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STAG Industrial Inc. Seeks to Keep Cashing In on Real Estate

By Dan Caplinger – Oct 29, 2014 at 11:45AM

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The real estate investment trust recently raised its dividend, and hopes that good times in the industry continue.

North Carolina warehouse/distribution center. Source: STAG Industrial.

One of the first things that beginning investors discover is that there's more than one way to profit from investments. That's especially true in the real-estate market, where countless niches exist in which smart investors can make money. STAG Industrial (STAG 0.75%) has been a shining example of that fact -- the share price of the real estate investment trust has soared during the past several years, even as it pays a lucrative dividend yield to its investors, as well. With STAG set to report third-quarter results Thursday afternoon, shareholders want to know whether the REIT can sustain its growth trajectory, and keep rewarding them for their patience.

STAG Industrial owns and manages a portfolio of more than 200 industrial buildings in 34 states across the nation. One of the things that sets STAG apart from peers like Prologis (PLD 0.25%) is that it seeks out properties that it can lease to a single large tenant -- reflecting its long name as Single Tenant Acquisition Group -- and it focuses on secondary markets in which it perceives mispricing in the market. This has left it out of the limelight that those focusing in hot primary real-estate markets enjoy; but it has also given STAG a better chance to boost its profits in less competitive areas. Let's take an early look at what's been happening with STAG Industrial during the past quarter, and what we're likely to see in its report.

Stats on STAG Industrial

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$42.13 million

Change From Year-Ago Revenue


Earnings Beats in Past Four Quarters


Source: Yahoo! Finance.

Will STAG keep climbing higher?
Investors have been fairly optimistic about STAG Industrial's prospects, as they've kept bidding shares higher in recent months to get closer to the all-time highs it set earlier this year. After plunging during September, STAG bounced back this month, and regained all its lost ground.

Minnesota warehouse and distribution complex. Source: STAG Industrial.

STAG has already given investors one picture of how the third quarter went, having released its acquisition and leasing activity report back at the beginning of October. During the quarter, STAG made 18 acquisitions totaling 3.5 million square feet, spending almost $174 million for the properties. The biggest buys were in El Paso and in the Harrisburg area in Pennsylvania, accounting for more than $100 million of STAG's overall activity. In September alone, the company made 14 building acquisitions, and the $150 million it spent was the most STAG had ever spent in a single month.

STAG's leasing activity during the third quarter fell back from previous quarters, though, with about 629,000 square feet representing just about half what STAG saw in the first and second quarters. Yet, the retention rate of 98.5% was extremely high, and occupancy rates stayed strong at 94.8%, even as overall square footage climbed.

STAG hopes that its overall results will continue some of the positive trends from its second-quarter results. Last quarter, core funds from operations jumped 27%, to $20.3 million. Even with a higher share count, the per-share figure of $0.36 was 9% higher than in the year-ago quarter. Thanks to its solid results, STAG raised its monthly dividend by 5%, giving the company a 5.5% dividend yield.

Wisconsin distribution/warehouse center. Source: STAG Industrial.

One thing investors need to keep an eye on is how STAG finances its expansion. Two weeks ago, STAG did a secondary offering of common stock, issuing 5.5 million shares at $21.20 per share, to raise about $117 million less expenses from the offering. Unfortunately for investors, the offering came at a weak point for STAG's share price, and it's important for current shareholders to acknowledge the possibility of further dilution down the road as STAG needs more capital.

In the STAG Industrial earnings report, the REIT needs to show that it continues to follow its long-term growth strategy of making smart acquisitions while taking advantage of current low interest rates. Investors need to be careful about the impact that a rise in rates could have on valuations; but if STAG can keep producing the results it's given shareholders during its initial few years, then most of its shareholders should be happy to keep reeling in lucrative dividends and watching share prices climb.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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