Q4 2024 STAG Industrial Inc Earnings Call
Speaker Change: Greetings and welcome to the SPAG Industrial Inc. 4th Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host...
Speaker Change: Steve Xiarhos, Vice President, Investor Relations. Thank you, sir. You may begin. Thank you. Welcome to Stagg Industrials conference call covering the fourth quarter 2024 results.
Speaker Change: In addition to the press release distributed yesterday, we have posted an unaudited quarterly supplemental information package on the company's website at www.stagindustrial.com under the investor relations section.
Speaker Change: On today's call, the company's prepared remarks and answers to your questions will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.
Speaker Change: Forward-looking statements address matters that are subject to risks and uncertainties and may cause actual results to differ from those discussed today.
Speaker Change: Examples of forward-looking statements include forecasts of core FFO, same-star NOI, GNA, acquisition and disposition volumes, retention rates, and other guidance, leasing prospects, rent collections, industry and economic trends, and other matters.
Speaker Change: We encourage all listeners to review the more detailed discussion related to these forward-looking statements contained in the company's filings with the SEC and the definitions and reconciliations of non-GAAP measures contained in the supplemental information package available on the company's website.
Speaker Change: As a reminder, forward-looking statements represent management's estimates as of today. SAC Industrial assumes no obligation to update any forward-looking statements.
Speaker Change: On today's call, you'll hear from Bill Crooker, our Chief Executive Officer, and Matts Pinard, our Chief Financial Officer. Also here with us today is Mike Chase, our Chief Investment Officer, and Steve Kimball, EVP of Real Estate Operations, who are available to answer questions specific to their areas of focus. I'll now turn the call over to Bill.
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Speaker Change: Thank you, Steve. Good morning, everybody. Welcome to the fourth quarter earnings call for Stagg Industrial.
Speaker Change: We are pleased to have you join us and look forward to discussing the fourth quarter and full year 2024 results. We will also provide our initial 2025 guidance.
Speaker Change: 2034 ended with an improved industrial supply backdrop and another solid quarter of operating results produced by our team.
Speaker Change: Supply pipeline continues to contract with deliveries down over 30% and this is expected to continue in 2025.
Speaker Change: In aggregate, 2024 national industrial leasing demand was muted compared to recent years. However, much of the weakness was specific to certain markets.
Speaker Change: Many of the markets we operate in remain healthy from both a supply and demand standpoint. We are seeing an increase in tenant demand since the election spanning a broad array of industries.
Speaker Change: Most active tenant industries have been commercial services, building products, and air, freight, and logistics.
Speaker Change: In 2024, within our portfolio, we witnessed the strongest market rent growth in our non-coastal and manufacturing markets.
Air-shoring and on-shoring projects continue to progress.
Speaker Change: This, along with pent-up demand from delayed decision-making by tenants, should result in growing warehouse demand.
Speaker Change: Leasing activity has reaccelerated with tenants committing to space to serve their warehousing needs. This is demonstrated in the leasing progress we have achieved to date in our 2025 business plan.
Speaker Change: I'm happy to report that we have already leased 70% of our operating portfolio square feet. We currently expect to lease in 2025, achieving cash leasing spreads of 23.8%.
Speaker Change: This level of leasing is on a similar place to last year and consistent over the last few years.
Speaker Change: With an update to last quarter, American Tire Distributors is still working through the bankruptcy process. As of today, all leases are current with zero missed rental payments.
Speaker Change: AT&T credit exposure is reflected in our initial 2025 guidance provided in yesterday's earnings release including same-story NOI and core for flow per share for the year
Speaker Change: Moving to acquisitions, volume for the fourth quarter totaled $294 million. This consisted of 15 buildings with cash and straight line cap rates of 6.2% and 6.9% respectively.
Speaker Change: In December, we closed on a portfolio of five single-tenant buildings totaling 726,000 square feet and three different submarkets of Chicago.
Speaker Change: Acquire the portfolio for $73 million at a cash cap rate of 6.5%.
Speaker Change: The portfolio was 100% occupied with a weighted average lease term of 7.1 years and rents 12% below market.
Speaker Change: This transaction offered an attractive combination of current income and long-term NOI growth.
Speaker Change: Subsequent to Quarter End, we acquired one building for $16.6 million at a 6.4% cash cap rate.
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Speaker Change: The recent volatility with interest rates caused an initial slowdown in the transaction market to start the year. We anticipate the acquisition market will gain momentum as we move through the year.
Speaker Change: In terms of dispositions this quarter, we sold two buildings for aggregate proceeds of $29 million. One of those buildings was a non-core asset. The other building was in Pleasant Prairie, Wisconsin, resulting in proceeds of $26 million, supporting a cash cap rate of 5.7%.
Speaker Change: In January, the company sold one building in Nashua, New Hampshire for growth proceeds of $67 million, representing a cash-cap rate of 4.9%.
Speaker Change: On the development front, as of 1231, we have approximately 2.5 million square feet of activity across 11 buildings in the U.S. I'd like to highlight two events in the development portfolio.
Speaker Change: First, on the leasing front, roughly 50% of the 2.5 million square feet is under construction and 16% is pre-leased.
Speaker Change: The remaining 50% has been delivered and is currently 43% leased. This includes a full building lease set to commence May 1st, 2025 for our 474,000 square foot cross-stock building in Greer, South Carolina.
Speaker Change: The existing customer expanded their footprint with STAG and will use this space for the production and distribution of consumer products.
Speaker Change: Second, in December, TAG entered a 90-10 joint venture development partnership to construct approximately 400,000 square feet across two railroad buildings in the Charlotte market.
Speaker Change: The project is in the Concord Submarket northeast of the city.
Speaker Change: It has a project cost of approximately $56 million and an expected stabilized yield of 7%.
Speaker Change: The site has secured favorable zoning with position as well and is high barrier to entry market.
Speaker Change: With that, I will turn it over to Matts who will cover our remaining results and guidance for 2025.
Matts Pinard: Thank you, Bill. And good morning, everyone. 4 FFO per share was 61 cents for the quarter and $2.40 for the year.
Matts Pinard: representing an increase of 4.8% as compared to 2023. Cash available for distribution totaled $370 million in 2024. This past year we retained approximately $95 million of free cash flow after dividends paid.
Matts Pinard: Net debt to annualized run rate adjusted EBITDA was 5.2 times year-end with liquidity of $623 million.
Matts Pinard: During the quarter, we commence 22 leases totaling 2.4 million square feet, which generate cash and straight-line leasing spreads of 19.4% and 34.9% respectively.
Matts Pinard: For the year, we achieved cash and straight-line leasing spreads of 28.3% and 41.8% respectively. Same-story cash NOI grew 4.4% for the quarter, and we achieved record same-story cash NOI growth of 5.8% for the year.
Matts Pinard: Retention was 76.9% for the quarter and 76.6% for the year. As mentioned by Bill, we have accomplished 70% of the operating portfolio's square feet we currently expect to lease in 2025, achieving 23.8% cash leasing spread, demonstrating the strength of our portfolio.
Matts Pinard: Moving to capital market activity, we repaid the $50 million private placement no-day which matured on October 1st. All forward equity proceeds have been settled and we do not have any forward equity contracts outstanding. There are minimal debt maturities in 2025.
Matts Pinard: We are pleased to provide guidance, which can be found on page 20 of our supplemental package, which is available in the Investor Relations section of our website.
Matts Pinard: Same-score cash NOI growth is expected to range between three and a half to four percent. Components of our same-score cash NOI guidance include the following.
Retention to range from 70 to 75 percent.
Matts Pinard: Cash leasing spreads are projected to be approximately 25% on 14 million square feet of budgeted new and renewal leasing for the year. We expect same-tour occupancy to decrease 100 basis points during the year.
Matts Pinard: Given the volatile capital market environment, acquisition volume guidance ranges from $350 to $650 million with a cash capitalization rate between 6.25% and 6.75%. Acquisition timing will be more heavily weighted to the back end of this year.
This position bonding guidance ranges from $100 to $200 million.
Matts Pinard: G&A is expected to be between $52 and $54 million. Incorporating these components, we're initiating a core FTO per share range of $2.46 to $2.50 per share. I will now turn it back over to Bill.
Bill Crooker: Thank you, Matts, and thank you to our team for the 2024 achievements. I'm really proud of all we've accomplished over the course of the year and look forward to a strong 2025. We'll now turn it back to the operator for questions.
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Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue.
Speaker Change: We ask that analysts limit themselves to one question. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.
Speaker Change: Our first question comes from Craig Mauman with Citi. Please proceed with your question.
Speaker Change: Hey, good morning, guys. Maybe one question in two parts. On leasing and spreads here, you know, you guys
Speaker Change: had a good year overall in 24 on the spread side, but fourth quarter was a little bit lighter at 19% and you're expected to re-accelerate to 24% on the 70% you did. So far, is that 24% a good kind of...
Speaker Change: to think about the full year to be, and then just separately, the 14 million square feet of plan for 25, if you kind of look.
Speaker Change: last quarter, as you're closer to 15 million square feet, is what's going on with the volatility or how should we think about that in terms of the overall plan of gross leasing?
Yeah, hey Craig.
Craig Mauman: Very interesting way you phrased the question to get a couple questions into one, but I appreciate it.
Craig Mauman: The leasing spreads for Q4 were a little lower. That was related to some fixed-rate renewal options in Q4. That was factored into our original guidance. If you exclude those, our leasing spreads in Q4 would have been 34%.
Craig Mauman: We're approximately 24% today for about 70% of the leasing we expect to do So I think leasing spreads for 25 will be in around 25, you know, 24-25 percent
Craig Mauman: So we get a pretty good chunk of that done already.
Craig Mauman: And then with respect to, you know, prior views on leasing activity versus current views on leasing activities, a couple things happened there. One, we sold the building in Nashua, New Hampshire in Q1, that was a building that
Craig Mauman: We were repositioning in Q4 and we were planning on leasing it. Ultimately, we decided to sell it just due to the economics. Very interesting transaction there. That was a drop in leasing activity that we were prior.
Craig Mauman: previously expected to lease in 24 but now we've sold the building and there was also another like non-renewal that we expected to renew on the back half of next year that they didn't reduce and now we're planning to lease back half of 25 now we're planning to lease in 26.
and Matt Crocker. Thank you. Thank you.
Speaker Change: Our next question comes from Nick Hillman with Baird. Please proceed with your question.
Nick Hillman: Hey, good morning guys. Wanted to touch a little bit on the development and more specifically on kind of the yields you're seeing within that portfolio. The Tampa construction just finished up and was moved into the completed but not in service and we noticed kind of the yield still stayed at five and a half percent. Is there anything in that, and I know originally you guys are saying mid-six is on that, we thought the composition would be drift a little higher. Is there anything in there that's...
Speaker Change: Causing that, did you have to change any underwriting for any of those specific assets?
Nick Hillman: And also, just a little commentary on the activity you're seeing in Spartanburg, obviously it's on the lease, but it's on the other properties.
Nick Hillman: Yeah Nick, I'm not sure where the mid fives were for the Tampa, but we're still expecting mid sixes for
Nick Hillman: We're, as I previously said, expecting the under 12 month downtime. So, you know, end of end of 25 for leasing
Speaker Change: There was some leasing getting done there that has created more of a sense of urgency amongst tenants in that market. We were able to strike a lease.
at our Crossock facility, 474,000.
Speaker Change: a little bit ahead of the revised timing last quarter. I think I mentioned we're expecting this to be middle, call it end of Q2. That lease is expected to start May 1st, so we're really happy with that outcome. We're seeing a lot of tours.
Speaker Change: On the rear load building there, the 240,000 square foot facility, and then on the other building, the casual drive facility, we have part of that building leased right now. We're getting some really good inquiries on the remaining pieces, the remaining two suites of that building.
Speaker Change: That's helpful. Maybe just a point of clarification. I was talking about like the mid fives was for the Spartanburg, but I assumed with moving the Tampa into the portfolio that that yield would drift higher. Did you adjust any yields for the Spartanburg assets?
Speaker Change: Yeah, so the one we leased was approximately 5%. That was part of the change.
Okay, thank you. Yep.
Speaker Change: Our next question comes from Jason Belcher with Wells Fargo. Please proceed with your question.
Thank you.
Jason Belcher: Good morning. I'm just wondering if you could touch on the topic of tariffs a little bit, maybe share anything you're hearing from your tenants on that front as well as any trends you might be seeing across your tenants or tenant industries in your portfolio that you might attribute to tariff concerns.
Jason Belcher: And then, you know, if you can just kind of comment generally on how you're thinking about tariffs and potential impact. Is it something you think could, you know, hit in the next 6 to 12 months in terms of what you see in results, or you think it's further out than that?
Jason Belcher: Yeah, it's a good question. I think there's just a lot of uncertainty with respect to the tariffs.
Jason Belcher: Some have been announced, some have been delayed, expecting some more to be announced today or soon. And so the question is, what products are getting impacted and when?
Jason Belcher: And I don't think our tenants really know. I mean, the feedback that we've been hearing from tenants is it's a little too early to tell. Certainly seeing this really was a trend last year, tenants storing more finished goods in the facilities ahead of tariffs.
on-shoring, dialogue, near-shoring, dialogue.
Jason Belcher: increasing but those decisions take a little bit of time and so the question is if they if tenants are thinking if these tariffs are going to be in place for the long term that I think it will spur more onshoring and depending on what happens with
Jason Belcher: Your neighbors may be some additional nearshoring. I just think right now it's a little too early to tell and from our tenants It's just a lot of uncertainty
Thank you. Thank you.
Speaker Change: Our next question comes from Vince Tivani with Green Street. Please proceed with your question.
Vince Tivani: Hi, good morning. Can you discuss recent trends in the private transaction market? And specifically, I mean, have you seen any slowdown in transaction activity or a notable change in pricing, you know, since the 10-year has climbed pretty significantly from the trough in September last year?
Speaker Change: I mean there's been some interesting trends in the private market there was some portfolios that got executed last year there was some you know some big appetites for some of the
Speaker Change: larger private equity shops. The largest private equity shops are actually selling more, which I think you know who I'm referencing, but right now
Speaker Change: There's a little bit of probably a pause in the private market. We are seeing and hearing of some portfolios coming out that may trade and those may trade at
Speaker Change: is a little bit tighter yields because they're shorter lease terms that they can get higher yields in the next three years but Mike I don't know if there's anything else you want to touch on there.
Yeah, no, Bill, I think you hit on that.
Speaker Change: The year-end was a little bit slower. It was a fast year-end for closing deals, but it was a slower year-end for deals coming out to market. That trickled into January, but we've seen a little bit of an uptick in February, and we expect that to accelerate throughout the rest of the year.
Great, thank you.
Thanks.
Speaker Change: Our next question comes from Steve Sacklaw with Evercore ISI. Please proceed with your question.
Speaker Change: seem to noticeably pick up once the election was over. And so, just taking your comments about terrorists and the uncertainty into account, just, like, what have you seen on the actual, just...
Speaker Change: kind of pace of leasing activity towards your pipeline and is there a big difference in that pickup between kind of the existing portfolio and maybe the development pipeline? Thanks.
Thank you.
Speaker Change: Thanks Steve. We've seen a pretty material uptick in TORs, calls, inquiries to start this year. We're seeing it it's really broad based across our markets.
Speaker Change: We're seeing it a lot in Greenville, Spartanburg, Milwaukee, Chicago, the Sunbelt, certainly the Nashville market.
The new builds are getting a lot of looks.
Speaker Change: I think there's a lot of commentary in the market that there's a flight to quality.
Thank you. Bye-bye.
Speaker Change: We're seeing a lot of demand in our existing buildings as well. It takes a little bit of time for those tours, inquiries, calls to convert to trading papers and signing leases.
Speaker Change: But the activity has increased and probably at a level we haven't seen in 12 months or so. So we're really, really happy with the activity we're seeing.
Great, thank you.
Thank you.
Thank you.
Speaker Change: Thank you. Can you tie in the 100 basis points you lost you expect this year?
Speaker Change: with the 9.7 million square feet that you've addressed for 25 and also the 6.9 million square feet that that is expiring. I'm just Doesn't seem like it's apples to apples to me. So I just wanted to clarify
Speaker Change: I don't know if I can connect all those dots, but we certainly.
Speaker Change: We can drill down more detailed maybe after the call, John, but I mean, what we're seeing here is...
what are expected leasing for 2025?
is around 14 million-ish square feet.
We've done 70% of our leasing in our operating portfolio.
Speaker Change: And then there's about 2 million square feet we expect to lease outside of the operating portfolio, which is a higher number than we've had in the past. But I think it speaks to, you know, what we've been doing with our developments, our redevelopments, our repositioning. And so that's all.
Speaker Change: I think it's a great shift, but there's still a fair amount of wood to chop as we move through the year.
Speaker Change: I guess what's in that expected leasing number? There's 25 expirations. There's developments.
Speaker Change: There's existing vacancy, I'm just wondering what's in that bucket. Yeah, but there's also vacancy that you've got new leasing.
that
Speaker Change: is from either existing vacancy or vacancy that we think is going to not renew.
Speaker Change: earlier in the year and maybe gets leased up later. You've got renewal leasing and then you've got non-operating portfolio leasing that is that additional 2 million square feet I was referencing which includes developments and some other repositioning assets.
Okay. Got it. Thank you.
Matts Pinard: Yeah, John, this is Matts. I'll jump in here. I think one point of clarification here is when we talk about the square feet we expect to lease in 2025, that's not simply addressing expiries. To Bill's point, it includes new speculative leasing that we have in our budget as well. So I think that's going to help bridge the numbers you're looking at.
Great, thanks.
Unidentified Moderator: Our next question comes from Mike Carroll with RBC Capital Markets. Please proceed with your question.
Speaker Change: Hi, good morning. This is Dedeon for Mike. I guess just thinking about how you think about development starts for 2025. Are you planning on leasing some projects that are currently under construction before starting, breaking ground on new things? Just wanted to know your thoughts.
is running. We expect...
Speaker Change: And we hope to have some additional development starts. I mean, we just leased...
Speaker Change: our biggest building in our development pipeline at 474,000 square feet. So even if it was apples to apples, we would, you know, add at least that hopefully. It really comes down to opportunities. The assets that we're putting in our development pipeline are in really strong markets.
Speaker Change: We're seeing really attractive yields. We just was able to put two buildings.
in our development pipeline in Concord, North Carolina.
and those sites.
you know, fit the market well.
Speaker Change: In total, it's you know, call it 55 million dollars So we're really happy with the development pipeline right now and and we'll add to it for sure If the right opportunities come around
Great, thank you.
Thank you.
Unidentified Moderator: Our next question comes from Brendan Lynch with Barclays. Please proceed with your question.
Great, thanks for taking my question.
Unidentified Moderator: Maybe you could put your 70% of renewals that you've addressed already into historical context and...
Speaker Change: Is it normal to have that level completed at this point in the year? And are you reaching out to clients earlier than in the past? Are they coming to you earlier? Any color around that would be helpful.
Speaker Change: yeah the 70% that we've done to date for 2025 is is consistent with last year and really consistent with the past few years so we're always in front of our tenants
Speaker Change: I don't think there's a strategic push to change whether we're going to, you know, trying to renew tenants early or not. It's a back-and-forth conversation. So we're at a similar pace to last year and the last few years.
Speaker Change: Great. Maybe just a follow-up there. At what point do you turn your attention to 2026?
We've leased what 8% of 2026.
already, so...
Speaker Change: You know, we're always looking to make the best transactions and decisions.
Speaker Change: for the company, and part of that is tenants may come to us.
Speaker Change: with their 2026 lease expirations and say, hey, I want to renew early. And if the economics work and we like the transaction, then we'll execute on it. So we're about 8% of our way through our 2026 at this point.
Great, thank you for the call.
Thank you.
Unidentified Moderator: There are no further questions at this time. I would now like to turn the floor back over to Bill Crooker.
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Bill Crooker: Thank you and I just want to thank everybody for participating in the call today and I certainly want to thank the analysts for their questions and look forward to seeing everyone at the upcoming conferences. Thank you.
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Bill Crooker: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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