Steady growth is the goal of many businesses, and STAG Industrial (NYSE: STAG) has done a good job of finding a business model that gives it the ability to pursue growth opportunities as they arise. The industrial real estate investment trust has been able both to pay lucrative dividends to investors and find acquisitions that keep its fundamentals moving higher.
Coming into Tuesday's first-quarter financial report, STAG investors expected that the REIT would continue executing on its long-term strategy and bolster its top-line results accordingly. What STAG reported was consistent with that expectation, and the REIT sees things remaining strong in the future. Let's look more closely at STAG Industrial, with an eye toward deciding whether it can keep up its positive momentum in the future.
STAG makes hay while the sun shines
STAG Industrial's first-quarter results continued a string of solid quarterly performances. Total revenue was up 14% to $69.5 million, roughly matching what most investors were expecting from the REIT. Generally accepted accounting principles (GAAP) net income was negative, but core funds from operations jumped by more than a quarter to $35.1 million. That worked out to core FFO per share of $0.41, and that was $0.02 per share higher than STAG produced in the year-ago quarter.
Taking a closer look at STAG's numbers, the REIT's pace of acquisitions didn't show many signs of slowing up. The company acquired 11 buildings during the quarter, spending almost $100 million to get properties with an aggregate of 2.3 million square feet. Those properties produced an impressive 100% occupancy rate upon acquisition, and they were scattered across the country, with acquisitions ranging from Jacksonville and the New York metropolitan area to the Midwest and Reno. STAG also closed on three more acquisitions during April, and it has identified 174 buildings in its pipeline with square footage exceeding 39 million and with potential purchase prices of about $2.12 billion. STAG sold one building during the first quarter, getting $4.1 million in proceeds.
From a leasing perspective, STAG enjoyed solid success. The REIT executed 18 leases covering 3.6 million square feet, with renewals outnumbering new leases by a roughly three-to-one margin in terms of square footage. STAG's retention rates left something to be desired this quarter, with only 51% of its expiring-lease square footage being retained. Nevertheless, occupancy rates were strong at 95.8%.
Can STAG keep climbing?
CEO Ben Butcher was succinct in his remarks. "The company built upon the achievements of 2016 with an impressive first quarter of 2017," Butcher said, and he believes that "STAG continues to benefit from the persisting opportunity to execute on its proven investment thesis."
As we've seen before, STAG's lifeblood is making sure that it gets enough capital to keep growing. With financial markets having been so healthy, that hasn't been a big problem for STAG. The REIT raised $68.5 million from sales of equity during the quarter, and after quarter-end in April, further offerings raised gross proceeds of another $135 million. That should give STAG enough liquidity to carry out its ongoing purchase efforts. Moreover, new investors are still getting a good deal, as the roughly $24 to $25 per share that recent offerings have fetched is still below the current stock price above $26.
STAG also increased its dividend. Starting in July, the company will pay out $0.1175 per share in dividends on a monthly basis. The increase is less than 1%, but it nevertheless marks an ongoing commitment to growing dividends.
STAG investors seemed satisfied with the report, and the stock had only a minimal move upward in after-hours trading following the announcement. If STAG can keep taking advantage of opportunities in the real estate markets on which it focuses its attention, then the same growth that shareholders have seen in the past has the potential to continue indefinitely.