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Where Will STAG Industrial Be in 3 Years?

Oct 23, 2020 by Matthew DiLallo
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STAG Industrial (NYSE: STAG) has expanded rapidly since its IPO in 2011. The industrial real estate investment trust (REIT) has grown its portfolio from 93 properties with 14.2 million square feet to 457 properties with 91.8 million square feet.

That expansion will likely continue over the next three years, given the massive U.S. industrial real estate market. Here's a look at what seems to be ahead for this industrial REIT.

Where STAG Industrial is today

STAG Industrial currently owns 376 warehouse facilities, 70 light manufacturing properties, eight flex/office locations, and three other buildings. That diversity across the industrial sector sets it apart from its peers as it's the only pure-play industrial REIT active across the entire industrial real estate market. Meanwhile, its competitors focus on the fast-growing logistics sector or some other industrial subgroup, like cold storage, flex/office, or cannabis-related industrial properties.

The REIT emphasizes diversification beyond property type, as its largest market contributes less than 9% of its ABR, while its top tenant is less than 3%. Further, its portfolio spans 60 markets and more than 45 industries.

Where STAG Industrial seems headed

STAG Industrial plans to continue growing that diversified portfolio over the next few years. The company is targeting $800 billion to $1 billion of industrial real estate acquisitions per year. That's an increase from its average of $675 million over the last five years, thanks in part to its increased scale and improving balance sheet. The company has lots of near-term visibility thanks to its sizable acquisition pipeline, as it's currently reviewing deals for 122 buildings worth $2 billion.

The company should have no shortage of acquisition opportunities beyond that pipeline, given its diversified approach, which it sees as a competitive advantage over its industrial rivals. That's because it has a larger opportunity set due to the industrial real estate market's overall size. STAG and others believe it's worth more than $1 trillion, with the company currently controlling only about 0.5% of this market. Further, its opportunity set spans more than 60 top U.S. markets, a much broader geographic reach than many of its peers, some of which only focus on specific cities or markets.

STAG's primary focus will be on buying industrial real estate leased under long-term contracts to credit-worthy tenants across a variety of industries. However, it will also pursue select value-add opportunities, such as purchasing vacant buildings or those with short-terms remaining if it can create additional value through redevelopment projects that secure higher lease rates with new tenants. Further, the company will also buy properties that come with vacant land to develop new buildings on the site that it can lease to additional tenants. Meanwhile, the company also plans to sell between $100 million to $200 million of properties each year to help fund acquisitions and value-add investments so it can maintain a strong balance sheet.

These investments should enable the industrial REIT to deliver strong FFO growth over the next few years. That should allow it to continue the trend since its IPO of increasing its monthly dividend at least once a year.

Expect an even more diversified industrial REIT in three years

STAG Industrial believes its diversification strategy will pay the biggest dividends for investors. Because of that, the company's main focus over the next three years will be continuing to buy properties across the entire U.S. industrial sector, expanding its geographic and industry reach. That should enable the REIT to steadily increase its dividend, which is the key to producing attractive total returns.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Stag Industrial. The Motley Fool has a disclosure policy.