STAG Industrial, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Leasing Market: Market rent growth for the portfolio stands at 3.2% through September 30, on track for full-year growth of ~4%. Leasing market is active with tenants committing to space, having leased 38% of 2025 expected square feet with 24.1% cash leasing spreads.
• Bankruptcy Event: American Tire Distributors voluntarily filed for Chapter 11 bankruptcy, operating in 7 of STAG's facilities (841,000 sq ft, 1% of annualized base rent, ~$6.1M). Leases are current with zero missed rental payments.
• Acquisitions: Acquisition volume in Q3 totaled $130M, with post-quarter end acquisitions of $67M. Acquired a 5-property portfolio in Boston, MA with strong submarket location and leased to 5 tenants.
• Development: Robust development activity with over 2.1M sq ft in progress, including a 5-acre land site in Boston and a joint venture in Reno, NV.
• Financial Updates: Core FFO per share at $0.60, same-store cash NOI up YTD, and guidance updated for acquisition volume, G&A, and core FFO.

Segment Performance

• Leasing: Leased 38% of the square feet expected to lease in 2025, achieving cash leasing spreads of 24.1%. As of now, 99.5% of 2024 leasing (approximately 13.2 million square feet) has been accomplished at cash leasing spreads of 28.5%. Excluding outliers, cash leasing spreads for 2024 would be 22.5%. Same-store cash NOI grew 4.4% in Q3 and 6.1% YTD.
• Acquisition: Third quarter acquisition volume totaled $130 million, consisting of six buildings with cash and straight line cap rates of 6.7% and 7.2% respectively. Acquired a five-property portfolio in Boston, MA for $78.1 million with a cash cap rate of 6.9%. Post-quarter end, acquired two buildings for $66.6 million at a 6.3% cash cap rate.
• Development: As of September 30, over 2.1 million square feet of development activity across nine buildings. Closed a 5-acre land site for a 76,000 sq ft building (Q3 2025 delivery) and a first single asset joint venture in Reno, NV (284,000 sq ft, Q4 2025 delivery).
• Financials: Core FFO per share was $0.60 for Q3, an increase of 1.7% Y/Y. Raised same-store cash NOI guidance to a range of 5.25% to 5.5% for the year. Increased acquisition volume guidance to $500M to $700M. Decreased G&A guidance to $49M to $50M. Core FFO guidance revised to $2.38 to $2.40 per share.

Guidance

• Raised same-store cash NOI guidance to a range of 5.25% to 5.5% for the year, a 12.5 basis point increase at the midpoint.
• Increased acquisition volume guidance to $500M to $700M.
• Decreased G&A guidance to $49M to $50M.
• Revised core FFO guidance to $2.38 to $2.40 per share.

Risks

• Bankruptcy Impact: Monitoring American Tire Distributors bankruptcy, but leases are current with no immediate financial impact.
• Market Uncertainty: Forward-looking statements subject to risks, actual results may differ from forward-looking statements. Interest rate fluctuations affecting acquisition and development.
• Occupancy Loss: Assumes 25 basis points of average occupancy loss for the year.

Question and Answer

• **Q: Commentary on acquisition market opening up.

A: Pent-up seller demand, stabilized rates reducing bid-ask spread, confident in opportunities with pipeline over $4B.**

• **Q: Competitive advantage.

A: Combination of cost of capital, reputation, surety of close.**

• **Q: Exeter transaction impact.

A: Positive view on portfolio valuation, but specific details not discussed.**

• **Q: 2025 leasing spread.

A: Indicative of current trends, range to be provided in February.**

• **Q: Bad debt watch list.

A: ~$1.4M credit loss (23bps), focused on highly levered low-margin businesses.**

• **Q: Development and Greenville/Spartanburg.

A: Greenville/Spartanburg assets expected to lease in Q3 2025, market has demand drivers but supply absorption taking time.**

• **Q: Same-store occupancy loss.

A: Assumes 25bps average occupancy loss for the year.**

• **Q: Property sale themes and markets.

A: CBRE Tier 1 focus, non-core assets in non-Tier 1 markets may be disposed.**

• **Q: Land prices and development.

A: Land prices flat, focused on permitted sites for development.**

• **Q: Development pipeline limit and capitalization.

A: ~5% of enterprise value in development, capitalization policy allows 12 months for interest.**

• **Q: Retention rate drop.

A: One outlier lease not retained but backfilled with zero downtime, adjusted retention ~73%.**

• **Q: American Tire bull/bear case.

A: Leases close to market, monitoring, no material public comments on options.**

• **Q: Acquisition pipeline characteristics.

A: CBRE Tier 1 markets, building fits submarket, wide range of opportunities.**

• **Q: El Paso and border markets.

A: El Paso performing well, other strong markets include Midwest, Tampa, Nashville; some weakness in Philly, Southern Jersey.**

• **Q: American Tire security deposit.

A: No material security deposit, tenants current on rent.**

• **Q: Election impact.

A: Tenants delaying decisions in leasing market, no impact on acquisition market.**