Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Core FFO per share increased by 7.3% compared to last year, indicating strong financial performance.
- Cash available for distribution rose by 8.9%, with $29.5 million retained for investment opportunities and debt repayment.
- Successful acquisition of a 700,000 square foot Class A warehouse at favorable cap rates, enhancing asset portfolio.
- Commenced 29 leases totaling 4.3 million square feet, achieving high leasing spreads of 30.5% cash and 43.6% straight-line.
- Maintained a low leverage with net debt to annualized run rate adjusted EBITDA at 4.9x, demonstrating financial stability.
Negative Points
- Pockets of softness in certain markets due to increased supply, impacting market occupancy and leasing decisions.
- Interest rate volatility has reemerged, potentially pressuring the transaction market and affecting stability.
- Credit loss of 9 basis points in the first quarter, although in line with guidance, remains a point of caution.
- Some big box markets are experiencing slower leasing due to oversupply, requiring careful management and strategy adjustments.
- Decision-making timelines for tenants have lengthened, particularly as decisions shift to corporate levels, potentially delaying lease executions.
Q & A Highlights
Q: Bill, can you discuss any surprises in individual markets or trends that might indicate things are trending better than expected?
A: William R. Crooker - CEO, President & Director, STAG Industrial, Inc.: There have been no surprises to the upside or downside this year. The company's performance is steady and aligns with initial guidance. We are beginning to see some big box supply getting leased, which is a positive sign for the overall economy and industrial market.
Q: Can you elaborate on the rent spread perspective and the spreads on new leases commenced this quarter?
A: William R. Crooker - CEO, President & Director, STAG Industrial, Inc.: The new leasing activity was light as expected, with 5 leases for 700,000 square feet signed. The guidance for leasing spreads for new and renewal leases remains consistent, expected to be in the high 20s. The incremental leasing from the last update included several fixed rate renewal options, which were anticipated and factored into our leasing spread guidance.
Q: With the recent volatility in the macro environment, how sustainable is the pickup in the investment pipeline?
A: William R. Crooker - CEO, President & Director, STAG Industrial, Inc.: The pipeline increased due to activity in Q1. However, with the recent spike in interest rates, it's uncertain how this will affect the pipeline moving forward. We remain nimble and have adjusted our underwriting thresholds to reflect the increased cost of capital.
Q: Are you observing any retrading activity in the private transaction market due to higher rates?
A: William R. Crooker - CEO, President & Director, STAG Industrial, Inc.: It's still early to determine the impact of the recent rate spike on retrading activity. Some buyers might absorb the increase if they are keen on the transactions, while others might seek to retrade prices.
Q: Could you discuss the acquisition strategy regarding larger-sized boxes noted in recent transactions?
A: William R. Crooker - CEO, President & Director, STAG Industrial, Inc.: Our strategy focuses on the best risk-adjusted returns, which sometimes involves larger buildings in markets we are familiar with. The recent acquisitions were skewed by one large transaction, but generally, we consider a variety of factors to ensure strong long-term portfolio fit.
Q: How are you managing the slower decision-making process among tenants, and what might shift this back to real estate managers?
A: William R. Crooker - CEO, President & Director, STAG Industrial, Inc.: The shift in decision-making to corporate levels continues, and it's taking longer for tenants to make leasing decisions. A decrease in supply or lower interest rates might prompt quicker decisions or shift decision-making back to local teams.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
