua, New Hampshire for gross proceeds of $67,000,000 representing a cash cap rate of 4.9%. On the development front, as of twelvethirty one, we have approximately 2,500,000 square feet of activity across 11 buildings in The U. S. I'd like to highlight two events in the development portfolio.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

First, on the leasing front, roughly 50% of the 2,500,000 square feet is under construction and 16% is pre leased. The remaining 50% has been delivered and is currently 43% leased. This includes a full building lease set to commence 05/01/2025 for our 474,000 square foot cross stock building in Greer, South Carolina. The existing customer expanded their footprint with STAG and we use this space for the production and distribution of consumer products. Second, in December, STAG entered a 9,010 joint venture development partnership to construct approximately 400,000 square feet across two rear load buildings in the Charlotte market.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Project is in the Concord submarket Northeast of the city. It has a project cost of approximately $56,000,000 and expected stabilized yield of 7%. The site has secured favorable zoning, which position us well and is high barrier to entry market. With that, I will turn it over to Mats, who will cover our remaining results and guidance for 2025.

Matts Pinard
Matts Pinard
CFO at STAG Industrial

Thank you, Bill, and good morning, everyone. Core FFO per share was $0.61 for the quarter and $2.4 for the year, representing an increase of 4.8% as compared to 2023. Cash available for distribution totaled $370,000,000 in 2024. This past year, we retained approximately $95,000,000 of free cash flow after dividends paid. Net debt to annualized run rate adjusted EBITDA was 5.2x at year end with liquidity of $623,000,000 During the quarter, we commenced 23 leases totaling 2,400,000 square feet, which generated cash and straight line leasing spreads of 19.434.9% respectively.

Matts Pinard
Matts Pinard
CFO at STAG Industrial

For the year, we achieved cash and straight line leasing spreads of 28.341.8% respectively. Same store cash NOI grew 4.4% for the quarter and we achieved record same store cash NOI growth of 5.8% for the year. Retention was 76.9% for the quarter and 76.6 for the year. As mentioned by Bill, we have accomplished 70% of the operating portfolio square feet we currently expect to lease in 2025, achieving 23.8% cash leasing spreads, demonstrating the strength of our portfolio. Moving to capital market activity, we repaid the $50,000,000 private placement no day, which matured on October 1.

Matts Pinard
Matts Pinard
CFO at STAG Industrial

All forward equity proceeds have been settled and we do not have any forward equity contracts outstanding. There are minimal debt maturities in 2025. We are pleased to provide guidance, which can be found on Page 20 of our supplemental package, which is available in the Investor Relations section of our website. Same store cash NOI growth is expected to range between 3.5% to 4%. Components of our same store cash NOI guidance include the following: retention to range from 70% to 75% cash leasing spreads are projected to be approximately twenty five percent and fourteen million square feet of budgeted new and renewal leasing for the year.

Matts Pinard
Matts Pinard
CFO at STAG Industrial

We expect same store occupancy to decrease 100 basis points during the year. Given the volatile capital market environment, acquisition volume guidance ranges from $350,000,000 to $650,000,000 with a cash capitalization rate between 6.256.75%. Acquisition timing will be more heavily weighted to the back end of this year. Disposition volume guidance ranges from $100,000,000 to $200,000,000 G and A is expected to be between $52,000,000 and $54,000,000 Incorporating these components, we're initiating a core FFO per share range of $2.46 to $2.5 per share. I will now turn it back over to Bill.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Thank you, Matt, and thank you to our team for the 2024 achievements. I'm really proud of all we have accomplished over the course of the year and look forward to a strong 2025. We'll now turn it back to the operator for questions.

Operator

Thank you. We will now be conducting a question and answer session. Our first question comes from Craig Mailman with Citi. Please proceed with your question.

Craig Mailman
Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.

Hey, good morning guys. Maybe one question in two parts. On leasing and spreads here, you guys had a good year overall in 2024 on the spread side, but fourth quarter was a little bit lighter at 19% and you're expected to reaccelerate to 24% and the 70% you did so far. Is that 24% a good kind of place to think about the full year to be? And then just separately, the 14,000,000 square feet of plan for 2025, if you kind of look last quarter, you guys are closer to 15,000,000 square feet.

Craig Mailman
Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.

What's going on with the volatility or how should we think about that in terms of the overall plan of gross leasing?

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Yes. Hey, Craig. Very interesting way you phrased the question to get a couple of questions into one, but I appreciate it. So the leasing spreads for Q4 were a little lower. That was related to some fixed rate renewal options in Q4.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

That was factored into our original guidance. If you exclude those, our leasing spreads in Q4 would have been 34%. And then looking into 25%, we're approximately 24% today for about 70% of the leasing we expect to do. So I think leasing spreads for 25% will be in and around 25%, twenty four %, twenty five %. So we get a pretty good chunk of that done already.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

And then with respect to prior views on leasing activity versus current views on leasing activities, a couple of things happened there. One, we sold the building in Nashville, New Hampshire in Q1. That was a building that we were repositioning in Q4 and we were planning on leasing it. Ultimately, we decided to sell it just due to the economics, very interesting transaction there. That was a drop in leasing activity that we're prior previously expected to lease in '24, but now we've sold the building.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

And there was also another like non renewal that we expected to renew on the back half of next year that it didn't reduce. So now we're planning to lease back half of 2025, now we're planning to lease in 2026.

Operator

Our next question comes from Nick Thielman with Baird. Please proceed with your question.

Nicholas Thillman
Senior Research Analyst at Robert W. Baird & Co

Hey, good morning guys. Wanted to touch a little bit on the development and more specifically on kind of the yields you're seeing within that portfolio. The Tampa construction just finished up and was moved into the completed but not in service and we noticed kind of the yield still stayed at 5.5%. Is there anything in that and I know originally you guys are saying mid-6s on that. We thought the composition would be drift a little higher.

Nicholas Thillman
Senior Research Analyst at Robert W. Baird & Co

Is there anything in there that's causing that? Did you have to change any underwriting for any of those specific assets? And also, just a little commentary on the activity you're seeing in Spartanburg, obviously signed the lease, but curious on the other properties?

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Yes, Nick, I'm not sure where the mid-5s were for the Tampa, but we're still expecting mid-6s for stabilization on those two assets. And we're, as I previously said, expecting we under our twelve month downtime. So end of twenty twenty five for leasing on those assets. With respect to Spartanburg, that's a market, as I mentioned previously too, that had some oversupply. But there was some leasing getting done there that has created more of a sense of urgency amongst tenants in that market.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

We were able to strike a lease at our Cross Sock facility 474,000. So a little bit ahead of the revised timing last quarter. I think I mentioned we're expecting this to be middle, call it, end of Q2. That lease is expected to start May 1. So we're really happy with that outcome.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

We're seeing a lot of tours on the rear load building there, the 240,000 square foot facility. And then on the other building, the Casual Drive facility, we have part of that building leased right now. We're getting some really good inquiries on the remaining pieces, remaining two suites of that building.

Nicholas Thillman
Senior Research Analyst at Robert W. Baird & Co

That's helpful. Maybe just a point of clarification. I was talking about like the mid-5s was for the Spartanburg, but I assume that moving to Tampa into the portfolio that yield would drift higher. Did you adjust any yields for the Spartanburg assets?

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Yes. So the one we leased was approximately 5%. That was part of the change.

Nicholas Thillman
Senior Research Analyst at Robert W. Baird & Co

Okay. Thank you.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Yes.

Operator

Our next question comes from Jason Pilcher with Wells Fargo. Please proceed with your question.

Jason Belcher
Jason Belcher
Analyst at Wells Fargo

Good morning. Just wondering if you could touch on the topic of tariffs a little bit, maybe share anything you're hearing from your tenants on that front, as well as any trends you might be seeing across your tenants or tenant industries in your portfolio that you might attribute to tariff concerns? And then if you can just kind of comment generally on how you're thinking about tariffs and potential impact, is it something you think could hit in the next six to twelve months in terms of what you see in results or you think it's further out than that?

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Yes, it's a good question. I think there's just a lot of uncertainty with respect to the tariffs. Some have been announced, some have been delayed, expecting some more to be announced today or soon. And so the question is, what products are getting impacted and when? And I don't think our tenants really know.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

I mean, the feedback that we've been hearing from tenants is it's a little too early to tell. Certainly seeing this really was a trend last year, tenants storing more finished goods in the facilities ahead of tariffs. On shoring, dialogue, near shoring, dialogue increasing, but those decisions take a little bit of time. And so the question is if tenants are thinking that these tariffs are going to be in place for the long term, then I think it will spur more on shoring. And depending on what happens with your neighbors maybe some additional near shoring.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

I just think right now it's a little too early to tell and from our tenants it's just a lot of uncertainty.

Jason Belcher
Jason Belcher
Analyst at Wells Fargo

Got it. Thank you.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Thank you.

Operator

Our next question comes from Vince Tibbani with Green Street. Please proceed with your question.

Vince Tibone
Managing Director and Head of US Industrial & Mall Research at Green Street Advisors, LLC

Hi, good morning. Can you discuss recent trends in the private transaction market? And specifically, I mean, have you seen any slowdown in transaction activity or a notable change in pricing since the ten year has climbed pretty significantly from the trough in September?

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

I mean, there's been some interesting trends in the private market. There was some portfolios that got executed last year. There was some big appetites for some of the larger private equity shops. The largest private equity shops are actually selling more, which I think you know who I'm referencing. But right now, there's a little bit of probably a pause in the private market.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

We are seeing and hearing of some portfolios coming out that may trade and those may trade at is a little bit tighter yields, because they're shorter lease terms that they can get higher yields in the next three years. But Mike, I don't know if there's anything else you want to touch on there?

Michael Chase
Michael Chase
Executive VP & Chief Investment Officer at STAG Industrial

Yes. No, Bill, I think you hit on that. The year end was a little bit slower. It was a fast year end for closing deals, but it was a slower year end for deals coming out to market. That trickled into January, but we've seen a little bit of an uptick in February and we expect that to accelerate throughout the rest of the year.

Vince Tibone
Managing Director and Head of US Industrial & Mall Research at Green Street Advisors, LLC

Great. Thank you.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Thanks.

Operator

Our next question comes from Steve Sakwa with Evercore ISI. Please proceed with your question.

Steve Sakwa
Senior Managing Director & Senior Equity Research Analyst at Evercore ISI

Yes. Thanks. Good morning. Bill, I was just wondering, we've heard from many of your peers and some brokers that leasing activity seem to noticeably pick up once the election was over. And so just taking your comments about tariffs and the uncertainty into account, just like what have you seen on the actual just kind of pace of leasing activity towards your pipeline?

Steve Sakwa
Senior Managing Director & Senior Equity Research Analyst at Evercore ISI

And is there a big difference in that pickup between kind of the existing portfolio and maybe the development pipeline? Thanks.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Thanks, Steve. We've seen a pretty material uptick in tours, calls, inquiries to start this year. We're seeing it it's really broad based across our markets. We're seeing it a lot in Greenville Spartanburg, Milwaukee, Chicago, the Sunbelt, certainly the Nashville market. The new builds are getting a lot of looks.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

I think there's a lot of commentary in the market that there's a flight to quality. But we're seeing a lot of demand in our existing buildings as well. It takes a little bit of time for those tours increased calls to convert to trading papers and signing leases, but the activity has increased and probably at a level we haven't seen in twelve months or so. So we're really happy with the activity we're seeing.

Steve Sakwa
Senior Managing Director & Senior Equity Research Analyst at Evercore ISI

Great. Thank you.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Thank you.

Operator

Our next question comes from John Kim with BMO Capital Markets. Please proceed with your question.

John Kim
John Kim
Managing Director - US Real Estate at BMO Capital Markets

Thank you. Can you tie in the 100 basis point occupancy loss you expect this year with the 9,700,000 square feet that you've addressed for 2025 and also the 6,900,000 square feet that is expiring. I'm just doesn't seem like it's apples to apples to me. So I just wanted to clarify.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

I don't know if I can connect all those dots, but we certainly we can drill down more detailed maybe after the call, John. But I mean, what we're seeing here is what our expected leasing for 2025 is around 14,000,000 ish square feet. We've done 70% of our leasing in our operating portfolio. So math there is we've got another 4,000,000 square feet in our operating portfolio we expect to lease and then there's about 2,000,000 square feet we expect to lease outside of the operating portfolio, which is a higher number that we've had in the past. But I think it speaks to what we've been doing with our developments, our redevelopments, our repositioning.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

And so that's all I think it's a great shift, but there's still a fair amount of wood to chop as we move through the year.

John Kim
John Kim
Managing Director - US Real Estate at BMO Capital Markets

I guess what's in that expected leasing number? There's 25 expirations, there's developments, there's existing vacancy, I just wanted to mention that bucket.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Also vacancy that there's you've got new leasing that is from either existing vacancy or vacancy that we think is going to not renew early in the year and maybe it gets leased up later. You've got renewal leasing and then you've got non operating portfolio leasing that is that additional 2,000,000 square feet I was referencing, which includes developments and some other repositioning assets.

John Kim
John Kim
Managing Director - US Real Estate at BMO Capital Markets

Okay. Got it. Thank you.

Matts Pinard
Matts Pinard
CFO at STAG Industrial

Yes, John, this is Matt. So I'll jump in here.

Matts Pinard
Matts Pinard
CFO at STAG Industrial

I think one point of clarification here is when we talk about the square feet we expect to lease in 2025, that's not simply addressing expiries to Bill's point, it includes new speculative leasing that we have in our budget as well. I think that's going to help bridge the numbers you're looking at. Great. Thanks.

Operator

Our next question comes from Mike Carroll with RBC Capital Markets. Please proceed with your question. Hi, good morning.

Analyst

This is Didi on for Mike. I guess just thinking about how you think about development starts for 2025.

Analyst

Are you planning on leasing some projects that are currently under construction before starting breaking ground on new things? Just wanted to know your thoughts.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

I mean, right now, we're really happy with the way the development platform is running. We expect and we hope to have some additional development starts. I mean, we just leased our biggest building in our development pipeline at four hundred and seventy four thousand square feet. So even if it was apples to apples, we would add at least that hopefully. It really comes down to opportunities.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

The assets that we're putting in our development pipeline are in really strong markets. We're seeing really attractive yields. We just was able to put two buildings in our development pipeline in Concord, North Carolina. Those sites fit the market well. In total, it's call it $55,000,000 So we're really happy with the development pipeline right now and we'll add to it for sure if the right opportunities come around.

Analyst

Great. Thank you.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Thank you.

Operator

Our next question comes from Brendan Lynch with Barclays. Please proceed with your question.

Brendan Lynch
Brendan Lynch
Director at Barclays Capital

Great. Thanks for taking my question. Maybe you could put your 70% the 70% of renewals that you've addressed already into historical contexts. And is it normal to have that level completed at this point in the year? And are you reaching out to clients earlier than in the past?

Brendan Lynch
Brendan Lynch
Director at Barclays Capital

Are they coming to you earlier? Any color around that would be helpful.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Yes, the 70% that we've done to date for 2025 is consistent with last year and really consistent with the past few years. So, we're always in front of our tenants. I don't think there is a strategic push to change whether we are going to trying to renew tenants early or not. It's a back and forth conversation. So we've similar pace to last year and the last few years.

Brendan Lynch
Brendan Lynch
Director at Barclays Capital

Great. And maybe just a follow-up there. At what point do you turn your attention to 2026?

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

We've leased 8% of 2026 already. So we're always looking to make the best transactions and decisions for the company. And part of that is tenants may come to us with their 2026 lease expirations and say, hey, I want to renew early. And if the economics work and we like the transaction, then we'll execute on it. So we're about 8% of our way through our 2026 at this point.

Brendan Lynch
Brendan Lynch
Director at Barclays Capital

Great. Thank you for the color.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Thank you.

Operator

There are no further questions at this time. I would now like to turn the floor back over to Bill Kerkirfer.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Thank you. And I just want to thank everybody for participating in the call today and certainly want to thank the analysts for their questions and look forward to seeing everyone at the upcoming conferences. Thank you.

Operator

This concludes today's teleconference. You may disconnect your lines at this time.

Executives
    • Steve Xiarhos
      Steve Xiarhos
      Vice President - Capital Markets & Investor Relations
    • William Crooker
      William Crooker
      CEO, President & Director
    • Matts Pinard
      Matts Pinard
      CFO
    • Michael Chase
      Michael Chase
      Executive VP & Chief Investment Officer
Analysts
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STAG Industrial Q4 2024
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